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Two Ways To Find Real Estate Investments In Very Competitive Seller's Markets

Forbes Biz Council
POST WRITTEN BY
DC Fawcett

Real estate investing is one of the greatest wealth-building strategies of our time. However, it can get a little frustrating when it's hard to find good deals in your market.

Real estate markets have gotten very hot (i.e., competitive) in many areas. The media is just starting to catch up to how hot these markets are, and market forces have driven up prices while depleting the inventory for solid investment deals.

Top Three Causes Of Competitive Markets:

1. Demand for real estate investment deals is greater than the supply. There are more people buying than selling investment properties at a discount.

2. Prices have risen so high for on-market properties listed with agents that it leaves very little equity to make a profit. On-market properties listed with agents are the easiest deals to find, which means they will also have the most competition.

3. Properties are being sold for higher than the as-is value. Investors are overpaying for the properties, or owner occupants are buying fixer-uppers and are willing to do the work themselves to get into a home at a lower price.

All of these can cause a seller’s market. This is very typical of East Coast, West Coast and major metropolitan markets, where the real estate market has been increasing for five to 10 years, like we’re seeing right now. We’ll stay in a seller’s market until people are no longer willing to overpay for properties or there is a big economic change, like an interest rate hike or something similar to the mortgage meltdown of 2008.

The real estate market cycle will most likely change when the average middle class worker isn't able to afford to overpay for a home or the mortgage payment anymore as wages and income are not increasing at the same rate property prices are increasing. This is where most of the larger markets are headed right now.

So what can investors do now to continue to find good deals and profit in real estate?

There are only two options, and you can choose one or the other or do both.

1. Dig deeper and start outbound marketing to find deals direct from homeowners instead of relying on listed properties.

Direct mail is great way to reach off-market properties. Send owners a letter to let them know you are interested in buying their house. The downside to digging deeper in your hot markets is it will cost you some advertising dollars to find off-market properties.

On the plus side, the properties you do get, you’ll be able to flip at a premium because you’re in a seller’s market. You most likely will not be able to buy and hold properties in these markets, nor would you want to because the cash flow will likely be negative, and the risk of the property falling in value over the next few years is very high.

2. Start locating properties in virtual markets outside of where you live that have less competition and more deals available.

Right now, I’m targeting several states in the Midwest, where prices are still pretty low. Properties in these Midwest markets typically have good positive cash flow. The risk of the properties falling in value is very low because these markets typically do not have high appreciation and depreciation cycles like the coasts and major metro areas.

It leaves all your investing options open for you to explore wholesaling, creative financing, rehabbing, buy-and-hold and/or passive real estate investing (i.e., private lending). You won’t see the massive price appreciation in these markets like you see on the East and West Coasts, which I see as a benefit, as it creates good diversification for your investment portfolio.

Now is a good time to sell any properties you’re holding in seller’s markets and move those investment dollars to Midwest markets, where you can buy many more assets to get greater cash flow while minimizing your risk. Wait a few years for the prices to fall in the seller’s markets, and then move your money back into those markets to buy at the bottom and ride the next cycle back up to the seller’s market. This is effective for both single-family and multifamily properties.

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