Getting offers in a tough real estate market
I had a student recently buy a run down house in Southern California. He bought it cheap enough that he was able to put some nice rehab money in it and put it back up for sale very inexpensively. It was inexpensive enough that a fixed thirty year mortgage for a first time home buyer would be cheaper than what those same type of tenants were paying for rent. HE IS OFFERING A BETTER MORTGAGE PAYMENT THAN RENT!
This is one of the biggest and only incentives we have on the market place right now with the housing being as difficult as it is (it is only difficult for those who choose not to think) right now. This student has a “For Sale” sign up, has had 3 open houses and sent out 200 flyers to the nearest non-owner occupied properties to the home. He has done some door knocking in condos and apartments and placed ads in the paper for rent and for sale.
In thirty days, he has received a couple of offers from potential buyers who did not end up qualifying for purchase. He wanted to know what else he should do. My response would include the following items.
1. Be excited. Getting a couple of offers in 30 days is fantastic for your market place. The buyers did not qualify, but that doesn’t mean that the next buyers you advertise won’t be able to. We advertise to tenants to buy because they are a captive audience. Your advertising is working if you have had a couple of people come out of the wood work and make offers.
2. Get more flyers out, maybe 2,000 instead of 200. There are a lot of tenants that are renting who can qualify for a mortgage. You just haven’t interested them yet. I would keep sending out the flyers and door knocking to an audience if I knew their rent was higher than their mortgage payment would be in my house. In these flyers be very specific about the payment amounts so that tenants can see that they would save monthly to be in a house. Make sure to abide by all RESPA advertising rules.
3. Keep the for sale ad running and your sign out. I would also continue with the open houses as long as they attract people to the event.
4. Put the house for sale on the MLS. Many people think that this is a no-no because lenders won’t want to let you refinance the house for yourself if you decide to keep it long-term and rent it out. They will see that it was recently for sale and not want to put long-term financing on it. I have done this for years. I decide to keep my house, take it off the market and refinance it. The lenders call every time questioning why it was recently for sale. I explain the Foundation to Success and that once it is leased I won’t be selling it because of the positive cash flow and other benefits. I have yet to be turned down on a loan because my home was for sale. Some lenders may ask for a slightly higher rate (1/8th of a percent) of a 12-month prepay. I take those if I have to because of the long-term value.
5. Make sure the home qualifies for FHA and VA for lower and no-down payment options and buyers will be able to qualify that have a lower FICO score.
6. Do a lot more of what you are doing. You can sell this house.
The market is so “payment” and mortgage driven right now. Most people in tough markets have to rent because the home that they are renting for $1,800 per month would sell for $400,000 or more if they had to buy it. They can’t go from a $1,800 per month rent to a $3,200 per month mortgage payment. Getting that low payment fixed (not on a gimic loan) is the key. People will still buy.
The last great way to sell this house is through seller financing. That will be another post some day. Keep up the good work investors!
{ 15 comments… read them below or add one }
I’m getting some good points here as well as receiving some solid reinforcement. This is important for me since I am making 99% of the decisions right now. It helps to get some outside opinions.
FHA is crucial in this market especially in the entry level housing market. My property will be FHA ready in a few days.
I think what resonated most with me is to stay positive. I kinda realized that 2 offers in what was actually about 3 weeks, is strong. I’m so results oriented that in my haste to sell, I overlooked the fact that I was on the right track and need to keep doing what I’m doing. I will be increasing my marketing and have already utilized the MLS.
The encouragement from the forum played a big role, too. Thanks Mike for lending your time on this…
Great post! It’s so true that people are having a harder and harder time qualifying for loans. I’ve actually been considering renting my condo (though I think I’d have a hard time getting enough to cover my $1,500 mortgage + $300 HOA dues + $300 Escrow/Property Tax per month)… would you rent a 2 bedroom 2 bath condo in Southern California less than 10 minutes from the beach for $2,100?
I’ve also considered selling to move into a Single Family home, but I’ve been unsure on whether I’d actually be able to sell and get the price I’m looking for.
[...] just read a great post Getting offers in a tough real estate market which gives hope, but even so, I’m still not sure that I’m ready to pull the trigger [...]
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