How to buy in a seller's market??

22 Replies

Hello all!

First time BP post here! I've recently relocated (somewhat temporarily) to Chicago but had been investing in the Green Bay area since 2012, focusing on buy and hold SFRs. The reason for my post today is not only to introduce myself and get to know some of the other investors, but to also get some feedback from the BiggerPockets Community in buying long-term buy and hold in a hot market. It's incredibly difficult to secure a contract on a property with all the right numbers when families are willing to overpay for almost any property. With being in Chicago, I'm not really looking to buy a property that would need extensive work. And, with only wanting to pick up 1-2 houses/year, I haven't found a wholesaler that will give me the time of day. I'm currently working a full-time and a part-time job so I'm not ready to try start my own marketing efforts. I'm hopeful there has to be a way to find a lead even in a hot market, but I'm starting to wonder if I just have to wait for things to cool down... my hesitation with waiting is two-fold: 

1) All the market trends and government fiscal policy indicate interest rates will only climb in the near future. With my W-2 income, I can still qualify for a 30-year fixed rate loan at 4.625% (a no-brainer in my opinion)

2) I have capital that I need to deploy and the measly 3% interest I'm earning simply doesn't compare to how those funds could serve me in the rental market. And as far as risks go, the only risks I'm willing to take are those in real estate (not into investing in the stock market until a lead comes my way). I'd consider a lending role, but would any investors would only be looking for $60-80k? And I wouldn't want to tie up that capital for long periods of time as I'd be hoping to invest myself!

I'm sure that I'm missing something and I would love to hear from anybody that's willing to shed some light on this for me! Thanks for your time and I'm looking forward to getting more involved in BP!

- Kyle Pockat, CPA

Look for properties that you can "add value" unless you want to invest only in "turn key".

Adding value by rehabbing and raising rents is the fastest way to make money without having to wait for appreciation. Buy low sell high.

@Kyle Pockat The reality is that if buyers are willing to "overpay", they're probably not overpaying at all.  Any home is worth what a willing buyer and seller agree to.

In a strong seller's market like we have here in MA, here are a few tips to get your offer accepted.

1. Overpay.  Not crazy overpay, but if you're offering 93% of asking price in a market where the average home sells at 98% - 103% of asking price, you're probably not going to be successful.  

2. Have a strong pre-approval letter or proof-of-funds.  You need to convince the seller or his agent that you have the financial capacity to execute the transaction.  

If your lender has not already pulled your pay stubs, banks statements, W2s and tax returns - like the "instant" pre-approvals issued by Rocket Mortgage and Quicken - it's garbage.

3. Waive contingencies.  Of course, that carries a risk, but waiving home inspection and financing contingencies will make your offer far more attractive.  Be sure that your offer isn't contingent on the sale of another property - that's about the weakest offer there is.

4. Be likable.  People do business with people they like.  If you go in with guns blazing with all sorts of demands and treat the seller with suspicion, you're setting negotiations off on the wrong foot.  Just be a nice guy and keep your hostile thoughts to yourself.

I hope that helps!

Thanks, @Charlie MacPherson !

I did have a pre-approval and did actually waive the home inspection contingency after doing some due diligence on the inspector that had already completed the inspection. I tried to submit as clean of an offer as possible with a quick close (my lender already had all of my paystubs, W-2's, tax returns, proof of funds to close, etc.). At the end of the day, with having multiple offers on the table, the highest bid trumps the potentially cleaner offer. I think your post solidifies my struggle more than anything. If I'm going to be paying 103% of list price in a hot market, my numbers just can't work. Unfortunately, higher list prices don't automatically translate into higher rents dollar for dollar. For this particular property, I did go in slightly above list, but another buyer came in at 105%. I know how buying a house for a primary residence can become an emotional decision which increases the amount a person is willing to pay... but with attempting to pick up a long-term buy and hold, at least in my experience, the profitably is largely determined at purchase (and of course subsequent to this, proper tenant screening and management of the property). Is there any way you might suggest to be able to get to these listings before they hit the market?

