How do you buy low in a sellers market?

11 Replies

Hello everyone! I am a proud newbie to real estate investing.  I have read a bunch of books, listened to many podcasts, and done all of the normal newbie research.  I have spoken with a couple different real estate agents and analyzed many deals using the BiggerPockets calculators.  I am very ready to take the actionable steps needed to make my first investment but I'm extremely nervous that as soon as I do the market is going to tank. 

Everyone I talk to says it's a sellers market and that property values are as high as they have been in a decade, which is great if you are selling and obviously not so great if you are buying.... 

I guess my question is two fold, should I wait it out and keep preparing/analyzing/learning or should I take the chance and buy something where the numbers make sense, and if so, how do I buy low in such a strong sellers market? 

Any and all help is appreciated, thanks in advance! 

Joe

Everyone always wishes they could have bought last year, or 5 years, or 30 years ago. Guess what, in a year, or 5 years or 20 years from now you will have wished you bought in 2018.

Joseph Szymczak II I don’t know that there’s a magic way to “buy low”. You could look off-market but then it’s time intensive, there are likely marketing costs, realtors don’t want to throw out horrible “low” offers for a newbie who has never closed on a investment property.

So here’s my advice: Figure out what has disproportionately higher value to you. Is it a property within a 5 mile radius of you because it’s easy to manage? Do you think there’s an area primed for appreciation that others don’t? Would you pay more than the “average” investor for a 2015 build because you loathe the idea of cap-ex?

All of this is pretty darn relative. But if you’re looking to buy for the long-term there are plenty of “good deals” on paper that might not be “good deals” to you.

Stay well clear of SFHs. Very high risk in a sellers market. Concentrate on investment properties (multi units) having below market rents not personal homes. Home buyers are bat s**t crazy in a market like now.

If you purchase a property that is cash flow positive after accounting for all expenses, and you are a buy and hold investor, it does not matter much if the value drops the next 3, 5 or 10 years as long as you don't have to sell the property.  You're net worth on paper may decrease but you're still making money... assuming rents don't sharply decline, which is unlikely.

Hi Joseph,

Timing the market is very difficult to do and you are better off making decisions off current numbers rather than expected ones. If the numbers make sense today, that should dictate your decision.

If you are doing a buy and hold strategy, even if the market tanks usually rents don't drop too low and you'll have a 1 year lease anyway with the tenant to help preserve some of your rent income. If you're looking to do a flip, then you're more exposed to being hurt by a market drop so it really depends what strategy you're going for.

I live in a very hot market where condos & townhouses typically close in 7 days or less (not uncommon for it to sell before open house) and usually over asking price. Even here, there are "deals" you can get but it would likely only be about a 1% discount off asking price which equates to a few thousand, but it just really depends on your market as to how much of a deal you can get. As an investor though, you have the luxury of bidding on as many properties as you want where the numbers work for you. 

My advice: Bid often and if the majority of your bids are being accepted then chances are that you're bidding too much. But when a great property opportunity is listed, know how much you're willing to bid up to and jump on it fast.

Hey @Joseph Szymczak II I am in a similar market as yourself. 

I would stray away from the absolute concentration of "buying low" and move towards the idea of buying if it "makes sense" for the long haul.

Instead of thinking "buy low", think in terms of "make sure it cash flows" in a sellers market .

Yes, you can buy low, but not in the sense of "low balling". I started my investing 7-8 years into a rising market in 1983. That market peaked in 1986. My wife's theory is that  if you look at 100 properties, 1 will be a fluke, even if sold through a realtor.

The first 3 properties I bought were bought this way, all thru realtors, and maybe because of them. I was looking at 3-plexes, going for $225K at one point. One came up for $180K in the papers, I called, and told it was a mistake, a typo, according to the real estate office, and the asking is actually $225k. I thought it's a bait and switch, but didn't accuse them of such.

Then I called every week, out of curiosity to see if there's any offers. There were none. I was persistent, called every week for 3 months, told the same thing, still for sale, but for $225K. I said "no", call me when it's $180K.

Finally, they called me, so I asked is it going to be $180K. They said we can talk. So I said to be honest, this whole thing sounds fishy. They ask me if $185K would work. When I heard that, I blurted out, why is it they want $225K all this time, and suddenly $185K would work. Something wrong with the house?

So the broker said let me tell you the whole story then. I told the sellers I'll get $180K for them and it's OK with them. You know the house is $225K, but when we put the ad in the paper, the girl heard $180K, was the asking. The difference is actually our commission. The sellers insists they be home when we show, but they're never around. Everyone gave up on the place except you. And my contract with them expires in a week.

To make a long story short, there were other issues that almost scuttled the deal, so the broker finally said, OK, we'll do it for $180K then, I'm so tired of this, so I be done with it without making anything. So I said "thanks, sounds good to me".

Yep, I like these flukes. I didn't have to lowball, but then, maybe I did.

Originally posted by @Joseph Szymczak II:

I guess my question is two fold, should I wait it out and keep preparing/analyzing/learning or should I take the chance and buy something where the numbers make sense, and if so, how do I buy low in such a strong sellers market? 

First question - nobody knows what will happen to the market, if they say they do they are lying.  And all markets are different, some will keep pushing through a recession and others are hit hard.  Everything in RE is a calculated risk.  You didn't mention what you were looking to buy but If you are looking to buy a rental just make sure your numbers work if rent prices decrease.  That will hedge you against some risk.  If your goal is to sell in a few years there is no way to predict the end result so if you aren't comfortable taking that risk on your shoulders you probably shouldn't invest.  

Second question - how to buy low in a seller's market? Do what others aren't. Generally the MLS will list properties at market value, if you find them off the market you may have a chance at a discounted price. Nobody had to give you a deal, if I had a magic system to purchase low I wouldn't be sharing it on here anyways, that would be my competitive advantage.

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