Overcoming Inflation

4 Replies

We have several clients that we have worked with in the past ( on average 2-3yrs ago ) and when we were selling them houses the simple numbers looked like this:

$62,900 sale price with monthly rent of $850-$900.  This was what we were able to provide back then.  Then came the hedge funds and pricing/competition rose drastically.  Even though the funds have stopped buying, homes we get now that rent for $850-$900 are sold  for about $75k-$80k on average.  The cash flow is still good but these older clients are having a hard time grasping that pricing and values have risen that much, it keeps them from buying again. 

 Are there any other property providers who have experienced this same issue?  I try to let them know that prices are still considerably low compared to what these homes were selling to circa 2008.  Just curious. 

@Curt Davis I have not specifically worked with clients who are hesitant to purchase since the market has rebounded. That being said, if I did have client who were reluctant to make an offer I would simply explain to them that the purchase price should have no bearing on their offer. They need to define what they want out of the deal. The client needs to convey what ROI they are looking for. If you work backwards and start to locate properties that have your clients' coveted ROI they can't argue price with you.

I met a ex-REIT executive one day and we talked for about 15 minutes. Somehow I got on the topic of losing my first deal...a 4-plex that went on the market for $49,000. I offered $59,000 and someone else offered $64,500. I told him about this and he said I made a mistake. I asked, "How?". He stated that I need to define my ROI. I need to locate properties that I like and determine a price that I would be willing to pay based off the ROI I am looking for. He told me to never make an offer based on the list price.

This helped me out a lot...I haven't lost a deal since. (Only been two since but still lol)

@Daniel Miller  

This is a lesson I'm trying to learn right now. Find properties that give me the ROI I am looking for and make an offer based on the numbers. I find I'm able to take the emotion out of that but sellers aren't.

Unless you're buying from banks, don't you find that sellers get upset and offended when you don't give them their price? I've explained to a few that my offer is based on my using the property as an investment, and that I hope they do get a better offer from someone who is not an investment buyer and sees the house for its "sentimental" value. But I let them know that my offer (verbal) will stand in case they don't and that I'm willing to work with them at a later date.

@Wendy Noble  I've found that if I explain my offer and stipulate that the offer stands and they can call me anytime to take me up on it, that I do not have too many sellers complaining. Occasionally you run into a seller who thinks his time shouldn't be wasted and whose high on his horse, but typically they regress after their property sits on the market a few months.

I do choose my battles very carefully. I do not make offers on properties that just came out on the market (unless it's a steal. Then I'll make an offer the morning it comes out). I make offers on properties that have been on the market 6 months plus. I look for properties where the owners have significant equity. (Anything purchase in 2004-2007 doesn't fit my criteria). I look for older owners who have been in RE a while. They know that deals, closings, financing, etc., all takes time, money and can fall through. They appreciate a cash offer.

I do not pigeonhole myself into only the preceding parameters. I have noticed that those parameters provide the greatest return for my time invested in deals though. 

@Daniel Miller 

Thanks, that is helpful. I'm gearing up to put an offer on a place and I'm trying to dig up as much information as I can to figure out my strategy. I've researched past sales in this apartment building back to 1994 so I know what the price trend has been, including 5 recent sales in 2014. So once I figure out which apartment in the block is for sale (I have someone going to look next week) I can get a sense of how much equity the guy might have in the place. The current owner is an out of town investor looking to divest. I'll be making a cash offer which might definitely help. Its a popular apartment building for investors, so I know it won't sit on the market for very long.

Thanks for giving me different angles to think about.

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