How to Win Big as a Buyer in These Market Conditions

I’m sure you’ve heard people say, “I’ll wait to buy when housing prices start going down” more than once over the years. well guess what? Housing prices are coming down, but we are not seeing an influx of new buyers. The same people who were waiting for housing prices to fall are now saying, “Interest rates are too high. I’m going to wait for them to go back down.

Many people will wait for market conditions to be perfect before making a purchase. The problem is that market conditions will never be perfect. It’s very rare that you’ll ever find a perfect deal. Buyers find great deals when they are actively looking for them. Over the years, there was an economic opportunity to eliminate competition from multiple bidders to get the home under contract at a historically low interest rate. Now, times have changed.

If you’re looking to get out over the edge, here are four ways buyers are winning in this current housing market.

bargain

Every real estate investor I know agrees that there has never been a better time to negotiate in years! From the start of the pandemic until the summer of 2022, it was an extreme seller’s market driven by record-low interest rates. When the vendors asked us to jump in, the response was “How high?” Now, the tide has turned. Buyers have power, especially if a home isn’t listed in good condition.

Here you need to do a great deal.

know your goals

When looking for property it is important to have goals to guide your decision making. whether it be cap rate, cash-on-cash returnSetting , or cash flow, goals will guide you in your home search and negotiation. One strategy I help my investor clients use is looking for properties that will break even and pay for themselves, and then how much cash the property will generate over the next few years or back after a refinancing opportunity. Will come

If you can get a property at a significant discount, let it pay for itself, and then get a cash-on-cash return of 10% after refinancing at a 5% interest rate (which is conservative), I’m encouraged. Would you strongly consider such properties. Upon refining your goals, you begin to ask, “What do I need to buy this property for in order for this property to be a great deal?” Instead of just looking at how much discount you can get on the property of your choice.

Find an Investor-Friendly Real Estate Agent

It all starts with finding a great real estate agent who can help you identify deals that suit your goals. An astute agent will look for the ability to find a property listed outside your search criteria that suits your purchase price and meets your goals. An agent who can spot prospects, run the numbers on your behalf, and pick up the phone to try to put a deal together can help you make a lot of wealth in this market.

look for trouble

I look for listings in markets like this that other buyers may overlook due to specific factors. Some listings get left out because of obvious things: the home is in bad shape, has an awkward layout, structural problems, etc. What I’m looking for is a bit more subtle. Are the Listing Photos Bad? Is the listing description bad? Is it back on the market after a recent buyout that makes others think there must be something wrong with it? Are market days high? Is it simply the exorbitant price? All of these factors can lead to home sittings, offers not being received, and opportunities to negotiate with the sellers of these properties.

Applying these criteria to your property search will provide opportunities to negotiate and strike great deals. I’ve had the opportunity to negotiate multiple properties over $100K over the past few months, but my clients’ goals have guided those negotiations. Get your goals together and get ready to negotiate hard to get a great deal!

creative financing

concessions

Negotiating vendor concessions is an extension of the negotiation strategy listed above. Many sellers have situations that trap them into selling their property. Many vendors in this market have to make concessions to sell. Negotiating these concessions is another great way to get a deal. You can get a property under contract for close to the seller’s listed price and plan to depreciate them during the inspection period.

If you find the items of the inspection unsatisfactory (which you may be too liberal about is an unsatisfactory item), you can negotiate with the seller to give you concessions towards closing costs. Those closing costs can be used to actually pay the closing costs (lender and title fees), or you can use those concessions to pay down the loan’s interest rate or pay for a temporary purchase. .

many buyers are using 2-1 buy These days, that means you buy your interest rate down by 2% for the first year and then increase it by 1% for the next two years until it reaches the original market rate. Sure, if you can time these rights, you can pay a lower rate for a longer term if rates go down within three years and you refinance.

beliefs

Another way that buyers are winning in this market is by assuming seller credit.

Instead of getting a new loan on a property as a buyer, you can assume the owner’s loan on the current property. The buyer goes through an application process with the seller’s mortgage provider to obtain the loan, and upon approval, the transfer is made.

In almost every case, there is a large difference between the seller’s listed price and their loan balance. Cash is the easiest way to bridge this gap. Presumptive loans become difficult where a buyer does not have enough cash to cover the difference between the purchase price and the loan balance. Each lender sets their own rules on how they will go about it. Some will allow a second or “junior” loan, but those rules dictate whether it will be from them or another lender.

That said, many properties were bought or refinanced in 2020 and 2021 and locked in at lower interest rates. If a buyer can get a loan at 3%, that’s a big win. Astute real estate agents will know questions to ask sellers to see if a loan can be taken out. Many sellers list their homes with the loan receivable in the listing description. A simple keyword search with “Estimable” on Zillow or Redfin will give you access to homes with appraised loans on the market.

seller financing

Seller financing is also on the rise. Instead of going to a lender or bank to get a loan, the seller can give you the loan. This can create a win-win situation as sellers can stop managing a property and create a passive income stream. If they can produce favorable terms for the buyer, they have a good chance of getting the price they want. Buyers have the opportunity to negotiate terms they might not otherwise be able to, such as the down payment and interest rate.

house hacking

House hackers always win, but they are especially winning in this market. Another person or couple buying a primary home has to make very high monthly payments because of interest rates. Fewer homes sold equals more inventory, more days on the market, and more opportunities to negotiate on the front end of a home purchase.

House hackers can break into a home at a much better price in this market. Although their monthly mortgage payment will be higher due to higher interest rates, they can reduce that payment with the income they make from renting out part of their home.

makes new

Builders are desperately trying to offload their inventory as they watch the market continue to slide until mortgage rates reverse. Over the years, going through a new manufacturing process was crazy. In some cases, buyers had to put down a deposit to be placed on the waiting list, and builders would reserve the right to increase the price of your home if the market appreciated.

You could not negotiate prices or terms. Now the tide has turned! To get these homes off the books, builders are slashing prices and extending credit extensively through their in-house lenders to bring in lower interest rates in the market. Buyer can also negotiate on the price. I have buyers ready to close on a new build this month for $90K less than the original listing price and at a fixed 4.5% promotional interest rate!

final thoughts

The market has definitely changed in late 2022, but real estate investors are always looking for opportunities that any market presents, and there are plenty of opportunities in this new environment. I hope these strategies inspire you to win on your next purchase!

Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.