Friday, August 28, 2009

While there is not much anyone can do if the price drops because of a catastrophic event, there is much we can do for normal drops in prices. You must first know what the intrinsic value of the property you are examining. The intrinsic value is the value of what the property should be worth, not what the price is. This intrinsic value is based off the earnings power of the property; it is one hundred times the monthly income. Buying below this intrinsic value is the sign of a real deal, as we buy based on value, not price. Some markets may be so inflated that there are no properties available whose prices are this low. These areas should be avoided; although one may make profits in these markets, it becomes investment largely based on opinion, not fact.

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