What is a Discounted Property?

Investor calls me today and says, “I got a great deal on a property. Bought it for a 57% discount.” I asked him what it was a discount from? He answered back, “the original mortgage balance.” Say what?

What is a real property discount exactly? The word “discount” is riddled with relative meaning. RealtyTrac and all the other housing report number crunchers love to tout macro analysis of the average property discounts. Unaware buyers jump up and down with excitement and demand to receive at the least the national average.

BUT…..stop everything.

We need to bring the discount talk into perspective. Properties will sell for what buyers are willing to pay. A property that sells below market, for a ‘discount’, is a property that is selling below the average comparable same condition sale. The farther below the current market value the steeper the discount.

It is not a discount to buy a property 57% below the original mortgage balance if the purchase price is equal to current market value.

As real estate professionals it is our job to become experts at deal analysis. Whether we are investing or assisting investors as their strategic partner, we must be able to thoroughly analyze the market and project property value at the time of possible acquisition. If you are aiming for discount deals then tracking recent sales of all types, knowing property condition and cost of repairs, and understanding potential ARV values are key.

Don’t let MLS list prices and MLS “discount” claims fool you. Do your leg-work!

To your investing success!