The summer of 2018 residential sales market is shaping up to be among the hottest in memorable history. Retail buyers are certainly scrambling to make offers within days if not hours after a house first comes on the market. But as an investor, should this be your strategy? Probably not in most situations.
It’s true that speed is important when it’s time to pull the trigger. The time when speed is not your investing friend is often when searching for a target to aim at. When you find a great deal, go ahead and pull the trigger. But when you are casting a net far and wide to find those deals, patience is a better attribute.
You’ve seen the bandit signs and small classified ads offering to “buy any house”. What these don’t say is that they will buy any house at any price. When distressed sellers call on these advertisements, they hope someone is going to solve all of their financial problems. Maybe they need to sell fast for cash. Or maybe distressed sellers are stuck with a seriously damaged house that retail buyers want nothing to do with.
You need to know which it is. Either way, the seller is already cranky because of they’re situation. When they hear a realistic but low-ball offer from an investor, it’s likely to crank up their crankiness. What you don’t want to do is add fuel to their misery. Instead, stay pleasant even when they grumble, growl, and cuss at you. Before they slam the phone down in your ear, make sure they understand that your offer remains available if they change their mind.
Patience is a virtue for the successful investor. Some of these people will call back and some won’t. Even those needing a really fast sale likely have at least a few days to think about your offer… and look for better offers.
There was an instance when a seller was facing jail time if he couldn’t raise $32,000 in less than a week. Seems he was way behind with his child support payments and the judge was at the end of his rope. However, the man had inherited a house a few months back from an elderly relative that had let the maintenance go for more than a decade. This happens fairly regularly. As several days passed, he wasn’t able to find another buyer offering more than the $37,000 the “buy any house” investor had offered.
You got it. The man facing jail time called back to accept the offer at the last moment. That’s when speed and the ability to close with all cash wins the deal. In the end, several people benefited from the low-ball offer. Mostly the kids who received some very delinquent support money. And of course the man that didn’t go to jail as well as the investor with the patience to make it all happen.
There are two times during a real estate transaction that speed is the key to closing great deals. First, is when you are looking for distressed sellers. These people need to sell a home fast. When you're looking for a property, the first thing you should do every morning and throughout the day is keep an eye on MLS listings, craigslist listings, and anywhere else that you scour for leads.
When a hot lead comes on the market, you want to be the first person to make an offer. You want to have an offer in front of the seller that he or she compares to all other offers that come in. It doesn't need to be the best offer but it does need to be an offer that clearly states that you will close the deals fast. Then you sit back and wait.
Being patient and having multiple offers out there is critical to being successful. You want to have the last offer on the table rather than the best offer on the table. When an investor constantly has 10, 20, or 30 offers in work, he or she can afford to have several that don’t come home. These investors will still have a steady pipeline of deals moving towards the closing table.
When it comes to distressed sellers, they have few options available. The property is often run down and they can't afford to repair it. Retail buyers are tying all of their money up in the down payment and closing costs. They seldom have a reserve for essential repairs.
The serious investor has cash on hand to close the deal fast, make repairs, and put the property back on the market in 60 to 90 days. These are the properties that can be bought for 65% of market value because no one else is interested. These investors have the last offer on the table instead of the best offer.
To many, this strategy may appear to be predatory but if you do it ethically it's really a win-win scenario. The seller gets out of a property they can't afford to stay in and as an investor, you get a bargain property that retail buyers have no interest in looking at a second time.
Too often investors measure their success by how many deals they can close in a week or a month. They forget about offers they made a month or even several months ago. It's the offers that were made several weeks or months ago that will bring the most profit and hence the most success. Always have a reserve fund ready to go for the forgotten deals that will turn the best profit for you as an investor.
Please comment with investing approach in today’s market.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.