About 30 years ago, I bought two condos in a client’s conversion in Park Ridge for $56,000 each, and sold them a week after, closing in the low $70s each. My client was no fool. He had a well-honed strategy that yielded millions of dollars of quick profits on each of his large conversions.
Another client, at a time when the top tax rate on ordinary income was 70 percent, compensated his sales staff in part by steep discounts on units which they rented for a year and then sold, paying the then top capital gains rate of 28 percent on their income.
In the early ’80s, I sold two lots in the 1800 block of Maud, for which I’d paid $10,000 each from a seller who bought them for taxes of $300 each, for $20,000 a lot – less than half of their value at the time. I was hard up for cash and needed it quickly.
In 1985, I liquidated 24 units in one of my developments, after renting them for six years, at about 85 percent of their market value. Why? I’d negotiated a deal whereby my lender took a steep hit in exchange for an accelerated payoff. My discounted selling prices yielded me a very nice profit.
In the mid-’80s, I bought a single-family home in the 1500 block of Wieland for $70,000 and resold it within weeks for $110,000. The seller, First Chicago Bank, sold it at its appraised value. The appraisal was done by a suburbanite who was clueless about Old Town property values.
I could go on in this vein at some length. Why recount these old stories now?
I’ve recently seen buyers scoffing at current asking prices based on what the seller paid for the property several years ago. Their theory is that, if the seller paid x in 2006, and is now asking x plus 20 percent, the seller is clearly deranged. Perhaps that’s the case.
What’s more certain is that buyers should pay no attention to the price a seller paid. That price may have been below market – or above it – and has no relevance to the property’s current value.
A word to the wise: Ignore what the seller paid, and focus solely on the property’s current value. Any other approach is foolish at best.