You Make Money When You Buy, A good friend of mine, who has been in the wholesale/retail industry for over 30 years told me, “You make money when you buy, not when you sell”.
At first it seemed a little backwards, but the more I got involved in this industry, the truer this statement became. You Make Money When You Buy
Ed is former holder of the Coast to Coast cannonball record and dealer in high end cars.
He made that off the cuff comment in a video about buying and selling cars and it really stuck with me.
i looked around at stuff I want sell and the houses I’ve made money on, and that idea really resonated.
It’s just a matter of where you want to put your effort. Great photos, a slick presentation get top price. But if you didn’t pay much for it in the first place, those things don’t matter so much. You Make Money When You Buy
I’m just throwing this out there for discussion, see what serious flippers think.
EDIT: my source for this quote is not relevant. Ed Bolian is not a sales guru and I know it’s not an original idea.
I should have posed this more as a question- you do make your profit when you buy, that’s reality, so how do you apply it? You Make Money When You Buy
What it Means
Get to know your market and what the market will tolerate. At Pallet Liquidation Depot, most of the sellers provide a manifest with retail or MSRP price tied to each item, so you can get an idea on the actual “value” of the total load. However, I implore you to do your homework. The pricing on the manifest may not be the same pricing in your area. For example, the MSRP for a Lawn Mower in California may be $700, whereas, the actual price in the store in North Carolina may only be $400. You Make Money When You Buy
You Make Money When You Buy This makes a HUGE difference in your profit margins and how much you are truly paying for the load. So, this load may be a dream load in California, but a nightmare in North Carolina. Sample the pricing on the manifest before buying, make sure that your margins are still intact if the pricing on the manifest is skewed due to locale. You Make Money When You Buy
How Much of the Load is Sellable?
I have been buying truckloads of merchandise since 2015, with my first experience being 53 pallets of store returns from a major home improvement retailer which included items such as hammers, tile saws, tape measures, staple guns, etc. It seemed ideal, I mean, what can go wrong with a hammer? Well, lots of things.
Keep in mind, store returns are returns for a reason. Hammers are not the same as a dress that may not fit, they get returned because of a defect, flaw, or use and abuse. Furthermore, out of 350 tape measures, 32, were sellable. Be prepared for this and understand what percentage of the load to predict as salvage. This will allow you to understand if that load is going to make you money before you buy it.
Know Where you are Going to Sell Before you Buy
You Make Money When You Buy I should have listed this tip first, as this is crucial for being successful. My good friend who taught me this business, explained to me how he had three avenues for making money: flea markets, local auction houses, and foot traffic at the store he once owned.
Those were the three avenues for making money when he was in his prime. However, in today’s world, you have a wide range of selling tools available, from Amazon to Facebook. It is imperative to know and understand the selling tools and what products work with each one. You Make Money When You Buy
My personal experience is that I avoid Amazon and eBay at all costs and sell only through local channels. I have been quite successful at this strategy; however, I know my market and I choose what products to purchase based on that knowledge.
In conclusion, I love what I do. I left corporate America and have a career that takes care of my family financially and allowed me to watch my son grow into a 5-year-old that only wants to work by his Daddy’s side. I wouldn’t trade this for anything. You Make Money When You Buy
You make money when you buy, not when you sell” means profitability is determined by the purchase price and asset quality at the time of acquisition, not by market appreciation later. Buying below market value or securing a great price ensures a built-in margin of safety, making profit inevitable if managed well. Your Investment Property Magazine +2
Key aspects of this investment philosophy include:
- Initial Valuation: Profit is locked in by purchasing assets at a discount or below market value, rather than relying on future market increases.
- Due Diligence: Buying correctly requires extensive research, such as analyzing rental rates, conducting feasibility studies, and auditing expenses.
- Value Addition: The focus is on finding undervalued assets that can be improved (e.g., renovations, better management) to increase value.
- Long-Term Strategy: By buying right, you avoid overleveraging and are less dependent on timing the market perfectly.
- Mindset: This philosophy emphasizes patience and discipline during the acquisition phase to ensure a solid, profitable foundation. You Make Money When You Buy
- Despite it being one of the most common sayings in real estate, investors still miss the significance of this first and most important step. Making your money when you buy simply means buying “right.”
