In a recent post titled ” Can You Wholesale Properties in a Fast Moving/Sellers Market?…I Have the Answer“, I discuss what the difference is between a buyers market versus a sellers market. I also give the example of Bismarck, ND in the USA right now where it is a sellers market.
Based on my most recent visit to Bismarck, ND and seeing what was selling in that market for top dollar and a few days on the market, I am reminded of how a market shift can impact what retail buyers will settle for and what they will choose to buy. What do I mean? If there is a limited supply of properties to buy and a lot of people buying properties with multiple offers on each property they try to get, do you think they might settle for the less than clean property, the less than updated house, and the not so ideal or dream floorplan? In a lot of cases, in these areas they are more inclined just by to satisfy a basic need instead of acquire the full blown dream. They might postpone the stainless steel appliances and granite counter tops.
Where as if it is a buyers market, they have more options for properties and they can be a lot more picky. Retail buyers will tend to take more time making a decision, shop for the best deal, and wait for the vast majority of their wish list to be in the dream property. So in other words, retail buyers do not have to settle do they in a buyers market. The seller is at their mercy to buy. If the property has an odd floorplan, needs major repairs, or is not located in the most desireable location, it stands the chance of staying on the market for that much longer and selling for a reduced price. People do not have to settle in that market for something that is not the idea.
I am in Philadelphia, PA this week, where I am looking at investment properties and properties I can wholesale to other cash buyers. I was in Delaware County and Glouster City today looking at homes I could flip and/or hold as an income property. I came across a home that was on a dead end street. It was an abnornally large home for the area with a large fenced yard. It was a great price for the area too. It did have some great profit potential, if it did not have the following factors:
- Across the street from a very busy freeway
- In the direct path of airliners approaching and taking off from the nearby airport
- Unknown water issues in the basement
- Multiple additions to the original house ( so much so there were stairs that did not go anywhere and rooms with no rhyme of reason. I also got lost and could not keep track of where I had been and where I had not been.
- Major roof and facade issues
For me these factors were enough to not move forward on this home, in this current location, and in its existing condition. The real factor that screamed to me was the random assortment of rooms and additions. None of them looked like they had been built with a building permit from the city. I do know that this area is a real stickler on code violations and require that violations are rectified to receive your certificate of occupancy from the city. Infact, many of the cities inthis area will come check out the property whenever their is a deed transfer. If the property does not meet their criteria or pass their inspections, they will not the violations and with hold a certificate of occupancy until they have signed off on the issue being rectified in the way they require. HMMM….again …..way too many unknowns. It is a great example of what toinvestment properties to run from in a buyers market. There are many more good investment properties that I can buy for cash with the same potential and less unknowns. For me and my investment criteria, I prefer to not risk money on an unknown, when I can make money easily in an easy to read home.
Now, if this same property was in a sellers market instead of the buyers market it is currently in, my take on it would change slightly. My options as a cash buyer buying an investment property would be quite a bit less as well as a retail buyers too. Would retail buyer consider a larger home with plenty of room, on a large lot, in a good school district, on a dead end street? Chances are they would look at these things and focus on the basic fixes and updates I did to the home and overlook the freeway, choppy layout, and airplane traffic for the right price. I would be able to sell it a lot easier to a retail buyer for a decent price in a sellers market than a buyers market.
Even if you are a cash buyer buying investment properties, you must take into consideration all of these factors, the type of market you are in right now, and who your end buyer or renter is going to be. If you remember these key elements, you will successfully invest in any part of a given real estate market cycle. The rule of thumb is that the floorpla should be the norm for the area. Anyone coming into that area to rent or to buy will expect to see that floorplan. It is a lot easier to sell the norm than the uncommon or unique. There are fewer buyers for those properties, thus it will sit on the market a lot longer and possibly for a bit less than other homes in the same area. It makes sense right.