Strategy as the Market Changes

The market is definitely changing.  Since May prices had been steadily rising and buyers (both investors and homeowners) where very aggressive in trying to purchase properties.

Fast-forward half a year and things have changes.  Homeowners seem to be not interested in buying anything right now, the tax credit is gone, it is the slower season and prices have gone up.  Investors, other then most of the ones I know, seem to be as aggressive as ever.  They are paying prices based on July comparable sales and really overpaying in my opinion.

Some of the things we are doing differently with this in mind:

  • Lowering our Prices
    This is obvious, but at this point we are offering 10-20% less on the same properties.
  • Raising Commission on our Re-Sales
    We used to offer 2.5% commission to the Buyer’s agent that bring offers on our re-sales.  Now we are up to 4% on most of our listings.
  • Rent-able, if we cannot Sell It
    We are trying to stay in the “entry-level” price range.  If the market does change we want multiple exit strategies available (aka renting the house out at positive cash-flow).
  • Being More Negotiable
    When we do get offers we are a bit more flexible with the Buyer’s.
  • Keep Buying Good Rentals
    Being Landlords is a big part of our business model right now and we still plan on buying as many rental houses as we can afford and make sense.
  • Low Balling the List Prices
  • Oftentimes, we could pay list price or over list for houses and turn a profit.  There are still a couple deals like that, but now oftentimes our max purchase is 10%, 20% or 30% under list.

I am unsure how much of this change is seasonable and just based on the slow winter months.  Last year wasn’t like this, but that might have been because of the tax credit.

Luckily, we have a couple escrows open for resales and not too many properties in our inventory.  The couple retail deals we have left we have good margins in them and if we cannot find any Buyer’s they would make great rentals.

That being said, it’s definitely time for investors to be careful!

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7 Responses to “ Strategy as the Market Changes ”

  1. Good input Steve. Do you feel like more inventory is coming out lately? I’m hearing chatter about more inventory coming. Like you, I’m very conservative on my offers right now.

  2. Steve says:

    Inventory is for sure going up. But it seems like most banks are pricing things real high too. That’s going to make for an interesting market.

    Some cities are definitely a lot worse. It seems like Moreno Valley inventory has gone up massively.

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  4. Luis says:

    Steve, FWIW, here in Atlanta prices have been going down. Becuase the tax credit ending sales came to a screaching halt and inventory is up. I have sold one house and have two under contract but definitely at lower prices than I expected and having to throw every concession the buyers want.

  5. Codrin says:

    This just seems like the typical psychology after any uptick, no matter how small it may have been, folks just like to cling on to these small positives. What i’m wondering is how much longer before these aggressive buyers get burned enough to stop pushing these prices, what do you think?

  6. Aaron Norris says:

    How come you never mentioned you had a blog? This is awesome stuff. Someone I respect very much loves your site. Tell you later.

  7. Stave,

    We’ve noticed the same thing here in San Diego. We have been staying very conservative and not willing to pay what the banks are asking which in turn has led to less deals.

    What I know is there is always a transition period When the market goes up or down, like now. The banks are wanting the same price they did 6 months ago except the buyers aren’t willing to pay it.

    I felt that if we stuck to our guns a lot of the deals we did not get would come back around and we would see deal flow towards the end of the year.

    That and as more agents and investors get to know us we get presented with more opportunities because they know we are always in the market to buy deals that fit our criteria and most important we don’t waste their time and we close on the deals we say we will close on.

    In the last 2 weeks we have picked up 3 great deals (there actually not great until we sold them) and should probably get a few more here shortly. In addition were starting to look back into the apartment market again.
    Keep up the great work!

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