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How To Master The Art Of Multiple Offers In Real Estate

Making multiple offers on properties might be a numbers game, but it takes time, research, and persistence to get good at it. Once you do, you’ll realize there’s a method to all the madness.

You can’t always score a deal by simply offering a client a deal that’s 70-80 cents to the dollar; you have to do more. You have to come up with really creative offers and provide a ton of options that prospects would find difficult to walk away from.

In a nutshell, find out what the prospect wants and lay out the game: you are willing to do any reasonable price deal as long as they are willing to wait. If they aren’t ready to wait, they will have to fork out more.

Similarly, they could lower their terms and get a property at that moment. If they decide to stick to their terms, they will have to either pay more or wait longer. Whatever their choice, you will have an option for them.

For that to happen, you must have the relevant experience to know how to value a property and hit your target numbers for contingencies, bargaining strategies, and counteroffers. This is how you can assess properties and make offers that a client can’t refuse.

1. Comparable Sales Method

This method, also known as the sales comparison approach, helps to determine the value of a property. It is one of the most common methods real estate appraisers use when dealing with residential and commercial properties.

Comparable sales are applicable in this method when the property under appraisal is similar to other properties recently sold in the area. When using this method, you must consider the following factors:

  • Features and amenities: The more feature-rich the property, such as a walk-in closet or hardwood floors, the more expensive it will be than comparable properties.
  • Location and neighborhood: Homes located in perceived safer areas or near popular attractions such as parks or shopping centers are likely to sell for more than those located further away from these areas.
  • Square footage: larger homes sell for more money than smaller ones because they offer more living space and amenities. However, doubling the cost of a 1000-square-foot home won’t determine the value of a 2,000-square-foot space because smaller homes are generally more expensive per square foot than larger ones.
  • Age and condition of the property: The age of your home may also impact how much money it will fetch when selling on the open market. Older homes have more character but less modern amenities than newer ones.
  • Recently sold listings: Provide a starting point for determining the current pricing for similarly specced properties in the same area.

2. Rent Multiplier Method

The rent multiplier method is a simple way to determine how much you should offer for a house. If you’re trying to get a property listed for, say, $200,000, you can offer up to $2,000 per month (the multiplier) over their asking price.

So, if you paid $100,000 for your property and it generates $3,000 in annual rent, your gross rental multiplier would be 33.3 ($3,000 / $100,000). If you want to sell your home at its current value of $100,000, an offer for $33,000 above the asking price would be about right.

3. The 70% Rule

The 70% rule is one of the most important concepts you should aim to understand before starting your real estate investing career, especially if you’re into house flipping. It’s simple:

Max Allowable Offer = (ARV * 70%) – (Repairs + Holding + Selling Costs)

Where ARV stands for “After Repair Value,” which is the amount you think a house will be worth after repairs. You can estimate this number by researching similar properties in your area and their sales prices, and the average of these prices is the after-repair value of the listing, even before you sell.

Repairs are what you think it will cost to make all necessary repairs to get the property ready for sale, including painting and new carpeting. The repair estimate should also include any costs associated with obtaining permits to make changes. You may have to pay extra for these permits or inspections, depending on what kind of work needs doing.  I typically calculate the Repair cost and add 20% as an additional buffer.

Let’s say you’re looking at a house listed for $100,000 with a repair list of $5,000, and you think you can sell it for $120,000. That means your maximum allowable offer would be $79,000: ($115,000 * 70%) – $5,000.

The 70% rule is a great way to value a home because repairs may end up higher than anticipated, or the market might dip into your profits. Note that in a hot market, you might have to pay more, and in a potential declining market you might be applying a lower percentage.

4. Sandwich Lease Option  

The sandwich lease option is a strategy where a property owner (landlord) leases their property to an investor (lessor), who then leases it to the end user (lessee). The lessee pays a higher rate than the lessor, allowing them to make a profit.

It is a good strategy for beginner real estate investors who don’t have the capital to start as you don’t need to make a down payment or obtain a mortgage. You can even enter a lease-to-own agreement with the landlord, a deal you can then pass on to the lessee if they are interested.

