Choosing the right location is key in real estate investing. One of the most important features of a location that you should keep an eye on is whether it is a buyer’s or a seller’s market.
And you should always aim for buying an investment property in a buyer’s market. But sometimes you just have to go for a seller’s market. No worries, here are some tips on how to buy a rental property in a seller’s market.
What Is a Seller’s Market?
To begin with, what does a seller’s market mean? We keep hearing that this market is a buyer’s one, while that market is a seller’s one, but what stands behind these terms? Following are the main characteristics of a seller’s market:
- Few properties on the market
- Low inventories
- Short listing times
- Selling prices above asking prices
- Property prices going up
- Homes selling quickly
- High closing percentages
Now that we know what a seller’s market is, let’s see how to buy a rental property under such conditions.
How Do You Buy a Rental Property in a Seller’s Market?
As you see from the list of features above, purchasing an income property in a seller’s market can be quite a daunting task even for an experienced real estate investor. It seems that all conditions are against the buyer and in favor of the seller. That’s why it is called a seller’s market after all. But don’t get scared. Buying an investment property in a seller’s market is absolutely doable. You just need to build a strategy and be prepared.
7 Tips on How to Buy a Rental Property in a Seller’s Market
1. Don’t wait for too long before making an offer
Remember. A seller’s market is a fasting selling one, and no good property will wait for you forever once it’s been listed until you feel ready to go for it. Thus, the first tip on how to buy a rental property in a seller’s market is to make your offer quickly. This doesn’t mean that you should jump for the first property that shows up on the market. Take the time to decide what kind of property you want (a single-family home or a multi-family home), the right neighborhood for you, and your price range, and once you see listed a property that meets your qualifications, just make an offer. To do that, you should have your finances in order, but we will come back to this point in a bit.
2. Make your best offer
In a buyer’s market you should always try to buy an investment property for as low a price as possible, but this is not the case in a seller’s market. The second tip on how to buy a rental property in such a market is to make the right offer. Once you’ve spotted a property that meets your expectations, come to the seller with a strong opening offer. Offer as much as you can possibly afford – and consider reasonable for this particular property. This doesn’t mean that you should buy a property if you believe it is overpriced or that you should risk going bankrupt just for the sake of buying a property in a seller’s market. But if you are convinced that that’s the right property for you, don’t try to score a deal in a market where inventories are short, demand is high, and sales are closing fast. Remember. Competition is high, and other buyers will be making their best offers.
3. Have your finances ready
Going back to the first tip on how to buy a rental property in a seller’s market – that you should act fast – there comes another hint. You should make sure to have your finances ready in order to be able to make an offer as soon as you see a good property. Go through your finances, see how much you can actually afford, choose the best form of financing, etc. In other words, be fully ready for when your dream property shows up. It might not last long in a seller’s market.
4. Be prequalified or even preapproved for a mortgage loan
Once again, in order to know how to buy a rental property in a seller’s market, you should act fast. In such a dynamic market, sellers would not be willing to wait for you to get approved for a mortgage loan after you’ve made them an offer. Probably they will be receiving offers from many other prequalified buyers or from such ready to pay in cash. Thus, getting prequalified for a mortgage loan is crucially important in a seller’s market. It’s not too hard and doesn’t take much time. You just have to go your lender and tell them your financial history. To be even more competitive in such a tough market, it’s advisable to get preapproved, which will save you a lot of time once you start buying a particular property and will show the seller that you are really serious and determined.
5. Work with an experienced agent
If you want to know how to buy a rental property in a seller’s market, here is another piece of advice – get a real estate agent. Even if you like working on your own in your real estate investment business, having an agent in a seller’s market is really beneficial and even obligatory. This will increase significantly your chance to get the property that you like. Moreover, once you go to an agent with your list of listed properties that you like, he or she will be able to offer you more similar properties as they have the time and the tools to do deep market searches. Having a bigger variety is important in a seller’s market.
6. Be ready for a bidding war
In a seller’s market, you might easily find yourself in a bidding war, and you should be ready to fight in it. If you expect this might be the case with the property you are planning to make an offer for, maybe you should offer a price that it somewhat below your absolute maximum budget. In this way, you will have some room in the bidding process.
7. Lower your expectations
Our last tip on how to buy a rental property in a seller’s market is to have reasonable expectations. This doesn’t mean that you should go for a property that is in a particularly poor state and needs a lot of maintenance work. But at the same time, don’t expect to be able to find and afford a property in an excellent condition. Thus, it is a good idea to set aside a budget for the initial repair and maintenance that you will need to do to make your new investment property rentable.
Related: 5 Ways to Find a Buyer’s Market
Though every real estate investor would rather search for properties in a favorable market, sometimes you just have to go for a location with increasing prices and declining inventories. To be a successful investor there, make sure to follow the above tips on how to buy a rental property in a seller’s market.