The Top 8 Reasons Investors Overpay for Real Estate


Choosing to knowingly overpay for any investment property may seem quite counterintuitive on the surface. Luckily for us real estate investors, there is way more value to be created than simply immediate financial gains. The motives of experienced real estate investors are typically to help others, grow their portfolios, and make smart business decisions. Then why would any investor pay over retail price for a property?

Below is a short list of some of the good (or bad) reasons you may overpay while investing in real estate.

The Top 8 Reasons Investors Overpay for Real Estate

1. An Appreciating Market

Speculating or guessing that your local housing market will begin or continue appreciating may or may not be good for business. A novice real estate investor may foolishly purchase a single family home in a “super hot seller’s market” with zero or negative equity in the hopes of quick appreciation. Is this deal inherently bad because there is no equity at the time of closing? The answer is it depends. Ultimately, this investor is gambling (not investing) with factors outside of his or her control in hopes that the appreciating market will continue and soon inflate the home’s value up to a considerable profit.


2. You’re a Long-Term Investor

Some investors are at the beginning of their careers and/or only focused on making large influxes of cash very quickly. Other investors are very happy to pay a close to retail price for a nice home that they can rent turnkey. Due to the fact these long-term investors plan to rent and hold the property for the foreseeable future, a total purchase price may not be as important as the monthly payments due on the property. Depending on the particular investor, and if he or she is able to break even or cash flow a few hundred dollars monthly, a purchase price at or above retail may make financial long-term business sense if it gets the deal closed.

Related: 19 Smart Tips to Help Sell or Rent Your Property — No Matter the Price Point

Pro Tip: Remember that while you are actively investing in a few certain properties, your time and energy may be taken up so that you will not be able to invest in better investments that come to you in the near future. With this said, aim to close the most valuable and profitable deals first before moving on to the skinnier deals.

3. Certain Kinds of Use

Will this investment property be for the use of you and your family? Will you use this property as a place of business? If the answer is “yes” to either of the previous questions, then you may consider paying more for this particular property due to the fact you will be emotionally invested and potentially living inside the property for hours, days, or months on end.

4. Using Property for a 1031 Exchange/Tax Shelter

In the event you need an end-of-the-year tax shelter or “like-kind of property” to invest recent profits, then you may decide to pay more than you typically would for the sheer convenience of this property being for sale at the right place and at the right time.

5. Gaining Access to Certain Communities

Occasionally I will find myself paying more for a mobile home if it is located in a mobile home community I have been trying to own within for some time. In these cases I am happy to overpay because this “cost” is outweighed by building a long-term and trusted relationship with this particular park manager. While no investor strives to overpay for any real estate, if there is a chance to build a long-term and trusted relationship with a park manager, I will take it if the deal is still quite profitable. By paying a higher-than-normal price for the home, we still make profit and help ensure this park manager will think of us down the road for future deals and opportunities.


6. Ability to Use Certain Types of Financing

The capital or value that exchanges hands at the time of closing comes from somewhere. Typically the purchasers or investors must obtain their own financing, credit, or cash to purchase the seller’s property. How much higher a purchase price will you pay for a home to not have to use a bank? How much higher a purchase price will you pay for a home if you are able to borrow money at half your normal interest rate? If an investor does not have access to large amounts of cash or credit, then structuring a purchase arrangement with seller-held financing or other creative means may be invaluable to some investors.

7. Local Fame or Prestige

Some cities have very desirable or popular properties that would cause an investor to gain a bit of prestige and honor for owning and/or rehabbing these famous properties. Some properties are famous because of historical occurrences, sizes and celebrity pasts — or they are simply well respected and honored within the community. An investor who can help repair and update a local landmark may pay a higher price for this honor.

Related: Getting to the Lowest Purchase Price Possible: The Skinny on Real Estate Negotiation

8. Inexperience

Ignorance, emotions, lack of planning, missing major repairs, listening to the lies of others, and shortsightedness all may cause a novice real estate investor to make mistakes and/or overpay for any particular piece of real estate. The Forums on this site are amazing if you have any specific deal questions.

In conclusion, ultimately the decision to buy is up to you. Please make sure that you understand all the benefits you are intitled to besides simple cash profits. As a real estate investor, it is important to make your business decisions based in logic, not emotion. With that said, sometimes paying a higher-than-usual price for a piece of property may make sense. Keep in mind your entrance and exit strategies before you ever make any purchase offers to buy any seller’s home. Remember to always make purchase offers that solve the problems your sellers are having and also aim to net you a considerable profit. From this point you can work one-on-one with your sellers to form win-win offers that work for all parties.

Investors: Has one of these motivations ever driven you to pay over retail? What would you add to this list?

Be sure to leave a comment below!

About Author

John Fedro

John Fedro has been investing in manufactured housing since 2002. John now spends his time continuing to build his cash-flow business in multiple states while helping others enjoy the same freedom he has achieved. Find John here.


  1. John Barnette

    My best performers have been “fresh new cash purchases”. Jumping on a deal. My up leg 1031 purchases have been fair/ok deals. But we’ll worth it for tax deferment until I am 6 feet under ground. Should the IRS keep providing for the Starker Exchange.

  2. Kerry Baird

    I’ve been happy to pay full price or a little over when the owner finances the deal for me, and if the property cash flows at purchase. As you said, with buy-and-hold over the very long haul the price doesn’t matter so very much. My parents paid $20,000 for their first single family residence, back in the late 1960s. They both wish they’d kept it. 😀

    • Gerard Briggs

      Hello Kerry,

      Do you find that the sellers will be very flexible about a persons credit report(poor) and the type of financing if the buyer offers a little more. Such as no money down.I’m on Social Security and am going through foreclosure. I’m 62 and do want to get involved in multi family houses to live in while renting the other apartments. Thank You.

  3. I like what this article mentions about the way the property will be used. I think that if I were to buy real estate with the intention of renting or leasing it, overpaying might be an option to a certain extent. Obviously I would try and get the best deal I could get but I will definitely have to keep this in mind. Thanks for sharing!

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