I had an interesting encounter today at the gym. A young lady was on a treadmill next to mine, who had spoken to me in the past and as such was aware of my real estate and finance background, confided to me that her entire well-being and future happiness depends on her boyfriend’s ability to sell a duplex (2-unit apartment building) that he owns. She explained to me that when this duplex sells, she expects her boyfriend to propose to her!
The young lady sounded at a loss as to why this building hasn’t sold yet, considering it is priced so “very affordably.” In fact, she told me that the duplex has been on the market for close to three years now. She went on to inform me that her boyfriend has owned the building for several years, and that in the beginning he lived in one of the units and rented out the other one. But for a while now the entire building has been sitting vacant.
At this point I couldn’t help but chime-in to ask why he, or even both of them do not live there any more. After all, it makes a lot of sense to have a tenant pay for your mortgage. Her answer put everything in perspective for me – she proceeded to tell me that the location is not so great, and that she wouldn’t really want to live or raise a family in that duplex…
Great – I thought to myself. Take something that you don’t think is good enough for you and convince someone else that it’s good enough for them – that makes a lot of sense! And since I do not possess a filter between my brain and my mouth, at least not according to my wife, what came out of my mouth was exactly this:
If you don’t want to live there, why should someone else want to?
A pair of confused eyes stared at me; she muttered -I guess you are right, and I realized that it was time to move on with the rest of my workout.
Ladies and Gentlemen,
They are not lying to you when they say Location, Location, and Location are the three preeminent factors setting value of real estate. And it does not matter much if we are talking about investment real estate or a home to move into. Whether your end user is a buyer or a renter, you cannot sell them on your product; your product has to sell them!!! They have to want to be there.
If you want to find out what hard work really is, try to rent an apartment that no one wants to live in. Income-producing real estate is about income, and as such the units must stay rented and re-rent easily when necessary. People have to want to live there if you are to be able to keep your vacancy rate down and your turnover costs to a minimum.
I’ve heard it said that there is a right price for everything. I disagree – no price is right for the wrong product. Real estate that nobody wants to live in is the wrong product! Unfortunately, I tend to think that this young lady will have to wait for that engagement ring a while longer…
© Copyright 2012 Ben Leybovich and Just Ask Ben Why. All Rights Reserved.