The sandwich lease option is an excellent choice during a seller’s market where potential first-time property owners can’t afford it because of punitive mortgage rates; hence they settle for leasing.

Final Word

It would be best to be a little creative to survive in the current real estate environment—the old tactics of offering 70 or 80 cents to the dollar won’t cut it anymore. You have to provide a raft of options if you are to walk away with a deal.

Explain to clients that they could get a property for the price or terms they want if they are willing to wait. To ensure you hit favorable price points, even during an economic downturn, opt for the sandwich lease option, rent multiplier or comparable sales method, or the 70% rule.

I always attempt to define the true needs of the seller and “create” my offer based upon those needs, I want the seller and myself to be sitting on the same side of the table and negotiate with the Mr. Market on the other side.  This results in a collaboration rather than a competition.  Although the examples I am giving are for smaller properties, they apply even more to multimillion dollar commercial properties.

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7 Real Estate Trends To Watch Out For In 2023

We are just barely into the second half of the year 2022. Much of the economic news is doom and gloom; perhaps it’s best to look into the future if one wants to find an iota of good news. For that, a glimpse of the past could provide near-accurate future predictions.

Six months on, the Russia-Ukraine war is causing a considerable downturn in every sector of the economy, including the real estate market. The ongoing war has triggered fears of a global recession, with the World Bank dropping its growth prediction from 4.1% in January to 2.9%, causing supply chain disruptions, high commodity prices, inflation, and food insecurity.

While COVID-19 might seem like a thing of the past for most Americans, pandemic lockdowns are still alive and kicking in the “world’s factory,” China. That translates to supply chain issues, which explains why there’s a push to bring some of those jobs back onto American shores. With that background, here are the top trends in real estate to watch out for in 2023.

1. Housing Prices Likely To Remain High

According to Zillow, the typical monthly mortgage payment increased 75% between June 2019 and today. The National Association of Realtors (NAR) also states that home sales dropped 5.4% from May to June, marking the fifth consecutive month of declining sales—but median prices reached a record high in June: $416,000, up 13.4% from a year ago.

Although incomes have risen over the same period, they haven’t kept up with inflation. Wage growth in June was 6.7%, below the 9.1% rise in inflation that month. Moreover, mortgage rates continue to stagnate, and there’s the ever-present threat of further interest rate hikes. The overheated markets of early 2022 will drop precipitously in the later half of 2022 and most of 2023. But that still means, even if home prices were to drop 20-35%, they probably would remain beyond the reach of most first-time homebuyers.

2. Expect An Uptick In Mortgage Defaulters

To fight rampant inflation, the Federal Reserve activated its nuclear option—hefty interest rate hikes. Inevitably, mortgage rates rose as well, with the national average mortgage rate hovering at 5.08% as of August 2022.

Considering the August inflation rate is in the upper 8%, higher than the long-term average of 3.26% and the Fed’s target rate of 2%, it’s inescapable that the Fed will announce further interest rate hikes.

That means higher mortgage rates, and since the wage growth in June was 6.7%, below the inflation rate. As the economy continues to contract, you should expect an uptick in mortgage defaulting that will likely stretch to 2023 and beyond, and more people are likely to choose adjustable-rate mortgages over fixed-interest mortgages.

3. Affordability Of Homes Still A Problem

Affordability of homes is still a challenge for many Americans, but it’s not the only one. According to a recent survey by Pew Research Center, 46% of Americans say affordable houses are still a challenge.

That is exacerbated by the rising cost of rent, with New York recording an average of $3,500 in June 2022, an all-time record high. With the raging inflation and considering rent prices hardly drop significantly over time, it’s difficult to see how homes will become more affordable in the near future.

The only hope lies with the Fed cooling down inflation sufficiently, imposing more agreeable interest rates, and the cost of living dropping significantly to lower the price of everything, including real estate.

