We all love great deals. There’s Black Friday, Cyber Monday and the Nordstrom Anniversary Sale.
We’re irresistibly attracted to signs that read, “75 percent off,” “everything must go,” and “buy one rack of baby-back ribs, get the second rack free.” If only there were real estate bargains the way there are department store sales.
Believe it or not, you can also find or create similar great real estate bargains. It makes no difference whether it’s a so-called good, bad, seller’s or buyer’s market. You simply have to know what the profit-making signals are and how to react when you encounter them, while also never forgetting that any kind of change creates opportunity.
Whatever the season or state of the market, here are 10 top buying strategies to help you find your next real estate bargain.
1. Read what the sign is actually saying.
When you see a rider attached to a For Sale signs that says, “Reduced” or “Back on Market: Owner Must Sell,” don’t be in a hurry to scoop up the deal. Rather, you should be thinking this property must be way overpriced or contains some serious defects. But if you like the property after doing your due diligence, at least come in with a bid lower than the reduced asking price.
2. Know your market demographics.
About 70 million Americans were born between 1945 and 1960. Of these baby boomers, approximately one-third have no retirement savings. Almost as bleak, about one-half of all savers in the post World-War II generation have less than $25,000 tucked away. Fortunately, many of these boomers have equity in their homes. But should they encounter job loss, a health emergency or other crisis, they’ll likely have to put their homes up for sale.
3. Apply the magic of these three initials, DOM.
DOM stands for “Days on the Market.” The longer a house sits on the market, the more nervous a seller gets. Tension tightens if that same homeowner has to sell for a job relocation, faces a liquidity crisis or needs to move so he can enroll his kids in a better school district.
4. Outmaneuver contingent buyers.
Let’s say a seller has received a full-price offer from a couple, but it’s contingent on their selling their home first. Imagine if that same seller has already built a retirement home and is eager to move into his new digs. You could swoop in, offer a non-contingent, less-than-full-price offer and come out a winner. Time is money and it’s on your side. A good agent can help you identify these contingent buyers.
5. Time it right.
One principle of value that real estate appraisers apply is “anticipation.” Maybe there’s scuttlebutt about a big defense contractor relocating to your town, which would likely improve employment and thus lift home prices. But, don’t get too far ahead of the headlines. In the 1940s, Gangster Bugsy Siegel thought he could transform Las Vegas, a dusty desert outpost, into a glittering oasis. His vision of a resort destination was eventually realized but his mob partners, to whom he was indebted financially, didn’t let him live to see it.
6. Find sentimental sellers.
The all-mighty dollar rules in nearly all real estate transactions, but not always. Some sellers, presented with a variety of offers, might want to hand off their home to someone whom they believe will be an ongoing steward of their property or family home. Preservation-minded owners who live in period homes (Victorians, Arts & Crafts, Mid-Century Modern, etc.) are often a good place to look for sentimental buyers.
7. Get in on the ground floor.
Because developers can run short of funds, they will offer pre-construction sales on their unbuilt homes. This way they get the money to continue construction and show off to lenders the viability of their project and you get a discount with the possibility of selling afterwards at or above market value. Just make sure that the developer who’s selling has a reputation for quality, not cutting projects.
8. Repurpose the asset
Working with your real estate agent, try to find a property that is undervalued because it is being underutilized. Every property has a “highest and best use.” The key to leveraging this strategy is to make sure the use you have in mind is physically, financially and legally possible.
9. Turn dumps into diamonds
Diamonds in the rough exist in every kind of market. To calculate a flip candidate (fixing up a property for quick sale), you simply subtract your purchase price, repair and renovation costs, and carrying costs (such as mortgage payments, property taxes, insurance and utilities, etc.) from your anticipated selling price. Work out different scenarios using MyBankTracker’s mortgage calculator.
Many banks will share their lists of real estate-owned properties (REOs) that they’ve taken back from their borrowers. Because banks aren’t in the property-management business, where it can cost $1,000 a day to maintain a single property, they’re motivated sellers. Try to find a cheap house, without any incurable (not cost-effective) defects on a good block in a good neighborhood (healthy employment, quality schools, low crime and pride of ownership). Never let your enthusiasm for a house blind you to its flaws or the neighborhood’s; otherwise, you could end up owning an overpriced turkey.
10. Buy in dead periods
Who goes shopping in the dead of winter? If you’re not already, it’s time to start. If see a house you like, there may be far less competition for it. When there’s slack demand, prices fall.
You’re on your way
Up market? Down market? Savvy real estate buyers don’t really care what the conditions are because markets — good or bad — change daily and present money-making opportunities. Using equal measures of perception, patience and persistence, you’ll master the psychology of the real estate market and find your next real estate gem at a discount.