Seeing opportunity where others overlooked it or buying off market deals sounds like the way you need to go.

Have you attended your local REI groups to find wholesalers? You may try bugging the ones you aren't giving you the time of day right now to let them know you are serious. Maybe even send them proof of funds and specifically what you are looking for as a reminder you are ready and able. Instead of marketing for motivated buyers, maybe market yourself as a motivated buyer and see what comes.

@Kyle Pockat   That's outside my expertise, but there are lots of people here on BP that do all sorts of marketing to find those kinds of properties.

As to your market, you're seeing there what I see in the greater Boston area.  With 3-plexes in Boston routinely selling close to $2M and in places like Cambridge, as high as $3M, these properties are simply not good prospects for most investors.

The solution in eastern MA is to get away from the city.  20-30 miles out, properties are a LOT more affordable.  For example, the average 3-plex on the market in Plymouth County (30-ish miles to the south) right now is $482,685.

I expect you would see something similar if you get farther away from Green Bay.

Every seller has a reason for listing their property.... Some of these reasons are more of an issue then others. You need to find a way to increase the value of your offer with out increasing price. If you can find the right person in the right situation you can get a deal...

But, always a but, you need to understand the value of these properties as well as the solutions you provide. If you low-ball the seller and provide little in return no one will listen. If you're coming in min down payment, long inspection time, long closing, no one is going to care.

If you come in close to market value, short inspection, short closing, above average down/deposit.... Then people will listen. You know the price is low because say rents are below market or you know how to fix problems cheaper than most people ...

You'd be amazed at what people will let out when you get them talking it's not impossible to figure out why they are selling.

@David Hall - great advice--thanks! I see the Green Bay REI events pop up, but it's next to impossible to get up there in time from Chicago. But sending proof of funds to a few wholesaler's is an interesting idea that I might try out! Sometimes on the forums I see these new investors that talk a big game but when it comes down to it they're not actually serious investors (at least yet). Maybe that's how I'm perceived at this point from the players that could actually bring me the deals I want. If I can somehow prove that I'm actually in the game now and ready to expand my portfolio, they'd take me seriously. Thanks!

@Kyle Pockat one other thing that just came to mind is, maybe ask a wholesaler or flipper you know to partner with you on a deal.  It sounds like you don't have much time.  Maybe ask they to go 50/50 with you, you put up the money, the find the deal and run the rehab.  This will give you experience and credibility and give you some passive opportunities to keep your money working for you.

I am an agent/investor in Lansing, MI and I love partners who have the capital and want to split profits.  I can find more deals then I can do myself so it's really a win win.

Originally posted by @Dennis M. :
Off market deals . If it’s on the mls it is probably not a good deal

I've found good deals on MLS, just lot of ones to sift through.

The ones with messed up sqft or fell out of contact can increase your chances of getting a deal. Or if seller has multiple listings and you can buy them all.

Example I bought two half duplexs (both sides) were being sold by direction of court. I offered for both, 30 day close, 10 day inspection, and let them keep half month rent and security deposit. Basically I took over mid month and collected rents the following month... Hardly increased my cost (maybe like 3k between rents and security deposits) but it wasn't an out of pocket expense...

Originally posted by @Kyle Pockat :

Hello all!

First time BP post here! I've recently relocated (somewhat temporarily) to Chicago but had been investing in the Green Bay area since 2012, focusing on buy and hold SFRs. The reason for my post today is not only to introduce myself and get to know some of the other investors, but to also get some feedback from the BiggerPockets Community in buying long-term buy and hold in a hot market. It's incredibly difficult to secure a contract on a property with all the right numbers when families are willing to overpay for almost any property. With being in Chicago, I'm not really looking to buy a property that would need extensive work. And, with only wanting to pick up 1-2 houses/year, I haven't found a wholesaler that will give me the time of day. I'm currently working a full-time and a part-time job so I'm not ready to try start my own marketing efforts. I'm hopeful there has to be a way to find a lead even in a hot market, but I'm starting to wonder if I just have to wait for things to cool down... my hesitation with waiting is two-fold: 

