In Real Estate Money is Made When You Buy, Not When You Sell

Many a shrewd investor will tell you that their profit did not come from selling, but at the time of purchase. Why is it, in real estate, money is made when you buy, not when you sell? Selling is the profit/loss realization of what happened previously that cannot change.

If you are a past client of mine or for that matter a current  one, you have most likely heard me say “you are buying a home, not an investment.” But I have also said “life happens” and at some point, you may need to sell. At that time that home has just become an investment. Most likely the largest investment of your life. Even if you do purchase real estate as an investor the same holds true, money is made when you buy, not when you sell.

The purchase price remains static and is the baseline for any profit. So whether you offered below, at or above market value the purchase price will determine your cost basis. If the intent is to keep the home 5-10 years,  then emotion needs to be removed and bid on homes based on what you and your realtor believe is the market value. A forever home is a different story. Down that long road, a couple of thousand dollars won’t mean much. Your rear view mirror can’t see the far back.

An often neglected piece of the profit equation besides purchase price and selling price is what happened in the middle of home ownership. Specifically, modifications to make the home livable or owner discretion upgrades usually performed within six months of purchase date. These are outside of required maintenance. Buying a fixer will require expending cash to bring the property up to code and resolve any health and safety issues. Think electrical, plumbing and fixtures, roof, and maybe even mold mitigation. Changing hardscapes to satisfy owner preferences are costs that need to be part of the purchase price as well. View it the same way as buying a home under construction with you picking upgrades that add to the overall price of the home–base price plus extras equal final sales price.

To sum up, purchase price remains the same throughout your ownership. You decided that when you made that rational decision to offer x-dollars for the property regardless if driven by knowledge, emotion or greed. When you sell, the final sales price is dictated by the same criteria of a buyer, like yourself, and market forces. You cannot control what someone will offer. You had control when you were the buyer. If the seller was asking too much, you could have said no. The word “no” is the great equalizer. Like I said, “money is made when you buy, not when you sell.” Somewhere within the process please don’t forget you are buying a home, a place of memories for your family.