What is meant by Basis?
What do people really mean when they say that they will only buy if they can get it at a good basis? Or saying an operator has a basis problem because an investment is struggling? I know that the basis is the total price/cost of an investment, but I feel like I’m missing something because aren’t people always focused on basis? If an investment is struggling, well obviously it could be doing better if you bought at a lower price (i.e. lower basis) Is it that straight forward or am I missing something? Thanks in advance.
It's in fact as simple as you're saying. And to your surprise, people aren't always worried about basis. When times are good, folks are paying well-above replacement cost left and right. Insane basis. They justify it through other means in order to claim their basis is good when it's really not. Then when the tide comes in, it's super obvious their basis sucks.
Thanks for clarifying.
Lol it’s seems so obvious to me that I thought I wasn’t understanding something.
Like the VP said, it's as simple as it sounds. I think there are two reasons why people fixate on this word:
1. In general, industries tend to develop jargon which adds the veneer of complexity and can act as a screening of sorts. If you're talking to someone who doesn't use bps or basis or cap rate, it signals something about their experience or education or knowledge. That doesn't mean they're dumb or a bad investor or don't know what they're doing, but people will draw correlations that may or may not be true all the time. This aspect isn't unique to real estate.
2. It can be a more useful term than just price because basis can be used for purchase price or cost to develop or price + value add, etc. It sums all those concepts up into a nice shorthand that means "all the money that went into getting the building to where it is right now".
Thanks and I agree with your point.
I was just more confused why there is all of the sudden a big emphasis being placed on basis/cost, when it seems to me that investors should always be focused on their basis.
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