1) All the market trends and government fiscal policy indicate interest rates will only climb in the near future. With my W-2 income, I can still qualify for a 30-year fixed rate loan at 4.625% (a no-brainer in my opinion)

2) I have capital that I need to deploy and the measly 3% interest I'm earning simply doesn't compare to how those funds could serve me in the rental market. And as far as risks go, the only risks I'm willing to take are those in real estate (not into investing in the stock market until a lead comes my way). I'd consider a lending role, but would any investors would only be looking for $60-80k? And I wouldn't want to tie up that capital for long periods of time as I'd be hoping to invest myself!

I'm sure that I'm missing something and I would love to hear from anybody that's willing to shed some light on this for me! Thanks for your time and I'm looking forward to getting more involved in BP!

- Kyle Pockat, CPA

 There are deals everywhere.  Just gotta know where to find em

@Kyle Pockat Look for properties that need some work, then get creative. Every property has a story to tell, find what you can to use to your advantage. 

For Example on the duplex I closed on. It came up on Zillow, in a mostly single family neighborhood. I realized it was being sold as is. I got whatever information i could get on the property. I found out it had outstanding tax and water bill, and would likely foreclose in the near future. It was also being sold through a court appointed commissioner. So I made an offer at 240k they came back at 258k. I went back and offered the same 240k, with the offer extended to a week, and the p&s extended out a good amount of time. I wanted to make it easy for the courts. Not the seller. I realized Time was working with me here, not against me. The courts needed time to approve the sale, etc. So I used it to my advantage, and it worked. I got an offer accepted at 242k. 

@Brian Ellis - thanks for the advice! Unfortunately, I simply don't have systems in place for rehab projects 4+ hours away. Property management I can handle. I was hoping to focus on keeping my rentals in the area that I know best (Green Bay) but perhaps I need to look into investing here in the Chicago area. My only challenge is that I really don't know the area very well and between insane taxes and higher property values in this area, the costs are much higher to invest here. But maybe I can find somebody to partner with here in the Chicago suburbs at least until I can get back up into Wisconsin.

@Kyle Pockat , what areas of Chicago are you focusing on?  And are you working with an agent right now?  Depending on the specific sub-market, the right agent with access to pocket and off-market properties might be the angle you need to look into...

@Kyle Pockat your best deals are the ones you have to find. Don’t get caught up in the hype. Don’t listen to gurus or the news, run your numbers, they do not lie. If you look at 100 deals to make 10 offers and get 1, it’s great experience! Interest rates hit a 7- year high at 4.72%, and people from 1981 laugh at you. Money is not the problem, finding deals is the problem. Keep looking on your own, find properties that need help, you’ll find your deals. There are always people that need to sell. Life goes on, pretty soon, there will be more deals than you can handle. If your goals don’t scare you, think bigger! Good luck!

@Kyle Pockat Kyle, I am running into the exact same issues you are. Trying to find deals in Chicago is extremely tough and although I am a new investor I've realized that if you want an actual "deal" where the numbers work, especially for a buy and hold play, one has to be creative and look to unconventional methods to source deals. IMO the MLS has become too competitive, and has forced me to look at other channels.

If you feel that you don't have the time to do your own marketing efforts, I would look at FSBO websites like Craigslist, FSBO.com, forsalebyowner.com and the marketplace on Facebook (I'm serious, it might surprise you). In addition, I would do driving for dollars. Find properties that you think might need some cosmetic work and send the owner a letter. I have a full time job like you and have recently started to do this on weekends and some days after work.

Although some of these channels might not provide you with the same volume or pipeline of deals that the MLS might provide however, like you said, you're just looking for one or two deals, right? It might be the difference for you. Best of luck out there.