Hello Stefan,
I hope you have had a good start on the new year.
As land prices soar, especially in coming areas, some questions always pop up:
– Am I paying too much?
– What is the right price to pay?
– Should we aim for the lowest price or best location?
How investors respond to the price given on a specific property can greatly differ.
“It’s too expensive.”
Or “Sounds like a great deal.”
We’ve received both responses from two different investors discussing the same piece of land.
How can this be?
As an investor or developer, you are well aware that investment decisions are based on both facts and personal preferences, intentions and visions. At the core of these decisions lie the concept of balancing value and price.
Understanding the nuances between these terms is not just a matter of semantics; it’s a strategic key to unlocking success in real estate investing.
Price: The amount of money asked for a property, often based on location, zoning, view, etc., in comparison with other asking prices or completed deals in the area.
Value: A more subjective worth a property holds for an individual investor. Taking into account type of development project, earning potential, personal preferences, future plans and possibilities.
Or as Warren Buffet puts it:
“Price is what you pay. Value is what you get.”
This is explains why some buyer always ask for the lowest price, whereas the more seasoned investors, look deeper and are prepared to pay more as long as the value exceeds or at least matches the price.
Let me tell you a story:
We were presented with a piece of land to list, but upon inspection, we thought, “Who in their right mind will buy this land?” It was not easy to build there, and compared to the total size, not many villas could be built, making it an unfavorable site for development. We therefore perceived the price as high and the value as really low. Not a good match.
A week later, during a conversation with an investor, he suddenly asked for a small plot of land, but it needed to have an ocean view. It was intended as a gift to his son, who was an artist and planned to use it as an art studio and residence. This plot popped up in my mind.
We took him to view the land right away, and his reaction was: “This is the most beautiful and incredible land in Bali for me.”
Obviously, for him, the value was really high, matching his vision and intentions for the land, and he never even argued the price.
——
This example reinforces why we as investors, need to thoroughly understand our value preferences and the deeper criteria that must be met for success, rather than solely focusing on the price.
Recognizing the unique aspects that resonate with our investor vision, not only strengthens our ability to invest in land more effectively, but also streamlines the decision-making process. Ultimately saving valuable time for all parties involved.
As an investor, what are your deeper value preferences?
Will your project have more success on cheap land or on high value land?
