I keep getting outbid on home offers I’m making on single family homes.
HOW MUCH OVER ASKING PRICE DO I NEED TO OFFER?
I’m looking in the Tyler, Texas area, doing a conventional loan.
I offered day of, full asking price with pretty good terms (2% in Ernest ) and was not chosen.
So then I started to sweeten the deals. I offered on a house day of last week at 2% OVER asking price. They still went with someone else.
How far over asking price have y’all seen people bidding recently?
Is this getting too out of hand? Should I just wait for a crash? (Realizing that could be YEARS) from now
Just looking to see what others are observing in other areas or situations
I may be able to offer some help from a different POV. Right now there a few locations that are buzzing - TX included. The reason for this is that many people have found they are not only able to work from home, but are going to continue to do so post COVID & while it's still in the process of being worked out (in other words, the foreseeable future) Interest rates continue to be lower, and it's dawned on those that have been paying $2K+ rent each month (in places like CA) that it's going to be actually cheaper to buy than continuing to rent and they can still keep the warmer weather by going a place like TX, while they continue to work from home. So I would assume that a reactive market like TX is following suit with demand. My alternative suggestion would be to consider other markets that are historically flat and have proven themselves as investor destinations such as the Midwest, and specifically Indianapolis. Not only are you going to find some areas of 2% monthly rental yield for buy and holds, but purchase prices here are going to keep all in at 60% investing possible. I work with a lot of out of state investors here and I would be happy to answer any other questions that I can. I was just speaking with a member of our little REAI here about TX and a few other states less than 72 hours ago, and the bidding wars issue came up in relationship to supply and demand for the reasons stated above, so you're question has interesting timing. I realize not your original question but perhaps a little out side of the box thinking to at least explain why you're running into some offering issues at the moment in TX, and why you might not need to necessarily wait until the crash happens to keep investing. Thanks = )
The life transitions that normally happen like downsizing and job transfers are not occurring because of COVID. This makes supply go down. Work from home may have people wanting to upsize but those who would be downsizing are staying put because they don't want a bunch of covid possible people trooping through their homes if they are part of a more vulnerable older population.
I think the amount over asking is driven by supply in your area. Make sure you have an appraisal clause if you go over asking. In some cases it will be about convincing people you will close and not try to chew them down after you secure the deal. So things like putting in the least amount of contingencies. A local relator may be able to give you a feel for amounts over.
Texas market is super hot right now. Inventory is low and demand high. As others have noted due to Covid, average homeowners are just not moving. We are seeing very little turnover of existing inventory. My guess is local demand is being driven primarily by investors.
I have an investor friend who recently bid on a completed flip in Round Rock. The property was listed less than a week with multiple offers. He bid $35k over asking and was not even in the running.
Personally I’m sitting on the sidelines, keeping my powder dry. I’m focused on improving my properties and raising rents. Coincidentally rents are rising fast too. My last vacancy I had three renters looking and I hadn’t even listed for rent. All word of mouth referrals and drive by. Tenant moved in before the paint was fully dry. I could have rented four more units if I had them.
The market is crazy right now. I’m guessing there will be a correction in the second half of this year as we see the benefits of the Covid vaccine.
I'm an investor, and agent, in Tyler. It's a tight market for investors. The owner occupant market has been aggressively bidding most properties out of the reach of investors. Add to that mix new investors, and people trying to make a buck in this covid economy, and investors with "normal" margins are getting squeezed out of the market.
I'm happy to discuss.
@Caleb Haynes As others have mentioned, all of Texas is pretty desirable right now, for investors and home-owners alike. Even areas like Tyler that may not have previously been considered a "powerhouse market" can have these strong preferences for the offers they receive (high over asking, waivers, etc.). A couple things to help offers if you haven't already tried: appraisal waivers (full or partial, but full is much stronger), buyer approval waivers, high earnest money (which you noted you're trying), and competitive option periods (shorter option period, higher option fee). Hope that helps!
What I don’t understand is the investors. Many properties that I plug in and look at mortgage, capex, vacancy, home insurance, and taxes for expenses only have a cash flow of about $100 per month. And if you throw in a property manager, there goes even that small profit.
Unless rent goes up considerably, I don't see how an investor is making money unless they are putting down a good bit more than 25%. In which case they are getting a lower ROI.