- The current bull market makes us all look like geniuses, but as Warren Buffett is quoted as saying, “Only when the tide goes out do you discover who’s been swimming naked.” When the market changes, we will find out who bought wrong. Let’s examine the main principles of purchasing Class B and C multifamily apartment communities the right way. You Make Money When You Buy
- Forget The Cap Rate And Focus On Rents
- Cap rates are only important when you sell, and everyone operates their properties differently, so you shouldn’t rely on the seller’s operating expenses. Rental rates should be the most important component you look at before you buy. Do your market research, analysis and old-fashioned reconnaissance to determine your conservative and most likely rental rate projections.
Your most likely scenario should be your value-add projected rents after you update the units, add new amenities and improve the property. These rental rates should be your goal, and the investment should achieve your required internal rate of return (IRR) and cash-on-cash return (CCR).
If you have investors, always underpromise and overdeliver. Your most likely rents should be very realistic and achievable, but you should also have an aggressive model that shows the potential best-case upside if you knock your rents out of the park.
Your conservative rental rate projections should be your worst-case scenario and based on a market correction or recession. In some cases, your conservative rents will be less than what the property is achieving right now. The property should have positive cash flow even with higher-than-normal vacancy, operating expenses and a 100% reassessment of the real estate taxes.
If your analysis presents negative cash flow, then you are either paying too much, overleveraging (placing too much debt) or being too conservative and need to reconsider your conservative rents and expenses. It is your job as the real estate investor to perform a thorough feasibility review of the investment and determine if the property will cash flow.
Insulate Your Investment from Market Changes You Make Money When You Buy
If your purchase price is 50% or less of replacement cost, you should be fairly well insulated. If your competition overpays for a property or builds a new property in your market, you will always have the competitive advantage of lowering your rental rates more than they can to keep your property occupied during tough times. You Make Money When You Buy
You must always keep sufficient cash reserves. When detailing your acquisition costs, cash reserves should be included in the total cost of the investment. During a recession, cash is king. A robust amount of liquidity will help you weather any storm and provide you with the resources needed to keep your cash flow positive.
You Make Money When You Buy Budget properly for capital expenses. One of the biggest mistakes investors make when buying is underestimating capital expenses and the timeline those expenses will take place in. Do your due diligence, and get accurate bids. Always add a cushion (15% to 25%) to your capital expense budget.
Do not overleverage. What I see in the current market is mind-boggling — investors are placing debt on top of debt on top of debt. The No. 1 downfall of failed real estate investors is overleveraging. Debt is essential to achieve a substantial ROI, but getting too greedy could one day put your investment in jeopardy.
We were recently looking at a bridge loan for a 90-unit project we have under contract, and after conducting our analysis, we decided to go with traditional agency financing (10-year term, low rate, 70% to 75% loan-to-value). You Make Money When You Buy
You Make Money When You Buy . Although the ROI was greater with the bridge loan, we did not feel comfortable using bridge financing at this stage of the market cycle. A correction in the market would make you wish you had set realistic goals and placed long-term, low-interest debt on your property. Acquire properties with more equity, and keep your loan-to-value and debt-coverage ratios healthy for when the market changes.
- Do Your Due Diligence
Trust, but verify. We recently sold one of our properties to an out-of-state buyer. During their inspection period, they walked maybe three units and called it a day. We could not believe it. They were passive investors and accepted the inspection without further discussion. Luckily for them, we had nothing to hide. During our inspection periods, we walk every single unit before purchasing a property, and you should absolutely do the same. If you don’t, you may end up with unwanted surprises.
Conduct a lease audit before you buy. In my experience, when reconciling the lease agreements to the rent rolls, I have always found discrepancies. This audit allows you to go back to the seller and possibly negotiate a better deal, or it justifies your purchase price.
Always perform a thorough property inspection. It’s very simple. Spend the time and resources necessary to get as much information on the property as possible. You will have an accurate budget, negotiating leverage and peace of mind. If you buy the property, you know you bought right, and if you decide to walk away, you also know you bought right because some of the best deals are the ones you walk away from. You Make Money When You Buy
Conclusion
Buying right is being smart. Always stick to your investment criteria. Keep your ego in check, and have a confident but humble attitude. Like I mentioned earlier, in this market everyone is a genius, and it’s easy to make money in a good market. Be a real estate investor who stands the test of time, buys investments the right way and makes money whether the market is going up, down or sideways. You Make Money When You Buy