Everyone knows that elephants are grey in color. That’s just common sense. If I asked a third grader to color in a picture of an elephant, they are probably going to reach for a grey color, but have you ever seen a white elephant? They would certainly be unusual. They are different and stand out from the crowd. In our society, being different is a good thing…except when it comes to real estate investment. White elephants aren’t something that can be easily valued.
One of the keys to investing in real estate or real estate-related assets is being able to accurately determine what the value of an asset is once it’s been rehabbed. As you probably know, residential real estate is most often valued by comparing the subject property to properties of similar age, size, amenities, and condition in the immediate neighborhood. That being said, it is much easier to compare similar, or homogenous properties to the property you are tried to evaluate than it is “white elephants”.
Sure, it might be exciting to buy and rehab an unusual property. You might even find interested buyers, but if you are trying to quickly move a property, you want to make it the property fit what most people are looking for. That way, you have a much larger buyer pool to market to. When you are buying, rehabbing, and selling a “white elephant”, you usually have nothing in the immediate neighborhood to compare it to for price. Appraisers will struggle with setting a value to a property, which means you will have little idea what each appraiser will come up with for a value. As a matter of fact, it you had the property appraised by five different appraisers, you would probably receive five very different valuations.
The way to avoid valuation issues and having a property sit on the market is to ensure that your purchases are homogenous to other homes in the neighborhood and that you are choosing an area that has a recent history of having its properties selling quickly. After all, moving properties quickly and for the expected price is what real estate investing is all about.