Arbitrage: The Power of Buying Low and Selling High

Arbitrage is one of my favorite advantages of real estate. If you’ve ever heard me speak on real estate before, you know I like to start the talk off with reasons I like to invest in real estate. I do this because most people don’t know the incredible potential real estate has to increase your cash flow.

Wikipedia says “In economics and finance, arbitrage (/ˈɑrbɨtrɑːʒ/) is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.” In other words, perfect arbitrage is buying low and selling high.

I believe in real estate you can almost always buy low and sell high. People who know what they are doing can buy real estate every day for less than it is worth or could be worth. These two things make buying low and selling high possible.

The Art of Arbitrage: Buying Low and Selling High

Situation of the Seller

Foreclosures and short sales are one example of the “situation of the seller”.  Banks are in the lending business, not the real estate business so they will sell a property for less than it is worth just to get it off of their books. Other investors will potentially sell a property for less than it is worth if they are looking to get out of a property.

Other seller situations to be aware of are divorce, or people being transferred on their job, the list is almost limitless. In most instances you are doing motivated sellers a favor just by taking the property off of their hands. They either don’t have the money to keep the property or the emotional space.

Condition of the Property

In this instance, you are looking for properties that need to be repaired. However, the best kind are those that just need “lipstick”.  In other words, the properties only need cosmetic updates like paint and carpet.  As you develop in your real estate business and build relationships with handymen and contractors in your area, you will be able to get good prices for professional work and create value in other areas besides paint and carpet. However, this takes time to develop, so you should always start with basic things that are easy to fix.

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My real estate workshop is coming up this weekend, and if you enjoyed this blog post, then you need to be there! You can find more information about the event and buy tickets here.