This market is insane
The real estate market has been on fire recently. The combination of increasing housing demand and historic lows in housing inventory created the perfect storm for the real estate market boom. As a result home prices are up 18% in July 2021 when compared to July of last year, as per Corelogic’s most recent study . This pushes real estate prices to it’s all time high in most markets in the country.
This makes it very hard for investors to find and purchase rental properties. Most of the listings in the market are overpriced, with no real upside. And when an opportunity comes up, they are typically picked up very quickly by real estate sharks, and the best ones get under contract within hours of getting listed in the MLS.
So how on earth can small time investors compete and land these great deals?
My recent success story
I am currently under contract to purchase a 4-plex located in the red hot Florida market. These are 4, town home style apartments all in one roof with almost 1200sq ft per unit, and community pool access. The asking price is very modest at around 80$ per sq ft, which is well below replacement value. This type of apartment building is very attractive to investors, as these units can turned into condos, and be sold one by one and make a generous profit.
As expected, the property generated a ton of interest! I contacted the broker as soon as I saw the listing, broker then told me that there are already hundreds of calls and emails from other investors inquiring about the property and 12 pending offers!
I had to make a move, and needed to do it fast! I analyzed the deal, ran my numbers, and saw that there is a lot of value add potential. The property is being listed at a great price. I know this because I have been analyzing all the deals that come to market the past 2 years. I knew that I had to go all in, and make an offer that stands out to get this deal.
So, I decided on an approach and sent my offer.
After a few days of negotiation, I won the bid and got the property under contract!
WAIT, WHAT? HOW DID THAT HAPPEN?
In the past, I always lose whenever I tried to bid on a property in a multiple offer situation. Since things worked really well this time, I had to reflect and think about the things I did to determine what made it work.
What made the difference
Here are the things that helped my offer get accepted:
- Speed. I made a formal written offer as soon as I saw the property listed, sight unseen. Make it official, verbal offers are typically ignored if there are a lot of people interested in the deal. My plan was to get the property under contract and do inspections afterwards. I was confident enough to do this because I know the market well. I know this property is in a great zip code near downtown. It is in a good, quiet neighborhood in the path of progress. This confidence comes from countless hours researching the market and analyzing deals.
- I did not use a realtor / buyer’s agent. I generally recommend having a buyer’s agent if you are purchasing your first deal. But, if you have multiple deals under your belt, or have enough knowledge about how real estate transactions work, you can typically go and work with the listing agent directly. This gives you an edge. It gives a great incentive to the listing agent to be on your side, as he/she will be taking both sides (double) of the commission if you are able to close on the deal.
- I established my track record. Showing your ability to close, is one of the first things brokers and sellers look at when vetting offers. I approached the broker through email and included a link on my website that shows all the previous deals that I have done. This gave the broker confidence in my ability to perform and execute on the deal.
- I used an escalation clause. An escalation clause is a tool you can use in multiple offer situations. To simplify – it is a clause in the contract that says the buyer is willing to raise the offer price if the seller receives a higher offer up to a specified amount. In this deal, I specified an amount up to 10k above offer price. I chose this number because my deal analysis revealed this is how much I can pay, and still get the returns I want. Learning to do this quickly is a skill that pays dividends in real estate investing. Practice is key!
- Communication. When I first met the broker in person, he told me that I was very professional and a “gentleman” during our exchanges while negotiations were ongoing. Broker was impressed with my communication skills. I was clear and straight to the point. It gave them confidence that I knew what I was doing and was a deciding factor when they chose to accept my offer over everybody else’s. Knowing the real estate terms and jargon help a lot when communicating and negotiating with real estate professionals. Pick up a few real estate books or start listening to podcasts. Learning is a process! Keep going!
- I made it easy for the seller. In my offer, I indicated that I will be using an private/ asset based lender, that can close faster than conventional lenders. They are easier to deal with and have less requirements compared to a conventional loan. I also skipped the full home inspection and only required a 4 point inspection for insurance purposes and an appraisal to minimize disruption with the current tenants.
I am very excited and happy about this deal. There is still a lot of work to be done but we should be able to close the deal by the first week of October.
Wish us luck!