Like everything else that is exchanged for money, real estate is also subject to the forces of supply and demand. The laws of economics play a major role in the prevailing conditions within a housing market at any given time.
When demand for housing is high, and supply is low, property prices go up. But when more homeowners are trying to sell their homes than buyers to buy them, prices fall.
Depending on which of these two conditions are present, a market is described as either a buyer’s market or a seller’s market.
- A buyer’s market is when property owners cannot sell their homes quickly or at the price they want because there are not enough buyers in the market. In a buyer’s market, buyers have several properties to choose from and can determine prices.
- A seller’s market is the reverse of a buyer’s market; more buyers are in the market than property owners are willing to sell. The result is prices go up as the few sellers in the market get multiple offers and raise their prices in response.
Characteristics of a Seller’s Market
In a seller’s market:
- The real estate inventory is low.
- Because there are many interested buyers, sellers have the advantage.
- On the other hand, buyers are forced to compete with one another for the few available properties.
- The number of bidding wars rises, which forces home prices upwards.
- The buyer doesn’t have the leverage to negotiate the best terms and often has to accept the property as-is.
As a real estate investor who wants to be profitable regardless of market conditions, how can you make money in a seller’s market? Upkeep Media Inc. gives some valuable advice on how to do that.
How Real Estate Investors Can Make Money in a Seller’s Market
The easiest way to make money in a seller’s market is to be the seller. In buyer’s and seller’s markets, someone is always making the profits. In a seller’s market, these are the people who have properties to sell. If you become one of those people, you will also make money.
How do you do this?
Sell More Real Estate Than You Buy
Since there is a strong demand for properties in a seller’s market, you may be sure that any decent home you put on the market will find a buyer. However, even though property prices are constantly trending upwards in a seller’s market, this doesn’t mean you can set a ridiculous price on the property and expect it to sell.
Any property you put on the market must be competitively priced to attract attention from would-be buyers. Your strategy for buying those properties is the key to investment success in a seller’s market. With every purchase, your goal must be to buy low and sell high. There are two ways to find the best deals that will help you achieve this.
Find Off-Market Properties
These properties are for sale but not listed on multiple listing services (MLS). As a result, fewer buyers know about them, and there is less competition for the property. Since you do not have other buyer’s offers to contend with, the property owner may accept a lower sales price. Also, off-market listings often have lower commissions; buyers have the chance to save on the overall cost of the property.
Flip Houses
There will be properties that no one wants to buy in both a seller’s and buyer’s market. These are often rundown buildings that require a lot of work to make them attractive and habitable. Flipping these properties will make them profitable.
Most buyers don’t want to deal with these properties because of the risks inherent in the purchase. But if you have a trusted and experienced contractor working with you, you can buy such homes for well below-market prices, renovate, and sell them for a profit.
How to Buy Properties in a Seller’s Market
Since the key to making money in a seller’s market is buying at a lower price, how should you approach a property you want to buy?
Get Preapproved
Getting preapproved for a mortgage long before you find a property will ensure that financing is in place once you agree to the terms with the seller.
Speed Is Essential
In a seller’s market, you do not have the luxury of time to think about whether you should buy the home or not or what kind of offer to put in. If you find a property you like, you must act fast to lock it down.
Don’t Complicate Your Offer
Even if you are negotiating to buy an off-market property or a dilapidated home, you won’t be the only one using this strategy, so don’t make your offer difficult for the seller. In a seller’s market, buyers have to be willing to let go of some of the conditions they would normally insist on.
If you are looking for ways to invest in real estate during a seller’s market, we can help! Contact Real Property Management Prestige to speak with a Houston property manager and see what we can do for you! You can call us at 281-984-7463 or contact us online.
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