Anyone else see opportunities coming?

[Rich O'Neill]

Curious where everyone's head is at this point in the market cycle.

I am looking out the next 6ish months and I think there is a lot of opportunity headed our way, if you're ready for it. This is what I am thinking, though of course, I don't have a crystal ball.

Right now, lot's of sellers still seem to think they can get what they could have gotten in the spring, which is justifiable because a 6 month old comp is back in APRIL, when rates first started their moonshot. At the same time, buyers simply can't afford nearly what they could in the spring due to interest rates. 

I think that's why a lot of markets are seeing DOM and BOM's go through the roof. There's a huge disconnect. 

As those comps age out and the DOM continues to go up, I think we will see a further drop in inventory from "Make me Move" seekers giving up. 

What remains will be sellers that actually need to sell, and will pay attention to any offer they get, even a low one. It will become a numbers game for us buyers, and the odds might start to tip in our favor. 6 months ago if you offered any less than asking, it was pointless. In the next few months, particularly after the holidays, I will be out there throwing offers at anything that looks decent at a number that fits my criteria, regardless of the ask price. 

What will be important here is how professional you look to the seller. They will be tired. They will have dealt with the tire kickers. If you can position yourself as a closer, they will be much more likely to accept. Make sure you are personally in the best borrowing position, as credit boxes are already tightening. It might be harder to fund these deals pretty soon.

"But what about high interest rates???"- It is just a number in your calculator. Conservatively underwrite that number, and you should be fine. 

A unique combination of things over the next few years could turn good deals today into great deals tomorrow, as @Daniel Scruggs put it to me. Rents generally rise more in line with inflation and overall housing cost than the actual value of housing (think monthly payment, vs home value). Both of those things are likely to continue to go up in the next few years, which leads me to believe rents will continue to rise at a faster than average rate (maybe not the crazy rates now, but higher than average). At the same time, I find it hard to believe that mortgage rates will continue to remain this high for 3+ years. If the Fed accomplishes their mission of reducing inflation, they should start to slowly back rates down to earth (maybe not as low as they were, but lower).  I think they still have room to go up, but I don't think they will stay forever.

So hypothetically in 3 years, you will have bought a good deal now, rents will go up, rates will come down. If you refinance then, you could turn a good deal, into a great deal. 

Now, I am not naïve enough to think those things will definitely happen. Let's say NONE of it happens, and the only thing you get is a good deal- you are still getting out ahead! 

Where am I wrong? I would love to hear what others that are smarter than me are thinking. 

[Gene Hacker]

I am still buying if the deal is solid and it fundamentally makes sense factoring in current rates.

I don't think this is a good time to take on marginal deals, but if a very solid deal comes across my desk, I take it down.  

[Nathan Gesner]

I've explained my predictions in other posts. I anticipate a steep market correction, up to 25% below peak prices in some markets. We'll also see a lot of people to scared to invest, or they won't have the money because of the economy, they won't have the miraculous equity growth we've seen these last two years, they won't have extra COVID money, etc. People will become fearful again, and that's when I hope to accelerate.

For now, I'm being very careful.

[Karl B.]

If I see a good deal I pursue it but I'm seeing a lot of clown numbers out there. As one of my realtors stated when I saw him at the gym, "Sellers are telling me they want to sell at what homes were going for a year ago and buyers are waiting for the prices to go way down."

I see more price reductions in my market but the fun won't begin until inventory stacks up. 

This combined with the fact The Federal Reserve is pushing for more unemployment (I figured I would link an article to my statement: https://www.cbsnews.com/news/f...) and tends to overdo whatever it is they attempt to hit their target, and I see more foreclosures added to the inventory but of course that process takes quite a bit of time (the unemployment and rise in inventory will happen much sooner than the foreclosures caused by Fed Intervention).

At this point I'm still fixing up all the properties I bought over the past 12 months (removed the last of the problem tenants and am working on those last few units) so I'm in no hurry to accumulate more value-add but I should be finished bored, and eager for deals by the time spring rolls around. 

[Scott E.]

Quote from @Nathan Gesner:

I've explained my predictions in other posts. I anticipate a steep market correction, up to 25% below peak prices in some markets. We'll also see a lot of people to scared to invest, or they won't have the money because of the economy, they won't have the miraculous equity growth we've seen these last two years, they won't have extra COVID money, etc. People will become fearful again, and that's when I hope to accelerate.

For now, I'm being very careful.

I agree with you Nathan that we shouldn't be surprised by a 25%+ correction in the markets where values soared too high (like where I live, for example).

But with that being said though, out here we have already seen prices drop ~15-20% in many sub-markets. I personally picked up a deal for $605k a few weeks ago, which was 15% less than the seller bought the exact same home for something like 8 months ago.

Does this mean we are actually close to a bottom? Not sure. During the housing crisis of 2008, prices dropped in my market by over 50% in the worst parts of town. So maybe there's more room to go. But this is not 2008.

[Wale Lawal]

@Rich O'Neill

You should invest as per your investment goals, market cycles do play an important role so always understand and analyze the all important factors before investing.

For now if you have a deal that meets your investment goals you should go for it.

All the best!

[JD Martin]

My thoughts: I have everything I need or want at this point so it really makes no difference to me one way or the other. I live in a solid growth, low tax area that has a lot of upward room and is dreadfully short of rentals of any kind. If I never buy another property, I'm more than set.

So from that perspective I will probably do a lot of watching.

[Eliott Elias]

So many more deals hitting my desk, doesn't mean I close more. My criteria is a lot different than it was a few months ago 

[Peter Bogdon]

I agree with @Wale Lawal. Though there is a significant amount of speculation and fear about the market, this provides an opportunity for investors to dial in their goals, disciplines and fundamentals and not let the emotional banter keep them away from pursuing a deal that meets their criteria. 

