No Inventory? Deals Can Be Made in Any Market. Here’s How.

by | BiggerPockets.com

Real estate markets are always changing, and I’ve been hearing investors say lately that inventory is so tight that there are no deals to be found.

So what drives these cycles—and what can you do in a tight market?

Local markets vary dramatically due to job growth/decline, the local economy, laws and regulations, population growth, or even whether marijuana has been legalized.

In a good market, in a good area, the time for sale or days on the market (DOM) may be 30-90 days. That said, average DOM varies based on the location. For example, since we sell REOs (real estate owned properties) nationwide, I recently asked an agent in South Dakota what the real estate market looked like there as far as market time. He said it was about six months. When I mentioned that seemed a little long, he responded, “Nope, it’s been about six months for the last 20 years.”

But lately, just because real estate values are going up, the economy and jobs picture are looking better, and interest rates are inching up, everyone is saying there are no deals. This I find hard to believe.

What’s really happening is that the ways you got deals before are no longer working.

When the market changes, if you don’t change your strategy, you will absolutely be left behind. The commercial and residential real estate markets go through cycles, and you just need to be aware of what’s happening and adapt accordingly.

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Related: 25 Single Family Rental Markets Predicted to See the Largest Growth in 2017

Today’s Real Estate Market & What it Could Mean for You

Real estate is a supply and demand equation, and buyers’ and sellers’ markets come and go based on this dynamic. After the real estate crash, it was a buyers’ market for quite a while, especially with all the foreclosure and overbuilt new construction inventory, not to mention stricter financing requirements that limited the pool of conventional buyers. Falling prices with oversupply of inventory with fewer qualified buyers, combined with low interest rates and lots of investors sitting on ready cash pulled out of the stick market, made for a textbook buyers’ market. It was almost a feeding frenzy for a few years, especially if you had cash.

But guess what? All of that is changing again. It’s starting to become a sellers’ market in many areas.

Sometimes, market changes provide us with the opportunity to broaden our horizons. Maybe in these times of change, we need to move carefully and intelligently into other ways of investing. For example, in 2006 and 2007, I was an active real estate investor and real estate agent who switched gears 100 percent into delinquent note investing. Talk about a major shift.

I have plenty of friends who changed their models as well over the years. Some moved into the hard money business, and I even had a friend who worked in REOs but now does notes. Another friend moved into multi-units, although he now feels that market is overpriced.

Of course, market changes don’t always mean that you have to completely shift gears. Sometimes it’s enough to get more creative and utilize different strategies.

Strategies for Creating a Great Deal

Another philosophy that has served me well is that the quality of the deal depends not only on the property, but also on the financing and how the deal is structured.

I used to laugh at the old saying that if your seller wasn’t insulted by your offer, then it was too high. But there’s more to it than that, as it has to be a win for both sides.

Related: 5 Deal-Finding Tricks I Use to Buy Around 100 Properties Per Year

I’ve done many deals that didn’t look so good on the surface, but by adjusting the terms and financing, the real deal suddenly appeared. When buying houses, I used to make multiple offers on the same property, and each offer was a good deal for me.

There may be ways to structure your offers that completely change the quality of the deal. For example, is there owner financing or an option where the seller can carry a second mortgage in one of your offers? Better yet, is this a no money down deal?

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Other strategies may be to take over the property “subject-to” or do a lease option on the deal. Or maybe you can buy all-cash with private money to drive better pricing. If you structure the deal right, even if you pay full price, you can compensate for that with the terms. For example, I may pay full price if the seller holds the mortgage and keeps the interest rate low.

(Of course, negotiation is still very much a factor when it comes to creating the deal you want. I do remember having my own secret little practice, where I would wrinkle my forehead, rub my face, and say, “Is that the best you can do?” Then, I’d just shut up and try not to break the silence first.)

There are certainly other factors as well, such as how much work the place needs or what the hot buttons are for the seller (i.e. maybe they want to move quickly, they might need help with cleaning it out or repairs, etc.). That said, the best deals are often made through motivated sellers by helping to solve the problem they’re facing.

Remember, if you don’t ask, you won’t receive. The more offers you make, the more deals you will get.

