What if the odds are not in your favor?
You’re considering investing in real estate, but you keep hearing terms like “it’s a seller’s market”. So what does this mean? And why are real estate investors usually discouraged by a seller’s market? Before anything, we’ll be defining both seller’s and buyer’s markets to better clarify the difference and the challenges associated with a seller’s market and to learn how to buy an investment property in a seller’s market.
What is a Seller’s Market?
A seller’s market is a real estate market in which conditions better accommodate sellers. In simpler terms, there are more buyers than there are sellers. Basic economics dictates that when there is more demand or quantity demanded (buyers) than supply or quantity supplied (sellers). Therefore, in a seller’s market, sellers have more power when it comes to setting and controlling the price of property. There’s also high competition between buyers in a seller’s market. Essentially, this means that you have to be savvy when searching for a property, and then bidding on it. The fact that sellers have the advantage doesn’t help with the existence of this competition.
What is a Buyer’s Market?
Opposite to seller’s market, a buyer’s market is one where there are more sellers than buyers. And contrary to a seller’s market, in a buyer’s market, supply or quantity supplied (sellers) is higher than demand or quantity demanded (buyers). Buyers have more bargaining power in a buyer’s market; that is, they have the advantage.
Is it a Buyer’s Market or a Seller’s Market in the US Right Now?
It’s important to understand the housing market as a real estate investor. And simple facts like knowing whether the market you’re looking into is a buyer’s or a seller’s one are very important. Generally speaking, the US real estate market is a seller’s market and has been for the last few years. The supply of property is low in most major cities, and property prices are only rising. At the same time, it all really depends on where you look. Some cities lean to be more like buyer’s markets, others are strictly seller’s markets, while some are a happy medium – a neutral market. The US real estate market will not always be a seller’s market. It’s expected that by late 2018, and well into 2019, a transformation into a buyer’s market is in the making.
The question is, does the fact that the US is a seller’s real estate market mean you shouldn’t invest in real estate? Absolutely not!
How to Buy an Investment Property in a Seller’s Market
It’s not impossible, but you need to handle the sale process rather cautiously. Planning is key, and moving swiftly is important. You can’t wait too long before making an offer. Your timing is essential to your success. Usually, we would advise you to look into your options and take more time. When buying a property in a seller’s market, however, properties go off the market faster. Be mindful that we’re not saying you should irrationally jump at any opportunity to buy an investment property. But make sure that the investment property you find matches your expectation and what you’re looking for.
There’s not a lot of room for bargaining or waiting in a seller’s market. Competition among buyers is very high. This is why you should have a strong offer that the seller cannot say no to. At the same time, do not offer your maximum price to leave flexible room for bidding in case a bidding war between you and other sellers occurs. You should also be preapproved and have your finances sorted before making the offer. You want to show the seller that you have a plan to finance your investment property to strengthen your buying position and help you buy quickly.
Another tip is to try to search for property in less popular locations. Some of these may be up and coming neighborhoods with great potential for future ROI. Plus, they usually have lower competition among other buyers. Finally, make sure you have the right network and connections. These could vary from partners, clients, tenants, brokers, lawyers, etc. These will give you a platform not only to meet other like-minded individuals but to benefit from them as well. You never know when one of these people may know of a good sale in the real estate market. Never underestimate your connections and the power of word of mouth.
Make sure you use Mashvisor to find the best investment property in your city of choice. Our investment property calculator and other analytical tools will help you in determining different real estate indicators. Among those are CoC return, cap rate, occupancy rate, expected rental income, as well as others. Mashvisor also allows you to plug in cost assumption data to figure out ways to finance your investment property.
See? It’s not too difficult learning how to buy an investment property in a seller’s market. And the above tips will help you obtain a property in a market where inventory is low or a seller´s market.
What Do We Take From All of This?
We can with assurance say that buying an investment property in a seller’s market is more than doable. You just need to learn the tips and tricks on how to buy in a seller’s market. And again, just because the general US housing market is a seller’s market, that does not mean that everywhere in the US is. Make sure to look into local markets. After all, no real estate market is the same as the other.
Finally, make sure to keep your eyes peeled for changes in the real estate market. The end of this year and 2019 may see a shift to more major real estate markets becoming buyer’s markets. But until then, you’ve just got to make the odds in your favor.