Ways to Overcome Buying Challenges in Today's Marketplace
March 14, 2018
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I want to take a minute or two to talk about the challenges many of our investors are facing these days – high competition and low inventory.
In most of the markets where Simply Do It is active, buying is very difficult. We are seeing multiple offers on every good house coming from buyers in the marketplace.
Inventory level in most areas is relatively low, which makes it even more difficult to buy.
The reality is not very good for us investor buyers nowadays.
So what can you do?
These options may not be relevant for all investors. But for some, they may will be.
- If there’s a way for you to make a cash offer, you should consider it. It will give you an advantage. You should not give up on financing. It only means you need to incorporate financing in a second step. This option is known as delayed financing. If you decide to do it, make sure you work with your lender on the execution.
- Try targeting houses that need more work. Historically, we mainly purchased houses that need approximately $5,000 or less in what we call “make-ready.” In some of the markets we are in, such as Dallas, Nashville, and Tampa; we have the local infrastructure that can handle bigger make-ready jobs than $5000.
Do understand, we are not referring to a full renovation work. But actually, we are referring to houses that need updating such as a new roof, new flooring, new paint job, and maybe a few other touch up items that may require $10,000 to $20,000.
Typically, such an improvement will result in a house that has a higher value and will get a higher rent once work is completed.
We know that not every investor is comfortable with doing this or has the liquidity to complete such a mini-project. But if you are one of those who do have that ability and comfort zone, you should definitely consider doing that.
- If you are able to combine number one and number two – even better.
- Consider relaxing your investment parameters. For example in some of the markets such as Dallas, we have found that houses priced at $220,000 to $270,000 will still generate the cashflow we are looking for – maybe even a bit higher than the houses that cost below $200,000.
Another option is maybe buying a bit older homes then you would consider at the moment or houses that are in less of a perfect school district.
- It is possible we are seeing one silver-lining and that’s the increase of the interest rate. You may be thinking that the interest rate going up is actually bad for you, but I beg to differ. We are already seeing reports that there are less applications for mortgages. This means maybe more and more buyers are moving to the sidelines. And if there are less buyers in the marketplace, we may see a shift for a seller’s market to a buyer’s market.
- Do not get discouraged. It is a tougher market to purchase. But, we are still seeing many of our investors succeeding in buying additional properties.
- Lastly, we are working on an additional strategy to help you get an advantage in the current Marketplace.
You should not get intimidated by the higher interest for the following reasons:
- Even at around 5% rate for investors, you are still looking at a relatively lower rate.
- It is very likely that you will refinance your current mortgage to a lower rate in the coming years. How soon will that happen – we don’t know. But, you should not assume you are locking yourself into the current rate for the next 30 Years.
- In order to mitigate the higher rates, you can consider putting 25% down or even 30% down. Putting a larger down would benefit you by both: having a better rate and slightly better cash flow.
We hope this information helps you rethink or re-calibrate your next purchase.
If you are still confused or not sure what to do, we suggest you let us know so we can set up a time to further discuss your specific challenges.
As always, I wish you success with your investment and thank you for letting us be a part of that Journey.
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