Submitting an offer in a competitive market
With low inventory and multiple offer situations on the rise, real estate investors are finding it harder to acquire investment properties. At one time, an investor was able to take their time and think about a potential purchase, but in today’s market one needs to act fast. There are several tips an investor can follow to be more competitive in today’s seller’s market.
Cash buyers need a proof of funds when submitting an offer, but if you are financing your investment, get pre-approved. Do not confuse a pre-approval with a pre-qualification. A pre-approval is based on the buyers income, assets, and credit history, carries more weight and shows you are a serious buyer. A pre-qualification is merely an indication of how much you might get without the review of your income assets and credit.
Prioritize obtaining your pre-approval. Put it at the top of your list. In a prior blog I noted that I keep a “watch list” of investment properties that I monitor closely for drastic price reductions and once they drop, I submit my offer immediately. By having a pre-approval in hand, you will have the edge over those who have not taken the time to follow this step.
I have had a couple experiences with investors providing pre-approvals from hard money lenders such as dohardmoney.com. A so called pre-approval is instantly provided to investors without reviewing the investors income, assets, and credit history. Once an offer is accepted, dohardmoney.com will determine whether or not the investor will qualify for the loan. I had a buyer who against my advice, insisted this would be sufficient as his pre-approval. Unfortunately, in the end, I was told that his offer was the highest, but he lost out on it because of his pre-approval source.
A buyer with a reliable pre-approval typically wins. If you need some reliable options for investor pre-approval letters, feel free to contact me. I am happy to provide you with some options.
Find a real estate agent
An experienced agent will know how to deal with multiple offer situations, advise you on how to structure your offer, point out the pitfalls and provide advice on what you should offer.
Avoid filling your offer with contingencies such as seller concessions, inspections, appraisals, and extended closing dates. Although you offer may be over the list price, contingencies will weigh it down. Offer contingencies that you feel meet the seller’s needs.
A quick close will strengthen your offer. A cash deal allows investors the opportunity to offer a quick close. On the contrary, a financing contingency means a close date of anywhere between 28 – 45 days out. Investors can strengthen their offer by finding a hard money lender that provides cash within 7 days. Eliminating the financing contingency with a quick close will strengthen your offer.
I always recommend an inspection. If you are an investor who has an established team of contractors for your investment projects, your contractors should be on call for last minute, on-the-spot inspections. Waiving the inspection contingency gives you an advantage over other buyers.
In a nutshell….
It is a sellers’s market, don’t underestimate their position.
There are fewer opportunities in today’s market. Do not make low ball offers.
Do not get stuck in the over analyzing mode because you will lose out. If you want the property, act quickly.
Avoid contingencies. Investors seeking financing can find creative ways to avoid weighing the contract down with contingencies, while still protecting themselves.
If someone else receives the winning bid, consider making a back up offer. This puts you in first position if the current winning bid were to fall through. First position means that you will immediately go under contract if the current deal is cancelled. If you plan on seeking other properties, then it is very important that your back up offer have an “out” before it moves into first position. This way, you are not locked into anything in the case you were to find a better opportunity.