4. Suburb Living And Higher Prices In The Suburbs

With rental prices in major cities shooting past most people’s capabilities and mortgage prices continuing to lock people out of home buying, there’s a push towards moving to the suburbs to access affordable housing.

More employees are also pushing for more opportunities to work from home to save on the daily commute. That should see the prices of suburban houses rising to meet this new demand, which should persist into 2023.

5. Prevalence Of Technology Usage

The trend of increasing use of technology in real estate is nothing new, but it has become more widespread in the last few years. For instance, the NAR states that 97% of all homebuyers used the internet to search for a new home.

That trend will continue, allowing homebuyers to access a broader home listing catalog. The same is true for realtors as it will enable them to advertise to get their listings before more prospects. The apps and websites also come with matching and software to make it easier for buyers to filter homes that fit their descriptions better.

Technology also comes in handy when showcasing a home. Instead of hosting an open day which may force prospects to travel great distances, a real estate agent can conduct virtual home tours. Virtual staging will save the agent a ton of money as they don’t have to spend time and money collecting and setting up furniture that matches a listing.

You’re also likely to see an increase in drone videos and photos to capture stunning overhead footage of properties and the surrounding amenities to enhance the desirability of the listing. Social media sites that use videos and photography, such as YouTube, Instagram, and TikTok, may also prove vital as independent platforms for showcasing real estate.

6. Emphasis On Amenities As A Selling Point Of A Home

In the next few years, you will see a substantial shift in how people choose where to live. What was once a matter of location, price, and square footage will soon become a question of amenities.

As more people focus on their health and wellbeing, they’ll look for homes that offer more than just a place to rest their heads. They’ll want easy access to gyms and pools, dog-friendly apartments, and pet-sitting services—and they’ll even want walkable neighborhoods with local stores and restaurants.

7. Luxury Homes

The need for luxury homes has steadily risen over the past few years. These refer to homes that go for $1 million in the smaller cities. In major cities, that starts at $4 million.

According to luxury home marketing, single-family luxury homes only spent 12 days in the market in 2022, compared to 38 days in 2020. At 41.6%, the growth in luxury home sales in 2021 outpaced other segments of the market, such as affordable homes at 7% and mid-priced homes at 5.9%. This trend will likely continue to 2023 and beyond as the trend for buyers looking for luxury homes seems to be going strong.

Final Word

We can use historical patterns to chart a course for future trends, and what that teaches us is that housing prices will cool down but will likely remain higher than most people can typically afford. Additionally, we will likely experience in the real estate market are the continued high demand for luxury homes, emphasis on amenities for healthy living, the prevalence of technology usage, and the continued preference for suburban living.

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Real Estate Wealth Doesn’t Disappear; It Transfers

The economy is currently enduring a significant downturn, having recorded two consecutive quarters of a decline in the country’s GDP in July 2022 and also demonstrating a significant decline in productivity. The FED is purposely increasing the midterm interest rates to reduce historic inflation, it is not yet actually doing quantitative tightening per se, but is quelling economic by reducing consumer confidence. The FED is unlikely to recover until the 3rd or 4th quarter of 2023. For many, this is the textbook definition of a recession, and the signs are everywhere. There’s a bear market, consumer and small business confidence is in tatters, high inflation, and rising interest rates.

While the National Bureau of Economic Research refuses to call it a recession, many are feeling the heat, and the real estate industry is no exception. The Federal Reserve’s 20-year-high rate hikes have jacked up mortgage rates, putting the skid on a hot market. The last time consumer confidence in the housing market was this low (17%) was in 2011. The annual price appreciation rate dropped from 19.3% to 17.3%.

Two of the biggest real estate companies, Redfin and Compass, laid-off workers, with the Redfin CEO citing a 17% decline in expectations back in May 2022. Even REITs, traditionally investors’ safe haven, are taking a beating, with the S&P REIT index plunging 23% as of July 2022.

While the real estate industry may seem calamitous at the moment, it is often said that wealth, like energy, can’t be destroyed; it transfers. There’s a reason why real estate is touted as having produced 90% of the world’s millionaires. All you have to do is join the dots, follow the money trail, and you will be fine recession/downturn or not. Please keep reading to learn how to go about it.

