The U.S. real estate market has been in a state since the Great Recession. While many markets have experienced recovery in terms of their value, the “business as usual” status quo has not returned. We’re seeing longer real estate cycles and what seems to be an endless “recovery” phase.
The market, in many ways, seems stuck. The good news is that if the market is somehow stuck, it is stuck in a phase that includes plenty of equity growth.
With that said, a nationwide lag in homebuilding has made for a strong seller’s market that doesn’t seem to be going anywhere anytime soon. According to a Harvard study, despite economic strength and widespread market recovery, homebuilding still lags behind housing demand.
This deficit in supply is particularly strong in more affordable ranges — both for buyers and rental residents. The study reports rental rates rising at twice the rate of inflation. The West Coast has proven itself the most unaffordable, while the Midwest and South have the lowest price points.
Still, even in these areas, demand has been pushing prices upwards along with the spirit of competition.
For real estate investors, there are opportunities to be found in every stage of the real estate cycle. But how do you navigate a seller’s market without overpaying or losing bidding wars? Competitive markets present thrills and challenges alike.
Here are some tips for investors:
4 Tips for Investment Success in a Seller’s Market
Pick the Right Markets
In real estate, your market makes a big difference. Even though a significant portion of markets across the United States are considered seller’s markets right now, it doesn’t mean that they are all going to be the same.
Target markets that are known for their affordability — particularly relative to your own area and financial resources. These will typically be southern and midwestern markets. Even from there, there will be investment markets that will be more stable than others. While some might have an “extremely competitive” environment characterized by heated bidding wars and lightning-fast sales, others will be more tempered.
Looking to less conventional secondary and tertiary markets for opportunity is one way to get your foot in the door without overpaying.
Don’t Get Personally Attached
No one likes to lose. In a seller’s market, there’s only one person who stands to lose: the buyer. This isn’t to say that you can’t find a good deal. However, be wary of becoming too attached to a property. When it comes to investing, the actual property is secondary to its numbers. If you are patient, you will find opportunities that match or exceed the one your heart is set on.
Ultimately, do not get so determined to “win” or have a particular property for yourself that you end up compromising. When you overpay or overlook the details, you may find yourself stuck with a property that just doesn’t add up.
Have the Financials Ready
If you want to make the process of buying a rental property painless, regardless of your strategy, come in with paperwork in-hand. If you’re an all-cash buyer, your offer will be particularly attractive to many sellers. With that said, someone who is already pre-approved and has financing ready to go will win out over someone who is not.
The best way to seize investment opportunities is to have all of your proverbial ducks in a row from the very beginning. A clean offer with few contingencies is attractive to any seller. Keep your margins top-of-mind, but do what you can to make your offer the best one on the table.
Act on Opportunity
Last, investors must act. Seller’s markets come with their fair share of added pressures. Investors must practice due diligence and follow the proper procedures, including inspections and number-crunching. When you know an opportunity is good, don’t hesitate. While we need to be wary of jumping the gun on an investment without knowing the full details — whether it has needed repairs and renovations or a matter of not evaluating your potential cash flow — we still have to move quickly.
Properties can go fast, particularly in a seller’s market. Be attentive and diligent. The more prepared you are, the more ready you will be to seize the great opportunities that come your way.
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