Beware of Raging Optimism

We’ve all been guilty of it. We see a property and start calculating how much we can make on it. Then we use optimistic figures for the sales price or the rent. There is a lot of interpretation in analyzing comparable sales. Choose the ones that are in the mid-range. High sales are usually due to properties that are in extraordinary condition. Bargain properties are rarely in extraordinary condition even after repairs. If you’re holding for the long term, remember to calculate your rents correctly. You should include 2 months vacancy in addition to some repairs and general maintenance when the tenants move out. Don’t get caught in the trap of calculating 12 months rent at the highest rental rate. That never happens.  You can calculate 1 month vacancy, if you are offering below market rents, but it is almost impossible to get top rents and a low vacancy rate.  Raging optimism can create bad decisions on marginal properties. So beware of raging optimism. In business caution is definitely better than valor.