While it is not an uncommon occurrence, bidding wars can become highly charged experiences. A commercial real estate investor can easily get sucked into a biding war, especially if the property is an ideal fit for flipping, renting, or developing. However, there are a few things to remember when bidding wars rear their ugly heads, so you do not end up with the short end of the stick.
Bidding Wars Really Only Benefit One Person
Regardless of how much revenue you think a piece of property is going to make, bidding wars can quickly eat into that profit margin. The only party who truly benefits from a bidding war is the seller. Remember, the more you bid, the less money you will have to renovate or build, which means your take will decrease the more your up the ante.
Contain Your Pride
After the second round of bidding, coming out on top has very little to do with being a better investor, and much more to do with who has the bigger ego. Emotions can run high during bidding wars, and people tend to focus on winning over anything else. Keep your pride in check, and know when to walk away.
There Is No Holy Grail
Simply put, there is no such thing as the perfect property. A property becomes even less perfect as the selling price gets driven up during a bidding war. There will always be other opportunities, possibly even in the same neighborhood. Bidding wars start when people become emotionally invested, instead of financially rational. There are no properties that will make you set for life, but engaging in bidding wars is a great way to break the bank.
You Have A Budget. Stick To It.
Every commercial real estate investor has a budget to work with when looking for new property acquisitions. There is capital set aside for the initially investment, closing costs, renovations, and a little leeway for unexpected costs. Bidding wars will decimate your budget before the sale is completed, leaving you with very little to carry out the rest of the necessary steps for having a profitable piece of property. If the bids start encroaching on your budget, stop, and look elsewhere.
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