So, if your local market is changing, make more offers maybe using financing as a factor and not just price. Or are you utilizing other strategies for finding and creating deals in today’s tight market?

Let me know the experiences you’ve had in your local market with a comment!

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for over 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.

10 Comments

  1. Al Meger

    Dave – I’m local in Sioux Falls SD. Inventory is razor thin, levels are down about 25% , and Avg DOM is right around 90. Inventory is moving quickly and it is very competitive on the buy side right now. Once you get above 500k the days on market slide up to 6 months plus.

  2. Jade Spell

    Definitely not a “no deal” situation, but the number of potential deals has thinned considerably in the area I farm for properties. This is due to a significantly smaller supply of starter SFH in the $80-160K range, and the local builders ain’t building that many anymore. FSBO owners are even pricing their SFH with the belief the “market is smokin’ hot”. But there are opportunitues, such as a new SFH rental I was able to get with cash after a prior real estate deal on a property of interest fell through at the last minute due to a buyer falling out of escrow on their financing.

    • Dave Van Horn

      Jade,
      Good point made here. In a tight market, you’ve got to be able to move quickly when it’s time to move, and it seems that’s exactly what you did.
      There’s also something to be said about joining and participating real estate networking groups. For example, you may learn of more opportunities as fellow real estate investors start selling their properties.
      Best,
      Dave

  3. Kelly McMillan

    I’m investing in a market near a university where inventory is not only low – but there are so many investors, that buyers pounce the moment anything hits the market. I was in a bidding war on my last house and had to go $5k over asking. When I tried to negotiate during due diligence, they said, sorry, we have three back-ups. In most cases, sellers are asking for ‘highest and best’ two days after something hits the MLS.

    Any advice on pulling deals when you don’t have the luxury of negotiation, or even knowing what the competition may be offering?

    • Dave Van Horn

      Hi Kelly,
      Great question. Ultimately, the deal either has to work for you and you have to be able to make money.
      If you’re comfortable with the amount, maybe you can put your highest and best offer in first. There are a few other creative strategies though, especially since it’s all about what the seller nets. For example, when I was a Realtor, I used to give up my commission to get deals.
      You could also go in with strategies like paying cash or giving up contingencies. In a tight market, you could bring your home inspector or contractor with you on a viewing before you make the offer, and then you might even be able to skip an inspection. You could even bring a large, all cash deposit and then come to the table with a mortgage. Or if you don’t have a large deposit right away, you could make a second or even third deposit to show a higher level of commitment.
      I’m sure there are more strategies I’m not thinking of at the moment, but I hope this helps!
      Best,
      Dave

  4. James Barnhart

    Kelly, I have found the same situation in central Florida. And, I have missed out on some properties, like you did.
    So, I am always looking for properties that need some cosmetic work,, maybe vacant, price reduced, higher than average days on the market, estate/probate leads from the county courthouse, and people that have received a notice from the mortgage co. that they missed a payment, (also from the courthouse.) I also know a couple of Realtors that deal with HUD foreclosures, and VA foreclosures. And, I am on a few wholesaler lists as a buyer.
    It is not nearly as easy as it used to be, but it is still possible. You have to keep making contacts and keep looking.
    And, also consider doing a 5 year lease option for someone past due on house payments. Then, you can lease it for 3 years to someone with some down payment money, but not strong enough credit to get a mortgage. If they keep making all payments on time, then those folks can buy that house in 3 years because they then will have a better credit report. That’s a win-win-win for all. That’s the very basics of how to do that.

  5. Denise Supplee

    Trying to convince buyers that it is a different market is challenging! I have been direct-in-your-face with them about low-ball offers, yet they ignore and lose the deal. It is exasperating. And some do not even get it until they have lost a few. Then it is a V-8 moment!

    • Dave Van Horn

      Thanks for chiming in Denise!

      I know what you mean, I feel like it hasn’t been a “buyer’s market” long enough for some buyers to understand this, sometimes they have to lose a deal or two to finally get it.

      – Dave

  6. Diane Dono

    Great information and I needed to hear the blunt truth about multiple offers and making low bids, etc…I haven’t lost one with much regret yet, but now when I come across a worthy project, I will offer more wisely..and possibly with a bigger down and no inspection contingency…

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