Do The Math On Your Real Estate Purchases

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Every good real estate investing decision I have made is based on both logic and emotion; both head and heart.  Maybe I’m particularly disciplined or have a head for numbers, but far too often I come across people (particularly “lifestyle buyers” buying real estate in an exotic country) who let their emotions run away with them.  They end up forgetting to run the numbers, ignoring the math and getting completely consumed with the idea of owning a particular property.  They become so consumed with this idea of a new lifestyle, that logic goes out of the window.

Too often this ends badly a few years down the line.  The property does not perform as they hoped and then end up disappointed with their purchase.

Granted if your looking at real estate in an emerging market such as Nicaragua, Belize or Kenya for example, it can be hard to find reliable data on which to base your investing decisions.  Unlike in the US, Canada, or other mature markets, official statistics are not collated centrally and there is often no Multiple Listing Service (see more).  It’s practically impossible to find out exactly what properties sold, for what price and for how long they were on the market before they sold.

So in order to let the numbers drive your investment strategy, you have to collect the data yourself.  Whenever I am purchasing real estate in a country where it’s hard to get my hands on solid market data, I build out my own spreadsheet of asking prices.  I know up front that asking prices are not the same as sales prices, but in a world without official data, they are the next best thing.

There have been many times when collecting the numbers and doing the math have saved me from an expensive mistake.  Just last year when researching Nicaragua real estate, I fell in love with an ocean view villa just outside the town of San Juan del Sur.  I was so captivated by the view that I almost pulled the trigger on the day I first saw the property.  Luckily I managed to restrain myself and spent the next 5 days building a spreadsheet of the asking prices of comparable properties.  With these “comps” in hand I quickly realized that the property was overpriced.

I managed to rein set my head into the decision making and stop my heart from taking over.

Can you do the same?