Dear MSM Reader,

Don’t get lured into buying property just because it’s cheap. Real value depends on a good deal more than price alone.

Know the Difference between a Low Price and a Good Value in Real Estate
By Justin Ford

Just because something is cheap doesn’t mean it’s necessarily a good value.  There is a HUGE difference between a low price and a good buy. 

Something can sell at a low price AND be a good buy.  But it can also sell at a low price AND be a terrible buy.  Similarly, something can sell at a high price and be a good buy or it can be a bad buy at a high price. 

Here’s the key distinction for VALUE….

It all depends on what you’re getting for each dollar you spend.

Let’s take stocks for a quick, simple example.  Then we’ll get back to applying this notion of value to real estate.

Crummy Little Company, Inc. (CLC) sells for $10 a share.  CLC also makes just ten cents in earnings per share.  What’s more, it’s made ten cents per share forever.  And there is no reason to believe it’s going to increase its earnings any time soon.

With Crummy Little Company, Inc., you’re paying 100 times earnings, in other words.  And the chances of those earnings growing substantially in the near future are bleak.

Big Money Company, Inc., (BMC) on the other hand, sells for $1,000 a share.  Yet it produces $100 in earnings per share and its earnings have been growing at 10% a year for many years.  What’s more, after studying the company, you have every reason to believe it will continue to grow earnings at about 10% a year for the foreseeable future.

So Big Money sells for just 10 times earnings.  And given the earnings growth rate, you could recoup your entire investment in about seven years just from the earnings… and you’d still own the stock!

So even though Big Money Company has a price 100 times greater than Crummy Little Company, you get much greater value when you invest in Big Money.

The same applies with real estate. 

A house selling for $200,000 may be a much better deal than one selling for $100,000 in the same exact neighborhood.  Why?  For a number of reasons…  

The $200,000 house may produce far greater rental income per dollar than the $100,000 house.  Or it may sell at a much better price per square foot. 

For instance, the $200,000 house may have a rental value of $2,000 a month so it’s priced at 100 times the monthly rent.  The $100,000 house, by contrast, may rent for just $700 a month so it’s priced at about 143 times the monthly rent.

At the same time, the $200,000 house may be 2,000 square feet so it’s selling at $100 a square foot.  The $100,000 house, however, might only have 800 square feet so it’s selling at $125 a square foot.

All other things being mostly equal—condition, location, zoning—the higher priced property in this case is by far the better value.

But all other things are rarely ever equal. 

They may be in different neighborhoods… in different cities… or even in different states.  So now, you have to take the next step.  Not only assess their prices relative to rents and dollars-per-square-foot.  You’ll want to assess the areas themselves.

In future letters, I’ll talk a bit about how you can assess the growth prospects of any market you’re considering investing in… be it where you live, in a neighborhood a few miles away, or in a market in another city or state.

(Don’t get stuck with a “cheap” property – learn to fully determine a property’s value before you risk your time, money and credit.  Achieve all your real estate goals and get a zero-risk, discounted offer for full Main Street Millionaire course.

Learn more about how you can earn monthly income and large cash profits in your spare time using this completely legal but often overlooked strategy.

Avoid Tax Sticker Shock

According to Justin Ford’s Mainstreet Millionaire program, a common mistake novice real estate investors make is using last year’s taxes when projecting cash flow on a potential property.  If you are looking at a property for $150,000 that you believe will appraise at $200,000, you must recalculate the taxes based on the $200,000 value.  If you don’t, but the tax assessor does, you may just say goodbye to the positive cash flow you were expecting when your tax bill arrives.