How To Prepare For A Turbulent Real Estate Market

There is a lot of uncertainty in the markets, so real estate investors need to prepare for anything that comes their way. That means getting your house in order, including:

1. Reduce Debt

The average American is $90,460 deep in debt, but that doesn’t mean you have to sink to such depths. Huge debts will dent your credit score, diminish cash reserves you can use to improve your quality of life, eat into your emergency fund, and obliterate your ability to save or invest. Settle debts with higher interest rates and keep away from them. It would be best if you only kept debts with more prolonged and lower interest rate payments. Similarly, only sign up for debt whose investment will yield higher returns.

2. Diversify Your Investments

If you’ve just started investing in real estate, it is essential to diversify your investments because not all real estate forms perform the same. It means having a mix of hard assets in different industries that will help you weather any storm that may come your way. For instance, don’t just invest exclusively in commercial office blocks. Try malls, single-family units, multifamily units, REITs, or others.

3. If You Have The Money, Try A Hedge Fund

True, getting into and maintaining a hedge fund is costly, but it is one of the best vehicles during a downturn. Most hedge fund managers will employ different techniques such as derivatives, leveraging, and especially short selling, where you will make a profit if the value of an asset falls, which is perfect during an economic downturn.

4. Study About Returns

Since the market dictates that we watch the pennies, you have to assess the return promised by each deal before making a decision. For instance, you must be smarter in evaluating whether to pay off debt or invest. For example, instead of increasing payments towards offsetting the mortgage, you would be better off investing that money elsewhere, especially if the returns are much higher than the inflation rate.

5. Take Advantage Of Opportunities To Sell Your Home

Median home prices hit a record high of 440,300 in July 2022, the Fed continues to jack up interest rates, leading to higher mortgage rates, and the supply of homes is still lower than expected. Now might be the perfect time to sell your home if you wish to make the most out of the market. Since there’s little supply, there’s little competition, but you have to act fast before the spiraling mortgage rates lock out all potential buyers.

6. Think Long-Term Investment

It’s easy to get caught up in the excitement of a good investment opportunity, but it’s essential to keep things in perspective. You could lose money if you lose your head and make an impulsive decision. Instead, take time to consider all options before making any moves.

7. Curb Appeal

If you have a home that needs some work before it’s ready to sell, now is the time to get started. Although home repairs can be costly, they add value to the property.

HomeLight research suggests homes with good landscaping fetch between 5.5% and 12.7% more than poorly landscaped ones. There’s even an instance where a new $20,000 worth of curb appeal returned $200,000 more for a home they had bought a year earlier. It would help if you considered painting the walls in neutral colors, manicuring the lawn, and replacing old and broken stuff and appliances.

8. Build Relationships With Other Realtors

You don’t always have to compete, especially in a low-supply environment. Instead, team up with other realtors to create a network of peers for the common good. That should improve your craft, get referrals, and serve your customers better as you exchange valuable input from each other and find the best deals for your clients.

9. Make Use Of Technology

Instead of requiring clients to make a trip to view the property, you can provide virtual reality tours to help save some money. Additionally, you could use customer relationship management (CRM) platforms to keep track of listings and customers to ensure they get the best service.

There are plenty of real estate platforms and apps that make it easier to market listings to a broader audience. Some even utilize AI to match buyers to their most preferred listings, making it easier to find suitable homes.

Wrap Up

Whenever there’s an economic downturn, you should note that wealth doesn’t disappear; it just transfers. It may not be transferring to another visible entity, but may be transferring in time, or it may be transferring in nominal currency (for example, the US$ is increasing in value compared to the Euro, and although US$ denominated Real Estate prices are declining, they are increasing against the Euro). Your job is to follow the trail to ensure you maintain a profitable real estate business.

Some ways you can achieve this include diversifying your real estate portfolio, reducing debt, trying other forms of investments such as hedge funds, making use of technology, and opting for investments that provide the best returns.