Growing your real estate investment portfolio as an individual landlord is not always easy. Today’s market is tight and investment buyers compete just as hotly for single and multifamily homes as home-buyers. This has led to an environment of bidding wars, sometimes even against commercial investors. How can you win the bid for the rental properties you want without taking major risks like waiving due diligence?
Let’s dive into some of the best practices for winning a residential investment bid in a high-demand, low-inventory market.
1. Know Your Market
First and foremost, know your market. Be aware of the current housing shortage and the level of demand. Work with your realtor to discover just how frequently (and by how much) local homes and multi-family properties are selling above the listing price. Your realtor may be able to offer some insight into your existing competition, as well.
If you have your eye on a specific property or area, research those neighborhoods. Look for average home sale price and recent jumps in value. Ask your realtor to check in with their network on tips from other agents who have sold in those neighborhoods.
2. Be Ready to Move Fast
When there is competition over investment property – especially if a commercial investor is on the other side of a bidding war – you want to be ready to move fast. Delaying can cost you the property. However, if you make your bid with the position that you are already prepared to close after the necessary intermediate steps, sellers are more likely to consider your offer as serious.
3. Bid Above Listing Price
It’s a seller’s market both in commercial and residential real estate. This means bids should be pitched above the listing price. Not only is this a competitive move to make sure your bid is appealing through the gate, but it’s also a mark of respect. Bidding above the listing price is a tip of the hat to the value of the property and the owner’s discretion in choosing a buyer. Bidding below the asking price in this market is unlikely to yield results.
4. Look for Both Single and Multi-Family Opportunities
Consider both single-family and multi-family homes. If you’ve had your heart set on single-family homes or a specific multi-family property, be ready to diversify. Single-family homes are still in extremely high demand for both family and investment buyers, while the market for multi-family homes (of various types and price points) will vary more widely from market to market.
Keep your options open and your budget at the ready. You might discover a beautiful (available) duplex for less than you would pay for two single-family homes, an apartment building that is only shabby on the outside, or a desperate single-family home seller who doesn’t have time to clean or stage and so missed by the move-in-ready market demand.
5. Know the Real Level of Competition
Be aware of brokers that may exaggerate how much competition there really is for your bid in order to inspire higher offers. If you start to get that ‘strung along’ feeling, do the research. Ask your realtor to check into how many other bidders there are so you know just how stable or unstable your bidding position really is.
If there are other buyers lined up, you will want to step lightly and quickly. If there is not a throng of competitive bids, you can negotiate with more breathing room.
6. Offer to Buy As-Is for A Fixer-Upper
If you’re having trouble winning bids for perfect move-in-ready properties, consider a fixer-upper instead.
Many landlord investors find their best property deals with an as-is purchase and renovations built into your acquisition budget. While you should not waive due diligence (inspections after bidding), you can win a bid by offering to buy as-is and take care of the renovations yourself. If you choose to sell the property after renovations instead of renting, this is a fix-and-flip.
7. Consider Investing in Lower-Competition Communities
Don’t get stuck in your own neighborhood. Become a master of the markets by learning how to read which communities across the country are ripe for residential real estate investment. National landlords often track the best markets for rental investment. You may discover a little town in Iowa with a vacant apartment building and a rising need for housing just waiting to become your profits. Or you might find a neighborhood in Tennessee where the housing market is just starting to lift – with great potential, but the competition is not yet so steep as it is close to home.
Explore your options in other states and if you’ll need property management teams to run them.
Buying residential investment property in today’s market is a high-competition endeavor, but you can always strategize to improve your chances and find hidden gem properties. Once the purchase has been made, a property management software solution will help you to streamline your management. Explore Prisma as the solution to your property management platform needs for investments near and far.
