Should you buy Residential Real Estate with a Commercial State of Mind?

Bay Harbor Islands, FL – Luxury Real Estate
Should you buy Residential Real Estate with a Commercial state of mind?

When you go and buy the home you live in, it is a fact that you buy it with your heart and mind. Your heart takes in the decor, the paint on the walls, the amount of sunlight that streams in through the windows, how the bedrooms are laid out, the color of the kitchen granite etc. etc. etc. None of these factors really ever play in the decision making of a commercial property.

When purchasing a commercial property it is all about the numbers. The paint of the wall or the type of flooring is of less concern then does it work on a price/ft basis, or the income it will generate or the return on investment it will produce.

Of course some of the commercial conditions for purchase do not apply for a property you are going to live in, but certain trends remain common between commercial and residential real estate primarily - that is - location, location, location. Just like prime commercial real estate in an excellent location will fetch a higher price so to does this analogy work with residential real estate. So the question begs to ask – in this day and age where financing is tight and everyone is approaching real estate with caution should we approach Residential real estate (the house you will call home) with a commercial approach of buying it solely from a financial analysis?

Case in point – I am negotiating on a wonderful house in Bay Harbor Islands, Florida. This is a single family home neighborhood within walking distance to the beach, the shops at Bal Harbour and just minutes from South Beach. My client, who is a long time commercial buyer is approaching this purchase solely from a commercial aspect. He looks at the market and makes his offer accordingly. The Seller has rejected the offer...do you agree?

In analyzing Bay Harbor Islands Single Family homes over the past two years since this shift has begun we found the following information:

There have been only 23 single family homes sold in Bay Harbor Islands (this number reflects those sales we have sales price information for) since Jan 1, 2007. 11 of these properties were located either on the canal or wide open bay and 12 were on dry lots. The market year on year from 2007 to 2008 declined on average 21% (we analyzed waterfront properties average square price year on year). Though this number seems high it is actually much less than then the average Miami-Dade county drop which was 35% in the same time period (Source Trendgraphix).
We are finding more and more of Buyers are becoming more purchase savvy in this Real Estate market and are buying their homes with this frame of mind. As Realtors it is becoming more challenging to deal with this objection and convince a Seller that their property must not only meet a Buyer’s wants, needs and desires, but also stand up to the market shifting downward and the Buyers low purchase price offerings.