How Do You Find The Peak Value?

[Dien Rice]

Originally Posted by Ankesh

This may be one of the questions that has no definite answer. So I'll pose it as a poll.

If you own a real estate property and are willing to sell it for $125,000 one year back.

But you can't sell that property for over a year. But then, within a week, you get 2 offers.

First offer is for $65,000.

Second offer is a cool $243,000.

Obviously, you reject the first offer. But do you take the second offer? Or do you wait - expecting the market to become even hotter - with the recent activity?

(Assume that yours is a one of a kind property and there is no market comparison. Also assume that the recent activity is not a coincidence. The property has made news.)

How do I find out if the prices will increase or if this is the best offer I can get?

What would you do? Sell or wait?

(This is not a theoretical question. I actually face this problem right now - but its not for real estate. Your opinion would help a lot.)

Hi Ankesh,

I think it also depends on the rest of your situation too... For example, would it be helpful to have the money now rather than later? Having the money now could open new opportunities which are currently closed... So in that case, there might be a hidden "cost" ("opportunity cost") in not selling now...

Remember, you could always take that money and invest it in something else - perhaps something with a more certain future return.

So, one exercise to do is to estimate how high the price can go in the future, and what you estimate the probability of that happening is. Then, think of all the other investment opportunities you would have with that money - from putting it in a bank account, to investing in the stock market, to buying new businesses and/or properties...

Now, which is the best use for that money, out of all those options? (Taking into account estimated return plus how risky it is.) If the property you own now is not the best investment for that money, then sell now, and invest the money in the best investment, according to your estimates and calculations...

I don't think there's any way of knowing with 100% accuracy what the best investment will be for the maximum return... All you can do is try to estimate the highest probable returns with relatively low risk. Pretty much that's what all successful investors do!

(If taxes and other fees are also a factor - as they can be with selling some types of investments - then you should take that into account in your calculation of possible returns...)

Cheers,

Dien