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Are Real Estate Markets Inefficient?

Yes, real estate markets are inefficient. And that is the main reason why an average person can make extraordinary profits using real estate investment as a vehicle.

The theory of "efficient markets" states that the price of an asset reflects all known information regarding that asset. In other words, the price of the asset reflects its true value at any given moment in time. Hence, there is no such thing as an undervalued asset.

If you were to look closely at many types of real estate markets, clearly this is not the case. And in markets that are inefficient, participants with superior and/or more market information to identify and capitalize on undervalued assets.

Is it easy? Absolutely not. It requires a superior knowledge of your chosen market place, and persistence to find deals that can be purchased below market value.

Here is an example.

I have focused a lot of my investing on buying apartment properties in smaller towns. Over the years I have gathered a tremendous amount of information and experience with respect to not only investing in apartment properties, but also investing in smaller towns. Much of the information that I possess, both public and private information, is not available to the average investor who does not specialize in these types of real estate markets.

A few years back I was able to purchase a large commercial complex consisting of both apartments and retail/office space, 22% below market value. The sellers were marketing the property themselves, needed to sell quickly, and did not have the information they needed to determine the true market value of their asset. Remember, selling real estate, especially large commercial properties is not like selling stock. You can't just call your broker and say sell it right now!

Now had the sellers had the information I did, and had they marketed it properly, it is unlikely I would have negotiated a discount of $350,000 on the purchase price.

The reason I was able to negotiate a $350,000 profit before I even closed on the deal was due to an inefficient market.

Real estate markets are not fluid, continuous or efficient. By becoming an expert in your particular target market will increase your chances of earning extraordinary profits.

Would you like to learn more about investing in apartment properties and how you can start generating a monthly passive income? If so, I recommend that you start with an inexpensive course (under $100) like this one. Remember, the more you educate yourself now, the greater your ability to "outperform" your competitors and take advantage of the market inefficiencies I have been talking about.

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