[Rich O'Neill]

@Peter Bogdon you bring up a great point about dialing in goals (therefore criteria). I just had this conversation with a friend about how nobody has their goals defined and it worked for a while because just about everything was supposed to make money. Now its harder to do, and we need to define our criteria. That way we know a good deal when we see it. 

[Wale Lawal]

Quote from @Peter Bogdon:

I agree with @Wale Lawal. Though there is a significant amount of speculation and fear about the market, this provides an opportunity for investors to dial in their goals, disciplines and fundamentals and not let the emotional banter keep them away from pursuing a deal that meets their criteria. 

 True, you can go the deal deal that meets your investment goals.

Good luck!

[Jewel B.]

After how many DOM does it make sense to shoot low?

Is there a certain % of the asking price that is too offensive to offer when going low?

How does one respectfully ask for such steep discounts as I sometimes see - 10Ks of thousands, 30% discount, etc.

If you make a low offer and they don't accept or counter, at what point do you then follow up, if at all?

TIA!

[Rich O'Neill]

Hey @Jewel B. these are excellent questions and of course the answer is "it depends". 

All I can tell you is what I do. 

I think right now anything over 45 days makes sense to give a low offer. Even 30 is worth a shot. Expectations are so messed up from the last few years that if the property doesn't go in the first weekend the sellers *might* have an "Oh $hit" moment. 

% of asking price will vary by seller, and it's impossible to know what that number is, even if you're an expert negotiator and you get the seller sitting across from you. I would say if the numbers make sense for you, then make the offer. Even if it is 50% of asking. All you can lose is some time in writing it up, and maybe a quick sad feeling when the seller/agent yells at you. To spend less time writing it up, I created a template of the important deal terms I like to convey and send it over as a letter of intent to start the negotiation with a comment that I will formally write it up for them if the terms look interesting. 

I don't ask for the discount, I just make the offer. Sometimes I will get the agent on the phone and try to probe/be really friendly. Lot's of "Man, this market is tough huh?!" Then I will call them back after I have "run my numbers" (I have probably already done this before the first call) and try to lighten the blow with "Hey Mr. Agent, I ran my numbers and its not really a great number compared to your asking price. I am not sure I even want to give you the number." 9/10 times they will all but beg you for the number, and when you finally give in, it isn't as insulting because you warned them. I learned this in "Never Split the Difference" by Chris Voss. I highly recommend that book! 

WHEN they don't accept the first time (they usually won't), I like to follow up every 1-2 weeks. Of course I will see if it is still for sale before I call. If it goes pending I will call the agent to congratulate them and see if I can get the number they ended up taking. This can help me feel out the market as well as give me some positioning if the deal falls apart. 

At the end of the day, this is a numbers game. Lot's of offers need to be made, and most will not get accepted. The key is doing things that will increase your likelihood of getting your offer accepted with some of the strategies above. You may get 1 in 100 of these accepted. You may get 1 in 10. 

Good luck! 

[Jewel B.]

Quote from @Rich O'Neill:

Hey @Jewel B. these are excellent questions and of course the answer is "it depends". 

All I can tell you is what I do. 

I think right now anything over 45 days makes sense to give a low offer. Even 30 is worth a shot. Expectations are so messed up from the last few years that if the property doesn't go in the first weekend the sellers *might* have an "Oh $hit" moment. 

% of asking price will vary by seller, and it's impossible to know what that number is, even if you're an expert negotiator and you get the seller sitting across from you. I would say if the numbers make sense for you, then make the offer. Even if it is 50% of asking. All you can lose is some time in writing it up, and maybe a quick sad feeling when the seller/agent yells at you. To spend less time writing it up, I created a template of the important deal terms I like to convey and send it over as a letter of intent to start the negotiation with a comment that I will formally write it up for them if the terms look interesting. 

I don't ask for the discount, I just make the offer. Sometimes I will get the agent on the phone and try to probe/be really friendly. Lot's of "Man, this market is tough huh?!" Then I will call them back after I have "run my numbers" (I have probably already done this before the first call) and try to lighten the blow with "Hey Mr. Agent, I ran my numbers and its not really a great number compared to your asking price. I am not sure I even want to give you the number." 9/10 times they will all but beg you for the number, and when you finally give in, it isn't as insulting because you warned them. I learned this in "Never Split the Difference" by Chris Voss. I highly recommend that book! 

WHEN they don't accept the first time (they usually won't), I like to follow up every 1-2 weeks. Of course I will see if it is still for sale before I call. If it goes pending I will call the agent to congratulate them and see if I can get the number they ended up taking. This can help me feel out the market as well as give me some positioning if the deal falls apart. 

At the end of the day, this is a numbers game. Lot's of offers need to be made, and most will not get accepted. The key is doing things that will increase your likelihood of getting your offer accepted with some of the strategies above. You may get 1 in 100 of these accepted. You may get 1 in 10. 

Good luck! 

 Thank you for the extremely detailed and useful advice. That book is already on my wishlist - can't wait to get it. And 1 is all I need!

[V.G Jason]

Quote from @Jewel B.:

After how many DOM does it make sense to shoot low?

Is there a certain % of the asking price that is too offensive to offer when going low?

How does one respectfully ask for such steep discounts as I sometimes see - 10Ks of thousands, 30% discount, etc.

If you make a low offer and they don't accept or counter, at what point do you then follow up, if at all?

TIA!

Real fair questions. This is where I'm going to lean on my agent.