Dealing With a Changing Market: How I Profit When Deals Are Hard to Come By
I tell you. This morning we heard back that there were TWENTY EIGHT offers on a house we wrote an offer on. Seriously? What the heck? Where did all these people come from, anyway?
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Things are still on fire around here. Everything is going like gangbusters. Prices are still going up. Not a lot of inventory. Wholesalers are busy. MLS deals are crazy or non-existent. So what are we to do to continue to grow our portfolios and our bottom line?
First, don’t get crazy. Relax and think about what exactly your goals for you business are.
Do you want to own rental properties or multi-family units? Do you want to flip properties and make your money that way? Or do you want to be a private or hard money lender? Do you want to do two deals or 100 a year? If you haven't laid out your goals, it will be hard to achieve them.
Now, with that said, the caveat here is to be able to understand what market you’re in and how to profit from it. I just opened up my email to find a news article about a Naples, FL man who had been flipping homes there since 2009 (which this area was one of the most depressed areas in the country at the time) and is now having a hard time finding any deals to flip. Too many people, paying too much money, or at least more than they could to really make the deal work for them.
So, the man in the story was looking at buy and hold strategies instead. Sound familiar?
We have to ask ourselves, how do we make money in this market? And then how does this fit within our own personal objectives?
So, for instance, we have continued to do some flips, but have had to decide what kind of (different) margins we are willing to take on those deals. There aren’t ANY of those all-in-at-70% deals right now. They’re just not there. We have missed on some deals by as much as 10-15% of what others were willing to pay. So we had to decide, are we willing to pay more money, or are we needing to change course?
We decided to do both. On our flips, we are more particular on which properties we will buy, that we can get in and out of rather quickly, and that maybe have a $20-$25k profit in the deal, for, say, $100-150k into it. This isn’t nearly as much as some deals we made, even just 3-6 months ago. But it is what we DO have now.
There are also still great deals in the buy and hold area, especially for the single family and small multi-family. There are some deals in the larger multi-unit arena, but most of them are still highly competitive and are taking large sums of capital and long timeframes for significant renovations.
Once the plan is in place and a decision has been made on what kind of deals you are willing to do, you must be able to act quickly. In order to do that, you must also have your financing or cash, as well as your inspections, your contractors, and an understanding of how you will exit the deal, all worked out. We have seen plenty of deals go on and off the market in less than a day.
We have to write more offers. A lot more. We are having to be more careful on our due diligence side: Do we have very solid numbers on our renovation and holding costs, so we can make sure our profit is solid, safe and the deal can be executed as planned?
And within the plan, what are the different ways you are going to be able to generate income? From flips? From property management? From lending? From selling a turnkey property? From buy and holds that generate cash flow, or from which you are able to cash out some equity?
All of these are great options.
We want to make sure we have income coming in from multiple income streams, so this means steady rental income, management income, helping sell great turnkey properties that generate solid and consistent returns for our investors, and flip properties as they come along.
Be Patient & Don’t Make Emotional Decisions
Just because you want to buy something, want to be an investor, or want to get that third deal for the month, it doesn’t mean the deal you’re looking at is a good investment.
Make sure to check your emotions and to go through the data. Is this a good deal? Can I make money from it? What is my exit strategy? And if my plan A doesn’t work, what do I do next?
Real estate investing is about understand what the market is doing and being able to use what IS out there to our advantage. Right now, people are buying homes. Interest rates are low. Inventory is scarce. Home prices have stabilized or gone up. Rental properties are hard to come by for us here. Use the market — and make it work for you.
What are you doing in your business to make deals happen as the markets have shifted and as deals have been harder to find?
Let me know with a comment!