IS IT COMING BACK TO A BUYER’S MARKET?
When the market conditions shift from a seller’s market to a buyer’s market it is not known until many Pending Sales go to closing and several weeks or months have passed, understand? You see, many deals take at least 45 days to close, and even more can take longer….60 days (2 months) or more. Why is this important to point out? Recorded Data arrives for our review later than real time deals that are occurring or going to “Pending” status. We don’t know the settle price on a home until it closes, is my point.
Buyers can be at the front of this and be the ones creating market changes by being very good at negotiating in combination with understanding sellers’ motivations to agree to an offer. Or wait to be part of the timing that may mean prices are going up again! Doesn’t increased unit sales mean prices may go up? YES! So, timing is crucial to buy when the market is favorable for a buyer.
Like in any real estate market conditions there are always sellers who are more motivated than we can see. To "pull their covers" can be a bit of a challenge when the shift is just starting. But, with the right approaches and reasonable assessing of the facts we just may be able to find the more motivated seller. We surely see discovering motivation when we come to agreement. The identifying ingredients to look for include how long a home is listed, or “Days on Market”, if they have had to lower their price once, twice or more to get more showings and, here is a real tell……. truly realize the understanding that if a seller is selling in a slower time they really must be motivated on some level. Albeit, this could be simply an exit strategy timing but it also could mean they NEED to sell for reasons that push on them to get the job done and soon.
As for the specifics about the Outer Banks Vacation Home as an Investment we always seek to find a home with cash flow that meets or exceeds the investors’ goal. Some people are fine with most of the expenses getting covered by renting it knowing they will use the home a fair amount. Others are all about seeing the home cash flow positive and strictly as an investment. The reality is those cycles come and go, back and forth but with the right approach to the market and being patient, the smart investor can secure the right property for their goal(s).
There are sources online to learn the basics, like here – Investopedia - Economics of Buying a Beach House: Read Before You Buy
Or, and likely the better way, is to recruit a well-versed agent in the Beach Community you are drawn to. Having the “boots on the ground” perspective will always be best due to local influences being custom to each area. Subjects like property management, insurance and maintenance costs vary region to region. Knowing these specifics from a local Realtor means you get the right information.
Now, for some specifics that a great agent will implement. Many times when looking to approach the right sellers it means some homework was done before you go looking. Who does this homework? Well, you could but an agent in the know of their area and inventory can be very effective. You may not see this as a true, useful value right away but think about it. Who has specific tools for this? Who networks with peers that know they can help each other’s clients? Who recognizes the layers of the sellers ownership history like when they purchased, how much their mortgage is, have they spent on improvements? A local Realtor, the great ones, really want to look out for you and in such a competitive atmosphere as securing you, a serious buyer, they want to impress you.
Finding out who may be more motivated due to researching how much a seller owes on the property could prove very useful to the buying process. The thought is if they have a smaller loan that they can negotiate with more flexibility. Sellers like this are starting to show up in this market. An example of a recent sale I can share about like this shows the seller of an ocean front home in Nags Head accepted an offer $199,000 less than ask AND provided a concession of over $9000 to the buyer. The ask price was mid $2M’s.
As for other approaches or strategies, I have used a tool in similar situations or market conditions that reflects buyers being in a better position, but sellers just do not know it yet. If their Listing Agent informs them of specific conditions like Days on Market and how many price reductions are occurring the seller will get the understanding that conditions are shifting towards a buyer's market. The "tool" is to make it a condition that the seller guarantees a gross income for the first year. Just say we realize that if the home you like ask price shows that the home cannot cash flow at the price they want based on this year's bookings. So, of course we negotiate it lower than asking price, but also seek this type cooperation. Should the seller and you agree, we would have attorneys draft the agreement, they would hold a set amount from the seller proceeds in escrow and if the bookings be sluggish this season you get the pre-determined amount to hit the agreed upon Gross Rental Income at a pre-determined date, before the end of the year.
One other very useful tool for a buyer when the shift is on is to seek seller cooperation on by having as a condition them buying down your loan rate by paying for discount points. Lenders, as you may know, will allow a buy down of at least ONE POINT but many will allow TWO POINT buy down! This can save a buyer thousands of dollars a year. This will help the cash flow on the beach investment rental home ownership plan for sure.
I must mention, closing at the right time of year could mean you end up in a strong position due to being with a little over half the years’ worth of expenses instead of 12 months of the expenses. Or, if you want to put your beach house personalized stamp or perform some rehab work to help increase rental income it will make sense to close well before the season starts. A smart, great agent will help with this, too. A closing date means strategic thinking can save you thousands.
Working these ingredients into the deal and prodding the seller of the home(s) you like is the work we will do. I am prepared to help you get there on this list we have thus far. If none of these work out there is always new inventory and changing conditions.
Please let me know your thoughts you want to share about any of this.
Posted by Mike Bishal on
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