In markets around the country investors are working harder to find deals like those that were commonplace just a year ago. It’s not that rehab worthy deals are not out there, but many markets are not saturated with low-priced REOs, making rehabbers adapt their acquisition methods. There are several approaches investors can take in competitive markets to ensure they are not slowed down.
How to Find Rehab Deals in a Competitive Market
Tackle the Tough Ones:
Look into properties with mold, water damage, foundation problems, and other issues that may deter other investors from purchasing. While these properties will certainly require some major work, they often make for great deals. If you decide to consider this route make sure you understand the costs of resolving the problems before purchasing the property, otherwise you could easily bust your budget and lose money on the deal. Get to know the contractors that can handle these situations ahead of time. Make sure they are licensed if needed and offer a transferable warranty (this will be huge on the exit). We use a two-time transferable warranty when possible, because buyers feel much better about the solution knowing they will also be able to transfer the warranty when they are ready to sell.
Long Days on Market:
Properties can be on the market for a long time for many reasons, with listing price being the primary reason. Many people assume the worst about a property that has lingered on the market for 6 months or longer, when it could be a real opportunity. When we are having a tough time finding deals sometimes a glance at properties with aging market times fits the bill. With nice timing and a little bit of luck you may put in an offer at a time when the owner was discouraged and ready to entertain lower offers. Be persistent in these situations; negotiations can be slow but if you hold your ground you may end up picking up a bargain.
Check the MLS Often:
There is no substitute for speed! Investors will be flocking to a good deal and it won’t take long at all, so be ready to move as soon as possible. Check the MLS at least several times a day. On our last rehab we showed up at the property within several hours of it hitting the market. When we arrived to check it out there were four other investors already there. Our offer was one of four made that afternoon and we ended up purchasing the property with an offer over the asking price…it was that good of deal.
Get the Rebound:
Nothing motivates a seller more than having a deal fall through. Pay special attention to listings that are back on the market after going pending. A seller who thought their property was sold only to find out the buyer was unable to close is liable to have a “let’s just get this over with” mentality, increasing your chance at a good price.
Sweeten the Deal:
If you are competing with investors your offers need to be better. You can achieve this several ways including:
- Cash offer – they say cash is king for a reason, especially in a market where financing is harder to get and more deals are falling through due to financing issues.
- Close quickly – The easiest way to close quickly is bring a cash offer, but even if you are financing you can work with your lender to set a timetable to beat financing competitors.
- Other contingencies – the purchase price is only one factor when it comes to total cost for the seller. The fewer the contingencies the seller has to consider, the more advantages you will have. Be careful about waiving certain contingencies like an inspection.
- Up earnest money – in many cases the amount of earnest money is not considered a priority, but when multiple offers are on the table, more earnest money can set your offer apart from others. With all other offers being equal, earnest money might be the key to getting the property.
So if you find good deals hard to come by do not sit idly by and watch your competition pass you up. Find out how you can modify your strategies to give you a leg up on the competition. Market conditions will always be changing, so embrace the difference as an opportunity, not an obstacle, and you will stay ahead of your competitors.
If you have other ideas please post them in the comments, I am always looking for new ideas for my business.
Photo: Ben Freedman