How could the correct values be greater than the overinflated values?
The key was purchasing
before the over-inflation occurs. The purchase price in that scenario would not be over-inflated.
For example, I live in a 72 unit condo complex. I purchased my condo very early and got a better price than most people in the building. When the units were being sold, there was such a high demand at the time, that some of the units that sold after mine went for 20-30% more in value than mine did.
The average unit in the building went for 15% more than mine did.
But personally, I would not have purchased my unit for any more than what I paid at the time.
Also, NONE of the units in the building sold for less than mine did. Every single one of them sold for what I bought at or higher.
Now, there are a couple of foreclosures and short sales in the building. The current value of the units is dictated by these foreclosures and short sales, but it is overly-deflated since they are currently selling at slightly below what I paid for mine (and they
are selling at that price which is about 90-95% of what I bought mine at. One was on the market recently for a good deal less than that, but there ended up being a bidding war that broke out and it ended up selling at that price range as well. Happy times for me!)
But the thing is, for most of the people in the building, 90-95% of what
I purchased for is a
helluva lot less than what
they purchased for.
So in a few years when they are able to sell, they might sell for 105-110% of what
I purchased for in order to minimize
their losses.
Either way if
I sell for 105-110% of my purchase price, I come away with profits.
Because I bought
before the over-inflation of the units in my building, I can potentially make a nice profit if I have the patience whereas, right now if I sold, I'd lose money.
To a degree, the future value of my condo will be dictated by the average purchase price of the units in my building and the surrounding buildings (the majority of which got converted to condos
after my building was converted).
Having gotten mine at the lowest possible price at the time, it is unlikely that after the overly-deflated market rebounds to the correct values that the correct value will be less than what I paid, and in all liklihood it will be above what I paid by a small amount.
If I were to remove 40% of my principle balance though nefarious means, I could stand to make huge profits given these facts.