How are investors looking at this? Do they think rent will go up? Or are they satisfied with lower ROI?
The thing about Tyler is, rent can only go up so far, no? Because pay at peoples jobs is not going up
It's insane right now. I'm sure the market will losses up in the future. If it isn't a deal then why throw money at it?
I'm not trying to cash flow. It's a little different than typical situation as I am just trying to balance portfolio (too much in market, volatile) I was wanting to balance with some real estate, so I'm willing to just break even. But not willing to lose money and want to get a better ROI than bonds... it's getting close to bonds being just as good as I would have to put more down to get monthly payments in acceptable range for rent prices currently ￼
You are right, the numbers don’t make sense. I think there are multiple factors at play.
1) Traditional investments; Stocks, Bonds, CD etc yields are low. Traditional investors are chasing higher returns.
2) Mortgage interest rates are at historic lows. Your mortgage payment dollar buys more.
3) Chip and Joanna factor. Real estate is now “cool”.
All this has moved more less experienced investors into the market. People are no longer looking for 1% deals. Instead people are counting on appreciation for returns. We will see how this shakes out in the long term. Will new investors be able to survive long enough to capitalize on appreciation?
What you want and what the market dictates are two different things. You are bidding on old terms, thinking asking price and 2% over. Homes in my main market are selling 200-300k over asking price all the time. 50k over is a minimum expectancy on not that great homes. If the iron is too hot for you, don't try to figure out who to put your hands on it with mittens, just wait until it cools down so you can invest when it's not literally on fire.
Some properties get listed low to get into bidding war, so 2% above won't be good enough. Do your CMA and ask your agent to talk to the LA and try to understand the expectation.
I also waive finance contingency and offer to pay for seller’s title. A higher amount for the option period of 5 days and an aggressive closing date. Once you feel confident with your offer and terms, have your lender call the LA and assure ability and fast closing.
You will be surprised how much that means to some sellers. And have a pre-approval not pre-qual letter with very offer.
I have seen other offers where buyer offers to pay the agent’s commission (but I haven’t personally tried it).
Are you just interested in winning a bid or are you interesting in getting a value? "Winning" by overpaying as an investor is losing in my book
Google how to find off market properties
Good point, there is a difference. I’m trying to get some value, as this is not my primary residence, but I’m not trying to cash flow. Just break even.
@Caleb Haynes Hey Caleb, I’m not from Texas but I’m in Southern California where we are experiencing an extremely hot market too. What people are doing here to get properties accepted is offering 3% of the purchase price as earnest money and also waiving inspections and appraisal contingencies. For investing, waiving contingencies and appraisals may be a little risky depending on your experience. However, maybe try increasing your earnest money deposit to 3%. Good luck!
@Caleb Haynes How much are you putting down?
The market is hot. Patience goes a long way right now.
I think the more important question is how much over asking can you offer and still have your numbers work?
If you can offer 25% over asking, and the numbers still work for your deal, then offer 25% over asking. (Yes, I realize +25% is a bit extreme, but just making a point).
List price is meaningless. Your numbers are all that matter.
But those numbers depend on a rent value. As you increase the rent you think you can get the investment becomes more and more risky. How can you be sure how much rent you will get when looking in an area where there aren’t many rental comps.?
@Caleb Haynes I think you are well positioned to be breaking even at 20%.
We don't typically waive the inspection contingency, and we use the option period to do a detailed inspection since we waive the finance/appraisal inspection. If inspection comes back clean, typically appraisal won't be too far off. and we usually back out if inspection is subpar as we don't want to take on big projects as OOS investors. The broker and lender you use also will help or impair your chances, so always work with someone that has good reputation in your local market. Good luck.
You have tools you can use to compare rents in the area. You can search Craig’s list, Zillow, whatever is popular in your area. You can also use www.rentometer.com. I think you get five free searches before you have to sign up.
The important thing is not to guess. Find some good data, and run your numbers. If they don’t make sense, then don’t put in an offer.
You could always try and find deals off market. They are much harder to get but also have a lot less competition on them once you get to that point. @Caleb Haynes
Deals off the market as in craigslist? Facebook marketplace? The newspaper? Where do I find deals off the market?
I have heard of wholesaling, but how do I get in touch with someone that does wholesaling?