6 Steps to Buying a House in a Seller’s Market

Opportunity is out there, don’t give up.

In many markets across the U.S. today, there are people buying houses at an astronomical rate. It could be for a number of reasons, but it sure makes for a hard market to buy houses in. Keep trying and something will come your way. Give up, and you will be like millions of other people that say they should’ve, could’ve and would’ve.

Finances First

It’s important to figure out how you plan to purchase a house. Take care of your responsibilities first, so that when you do find something, you are ready to go. Call a mortgage lender at any bank and ask them to help you; they may be busy but someone will help you. Remember: you are asking for their time for FREE, so don’t get angry if they can’t get to you today. You’ll need to figure out your financing before you start shopping for houses, because if you wait until after, someone who is already ready to purchase may sweep the house you like out from under you.

Learn your Market

What are the average prices for several different house sizes: 2 bedroom/1 bathroom, 3 bedroom/2 bathroom, duplexes, townhouses, etc. Find out what the average rent is for these same houses. Watch rentals on Facebook marketplace, and read the comments. If you see rentals getting bad comments about high prices, it may be because it’s above market rent. If you see a lot of people commenting that they’re interested in a property, and want to get in right away, it is either right in the sweet spot, or maybe a little below market rents. It’s also a great idea to ask Real Estate agents about market rents, just keep in mind they are giving you their opinion and not the only answer… you will be in charge of your own rents.

Run the Numbers

On several properties. Look at the MLS and decide if you purchased a property that is listed, how much could you rent it for, how much would the mortgage be, and would the numbers work for you? Analyze several properties this way, so that you feel comfortable running the numbers and understand how they work. Everyone’s situation is different, but it’s important that you analyze deals this way. If the numbers work, the property is a good deal. It’s a little bit different if you are searching for a house for you to live in, because there can be some wiggle room on price, and you want to find something that you love and can live in. Some important things to keep in mind while cracking the numbers…

For a rental property: The difference between your monthly mortgage, plus your fees (HOA, possible utilities) and how much your market rent could me is your cash flow. If you have positive cash flow, the house is probably a good deal. I personally look for at least $200 cash flow per month for the property to work.

There are also a few important up-front expenses to consider as well…

+ Repairs (new flooring, appliances, etc.)

+ Reserves (money set aside for unforeseen events)

For your own home: I have said it before in previous blogs, but I can’t say it enough. If I were to buy my first house again, I would buy a house that I can make a separate section into a rental unit. Whether it’s the basement, or a duplex… then you are collecting rent while living, and you may not even have to pay a mortgage. Once you live there for a while, you can do so many things to upgrade, and keep your first house as a rental. It is a brilliant way to get started in investing.

Shop Off-Market Properties

When starting out, it may seem like the customary thing to do is to search the MLS (multi listing service). However, if it is a seller’s market, and houses are at a minimum, you are setting yourself up for frustration. In the market I live in today, it’s common to have several offers on one property within a few days. It can be easy to get caught up in a bidding war, and actually purchase something for more than you intended. Don’t fall victim to this trap, look off-market. That means to start looking at properties that are NOT on the MLS, and find out who owns them.

Each city has a public GIS (geographic information system) that anyone can access and find out who owns what property. It may feel a bit creepy, but it’s useful in finding out who to get a hold of and ask if their interested in selling. Some people send out letters or postcards to houses indicating interest, and others go straight to their door. Even though it may feel invasive, sometimes it works, and when it does, you could’ve found yourself a diamond in the rough.

Make Offers First

This is the step where so many people get stuck. It’s scary to make some of your first few offers, and even for those that have made several offers before, but remember that you still have a due diligence period that you can get out of the contract if something doesn’t look right. However, if all the steps you’ve taken thus far have worked out nicely, then this should be the easy part. Decide what the best offer for you would be. One that works because of the numbers you worked in the previous step.

In a competitive market, this is an important part of the deal. If you can find out any information about why the seller is selling, it will help you with your offer. Sometimes they need to close quickly, and other times they want the highest offer regardless of financing, or maybe a cash offer. It’s important to go in with an offer that you are willing to live with. Do not get caught up in a bidding war, and over-pay for the property, but go in aggressive and give a good reason why you should be the best offer.

With an off-market deal, the pressure isn’t so high. I usually like to find out where the seller is on the price, and why, before making an offer in this situation too. If you listen closely, many times you will find out what exactly the seller needs… is it a quick closing? Maybe they want an extended closing. The seller may even want to sell, and rent from you for a period of time. Listen and learn, then make an offer.

Due Diligence

After you make your offer, and it get’s accepted, now is the time to really dig in to the property and get all the firm numbers, and see exactly how the property performs. It’s not to say that you shouldn’t do some due diligence before you make an offer, but sometimes you just don’t have time. A few examples to look for during this period are insurance costs, HOA fees, all the bills associated with the property, and any maintenance costs you’ll need to keep up on. Find out about inspections. If you’re going to need a renter, look for renters at your proposed rental price. Depending on your closing dates, and the dates you decided upon in the offer, you have time… so also keep that in mind when making your offer. It helps to have a real estate agent during this process, so if it is your first house, you may want to use a realtor… they can still help you find and purchase off-market properties.

If everything checks out in this step, you are all set. Pat yourself on the back, and look at all the work you’ve completed. Be persistent, the ones who are, are the ones who get rewarded.