Tips For Buying In A Hot Market
By JD Esajian on December 8, 2017
Real estate markets can be very cyclical. If you do not stay on top of market trends and activity you leave yourself susceptible to bad deals. Most buyers, and investors, would love to be in markets trending upwards. However, these markets also make it difficult to get the best possible deals. Your goal as an investor isn’t to simply acquire real estate but to buy properties with appreciation potential. If you can get a deal at your price point in a thriving market you get the best of both worlds. While this may seem difficult on the surface there are a few things you can do to give yourself the best chance. Here are five tips to help navigate buying in hot markets.
- Be ready to act. In areas of high demand, it is not just cliché to say that time is truly of the essence. It is not uncommon for good properties to get snatched up within 24-48 hours of listing. Those buyers, and investors, who are ready to act give themselves the best possible chance to get their offer accepted. Being ready means keeping your financing options constantly updated. If you are using lender financing, you should ask your lender how quickly they can change dates and loan amounts if needed. In most cases this shouldn’t take more than a few minutes, but it is essential they can get this to you in a timely manner. If you are paying cash or using hard money funds you need to keep an updated proof of funds letter on file. An outdated proof of funds will be quickly discarded, and your offer may not even be looked at. Everything not only has to be sent to the seller quickly, but it must be updated and accurate.
- Consider a town specific agent. Loyalty is important in any business, especially in the real estate business. If you have been an active investor for some time there is a good chance you have an established real estate agent, attorney, contractor and mortgage broker. As important as existing relationships are you also need to know when to spread your wings and find new people. In hot markets it makes sense to use a real estate agent that is familiar with the town and knows how to get your offer accepted. Many times, an agent will have exclusive access to bank owned, foreclosure or REO properties in a specific area. When they put a new listing on the market they may only have a brief window to get the highest price or accept the strongest offer. If there is an existing relationship they may go the extra mile and ask for any supporting documentation that can push your offer over the top. Additionally, they may know any sub pockets inside of a market that can be primed to take off in the coming months. You can, and should, keep your current realtor relationships but be open to adding one in the right market.
- Refine your offer. It is always important to recognize supply and demand. In hot markets real estate is in high demand, meaning that sellers have the upper hand in negotiation. This means that every facet of your offer must be thought out prior to submission. If there are ten offers on the property it is easy to dismiss one with poor terms or unrealistic concessions. You need to find the balance between being comfortable with your offer yet knowing that you need to bend a little on what you want. If you have a firm price in mind you need to make your offer stand out by removing any unnecessary contingencies. If there is an inspection contingency it needs to be no later than 48 hours after acceptance of offer. You should not even think about getting any cash back or making any changes to the property. You may only have one chance to submit your offer and it had better to just the way you want it.
- All cash. One of the best ways to make your offer stand out is by removing the mortgage contingency and offering cash. A cash offer alone will not guarantee acceptance, but it doesn’t help give it increased consideration. Even though the loan approval process has been simplified there are still many hurdles to jump. A cash offer streamlines the process and leaves little to chance. The seller knows they will get their cash in a timely manner and without any resistance.
- Look at bordering towns. There are some markets that are just too hot for investors. The purchase price ranges have risen to a point where there simply isn’t enough margin to justify an offer. However, a solid investing strategy is to start looking at towns or markets in close proximity. Buyers that love a market may have to settle for a bordering town due to supply or price. By getting on the ground floor a few months before demand hits you may be primed to capitalize. Neighboring towns don’t always have the same demand, but it is worth taking some time to find out.
Real estate markets are constantly changing and evolving. As an investor it is important that you change with it. Getting into a hot market can lead to above average gains but only if you can still get your price. Don’t let a hot market dissuade you from making an offer you are comfortable with.