In real estate investing propaganda I often see terms like “50 cents on the dollar” or “buy property for half off.” This is bull shit, folks. Any product sold is worth exactly what the purchaser paid for it. A house which sells for $50,000 is not worth more than $50,000. We know that because it sold for $50,000, not for more than that.

Is is possible for a person to buy a house in the morning and sell it immediately for a profit. With a double closing I could do it in one trip to the closing company. Though it is a rare deal, it might be possible to buy a property for $50,000 and immediately turn around and sell it for $100,000 in one transaction.

So what is the value of the property? It is worth $50,000 when I bought it. Then I added value to it and it was worth $100,000. I know it was worth $100,000 when I sold it because that is the price the purchaser was willing to pay me.

Did I buy a $100,000 property for $50,000? No. Not even hypothetically. I added value to the home by accessing my list of buyers. A list the original seller did not have access to. That list featured people who, for some reason, were willing to pay me more for the property than those people the seller did have access to.

The big questions for you to ask is did I act ethically when I purchased the property and did I act ethically when I sold the property? Chances are, the answer is no. Either I cheated the seller or I cheated the buyer or I cheated both the buyer and the seller.

I don’t believe in Karma. What goes around does not always come back around. The best way to defeat these real estate hucksters is to be informed. When you are presented with a “50 cents on the dollar” guy who wants you to buy his sure-fire real estate investor course, ask him what value he adds to the properties he buys. {You might also ask him to provide documentation of the purchase and sale of his deals, but that’s for another article.)

Let’s look at the formula again. You buy something for one price. You add some value to it. You sell it for a higher price.

Higher Price = Lower Price + Value Added + Profit (or Loss)

Let’s say you purchase a single family residence at a county auction. If the home was unencumbered and if there was no one living in it and if it was fixed up a little, you could sell it for a profit of $40,000.

Now the real estate investment guru will tell you that it is easy to handle all those ifs. That’s wrong. And if this guy is willing to lie to you about that, what else is he willing to lie to you about?

In Texas, you are going to have to wait 2 years for the redemption period to end. You may need to evict the current tenants. You will probably need to perform some maintenance. Especially if you had to forcibly evict. You will also have some holding costs and you will pay through the nose for fire insurance if the home remains vacant. You may need to clear the title as well.

All these things cost you time and money. They can be very stressful events and can affect you in ways you may not be able to imagine. That is the value you add to the house before you sell it.

The same is true for rehabilitation, renting, flipping contracts, wholesaling, lease options, PAC trusts, conversions, etc. You have to add some sort of value to get a higher price for the property you purchased.

Some legitimate real estate investor teachers and mentors do not grasp this point. They truly believe they are buying homes at a deep discount and selling them for top dollar without adding any value. I have found that they tend to not value their time well and they tend to miss some of the details in what they do.

Legitimate, ethical real estate investor teachers and mentors practice what they preach. They have done deals and are probably actively doing deals as they teach you. Pick their brains. Ask them for a detailed list of steps to follow. You’ll probably be able to see the hidden value they add to properties without even realizing it.

Remember, you have to add some value to a property to sell it at a higher price. It is impossible to ethically do otherwise. It is up to you to decide whether a scheme is ethical or not.

There is a seen from the TV show The Rockford Files, where James Garner’s character is confronted about why he remained on a particular case. His response was that it was easier to shave when he could look at himself in the mirror. Please act ethically in your real estate deals.

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