Albert Einstein once said: "We can't solve problems by using the same kind of thinking we used when we created them."
When it comes to solving the problem of finding good value in any real estate market, it is almost impossible to do so if you just think within the real estate paradigm, but it becomes much easier and clearer if you move your thinking above the real estate paradigm and into the finance paradigm. After all, finance is the invisible hand that drives the real estate market.
Value vs. Price
First of all, we may need to distinguish between the value and the price of a property. The price of a property is the dollar figure you pay in a property transaction between two parties. The value of a property can be above or below its price, in other words, what the property is really worth.
For example, if the price of a property is $500k, but its value is $600k, then you can say that you have found good value. However if the price of that property is $500k, and its true value is only $400k, then you have bought an overpriced property. So our goal is to always buy properties where the price is lower than its value, and this can be done during both good and bad times in the market.
