Numbers May Not Tell The Whole Story
By Paul Esajian on December 9, 2013
Numbers are important on every deal you look at. They can tell you the strengths and weaknesses of a property. However, they won’t tell you the whole story every time. If you are waiting for the perfect property with the best numbers, you may be waiting a long time. Numbers and data should be viewed as a guide or a starting point. While this information is important, it is not the final decision maker. At the end of the day, real estate is still a people business that relies on relationships and feelings. Pay attention to the numbers, but be aware of your instincts as well.
You can look at numbers and statistics almost any way you want. If you are a sports fan, you may like the prospects of your team playing at home. However, the quality of their opponent may have contributed to their success, more so than the location. While numbers are important, they are not always as relevant as they may seem. As an investor, the property you are looking at may have the right numbers, but something could be off. Are all of the advertised bedrooms really livable? Is your property inferior to those you are comparing it to? What is it you are missing with the property?
If you are hung up on what the numbers are telling you, conduct the appropriate research and talk to as many people as possible. Oftentimes, the neighbors on the street can give you more important information than any listing sheet. The more people you talk to and the more you educate yourself, the better position you will be to make these important decisions. This does not mean that you should ignore the raw data that is right in front of you, but you should not take it as absolute truth either.
Assuming numbers on a property will stay the same is perhaps the biggest mistake an investor can make. What happened in the past may not be a good indicator as to what will happen in the future. You may be looking at a rental property whose tenants were willing to pay over market value because they wanted to keep their kids in school and didn’t want to move. You could be basing your estimated monthly payments with current tax information, not knowing that increases are imminent. A good accountant will examine where the numbers are coming from and know which can change in a given year. If you are looking at a large property purchase, you should be doing the same.
Some numbers are based on expectations while others are based in reality. It is important to know the difference and to be able to apply the right applications in each scenario. After looking at the big picture, do not forget that buyers or renters may not be looking at the same data as you when making their decisions. They may be basing their decisions on affordability or other factors. The market will ultimately determine which numbers were right and which were deemed meaningless.
Numbers will always be important in real estate, but as important as they are, they are not the only thing that matters. Sometimes knowing the market and where it is headed is more important than looking at a spreadsheet.