As an investor, your capacity to find good deals regularly is central to your ability to make good profits consistently. This can be a challenge at any time of the year, but when you are in a seller’s market, finding that significant investment at the right price can be near impossible.
But a seller’s market doesn’t necessarily mean you cannot find good deals. It means you should work harder, be strategic, and be more creative when looking for deals. The best property investors know how to be profitable in both a seller’s and buyer’s market.
While other investors go with what is easy, seasoned property investors can turn difficult situations to their advantage. They do this through in-depth knowledge of the market, by being able to revise their strategy to reflect existing conditions, and by playing the long game.
As a real estate investor in a market where property prices are surging upward, what steps and strategies should you adopt for this environment? This post highlights some ways to navigate the difficulties of finding good deals in a seller’s market.
Investment tips for property investors in a seller’s market
Firstly, what is a seller’s market? The term describes market conditions that favor real estate sellers over real estate buyers. In a seller’s market, many buyers are chasing the few available properties, so the prices of those properties go up.
How can you detect when you are in a seller’s market? Other than the uncharacteristic rise in the value of homes in that market, you can look out for the following:
- In a seller’s market, the number of months of inventory (MOI) is usually meager, often around four months or less
- Additionally, days on the market (DOM) – the number of days a property stays on the market before it is sold – is concise.
When in a seller’s market, here are strategies to use:
1. Prepare Your Finances
In a market situation where good deals are hard to come by, you want to be able to act fast when you find a great opportunity. Even in a seller’s market, you can still find distressed sales or homes priced surprisingly low, but these properties are quickly gone. To take advantage of such fleeting opportunities, you must prepare your finances in the following ways:
- Budget: It’s essential to clearly understand how much you are willing to spend on a property. You should be willing to walk away if a home is beyond what you can pay.
- Get pre-approved for a home loan: Sellers take cash buyers more seriously. But if you don’t have cash, the next best thing is to be pre-approved for a mortgage.
- Consider other costs: When creating your budget, do not neglect closing costs, home inspection fees, and other costs.
2. Have a strategy for finding the best properties
Foreclosed and VA-owned homes are affordable, even in a seller’s market. In a seller’s market, you will also see a lot of FSBO (for sale by owner) homes. These are reasons word of mouth should play a big part in your strategy. Also, you need a real estate agent who knows the area well and has a record of winning offers.
3. Research recent prices before you purchase
Even in a seller’s market where prices climb astronomically, homes can still be overpriced. Most homes in a seller’s market are overpriced. If you buy a house above its appraised value, you may have trouble financing it. Among other things, research the price at which similar homes in the area were sold recently.
4. Act fast and keep it simple
Acting quickly and being decisive will let you close deals before other buyers know what is happening. Please don’t include contingencies in your offer unless they are necessary. Buyers are more likely to accept offers if fewer contingencies can lead to the deal falling through. But before you exclude any contingency from your offer, you would like to weigh the risks.
5. Make your offer irresistible
Sweeten the offer by including flexible and favorable terms that will sway them. That can come in the form of a sizeable down payment to show the seller that you are serious, making a cash offer, or accepting the seller’s terms with little to no fuss (as long as the cost and the risk of doing so is minimal).
Lastly, and as a note of warning, it is not a good idea to forego the home inspection when buying a home, even in a seller’s market. It is better to walk away than to put yourself at risk by waiving your right to do a home inspection.
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