There’s an old adage that says, ‘adversity breeds opportunity,’ and if there’s one thing that we have plenty of these days, it's adversity. With all that opportunity out there it’s no surprise that there’s also an abundance of investors and aspiring investors eager to grow their wealth through prudent investments. As I will explain in this post, being prudent is not simply a matter of being bullish. The successful investor will seek out a savvy Realtor® and be cognizant of these top five reasons investors lose out on property bids.
The emotional factor is one that investors can sometimes lose sight of when they are scouting out potential investment properties. It is, of course, important for the investor to remain objective when it comes to their potential investments, however, investors do themselves a disservice when they ignore the emotions that might be influencing the sellers of the property they seek. This is especially the case when investors are scouting properties for potential infill developments or the redevelopment of residential properties.
It is often difficult for sellers to imagine, never mind accept, that the building in which they raised their families might be extensively renovated, converted into apartments, or torn down and replaced with other buildings.
If this is the sort of plan you have as an investor, you might be best advised to keep those plans to yourself until after your offer is accepted and final.
4. He who hesitates is lost
There’s another (quite a few in fact) adage that is relevant to this discussion--specifically, “he who hesitates is lost.” Time is most certainly of the essence in today’s market and investors who hesitate, put off, or otherwise delay making an offer when an opportunity arises are sure to miss out. Of course, being rash is a recipe for financial disaster, but when an opportunity does arise, you have to be ready to pull the trigger. Keep in mind, if you see potential in a property, you can guarantee that others will also recognize that potential. In fact, investors and their realtors have to be prepared to compete with other potential buyers who were well prepared in advance having been introduced to the property before it went on the market.
Platitudes and adages aside, what this means is that the investor needs to have a clear idea of what they’re looking for well in advance of making any offers. Being agile is one thing, but investors with a well conceived plan in terms of where their return will come from, the improvements they plan to make to the property, an estimate of the costs associated with those improvements, and clear financial parameters to work within to that return will better ready to make their offer the moment the opportunity arises.
This is just one place where the skillful and knowledgeable realtor becomes an important factor. Realtors who are informed about and understand their client’s plans, who possess thorough knowledge of local zoning regulations, and who appreciate the prevailing attitudes of local planners and councillors toward similar development proposals, will save their investor clients time, energy, and money when it comes to scouting out properties.
3. Too many complicated conditions
Imagine this: you’ve recently made an offer on your dream, the only condition is the sale of your current home. Or this: you’re a retiree collecting a nominal pension, you’ve been trying for a few years now to make the pension cover living expenses, but bills are coming due and you’ve decided to downsize and cash in on your property to make ends meet. Or how about this one: you’re a parent, two kids in public school with another in her first year of college, and your house is on the market because your employer has transferred you to the Toronto office.
Now imagine you’re anyone of these individuals and you receive an offer on your property that involves environmental impact assessments, engineering reports, and approvals from the city. If you’re under any of the sorts of pressures exemplified above, I’d guess that you’d be a lot more likely to accept far more simple offers with fewer, more straightforward conditions. Far better to get done as much as possible, the legwork at the heart of those conditions, and to get it done before making that offer! As a rule of thumb, the more simply the offer, the more likely it is to be accepted.
Here again, a skillful and knowledgeable realtor is an invaluable asset. Not only should your realtor be able to steer you towards those properties that best suit your plan in terms of the zoning and character of the prospective properties, the right realtor will be able to craft an offer in the most simplest of terms that still protects the interests of their clients. What is more, the right realtor will advise their clients when a specific condition is likely to cause the seller to reject the offer.
2. Money pending
Last adage, I promise: A bird in the hand is worth two in the bush. This is most certainly true when it comes to making offers to purchase real property. In situations where there are multiple offers to purchase a single property, the competent listing agent will make sure their seller client gives just as much consideration to the financial conditions on the offers as they give to the offering price.
Winning a bidding war is very rarely a simple matter of offering the highest price. This is especially true in today’s market where interest rates may be at an all time low, but lenders have been unpredictable, and their application processes and standards seem to be constant flux. Lately, many sellers opt for the smaller cash offer rather than the larger conditional offer because they don’t want to risk losing the sure money for the sake of what is likely a nominal amount. What is more, in today’s market there is generally enough competition from buyers that they don’t need to take the lower selling price for the sake of secure cash.
1. Lowball offers
By far the most common reason an investor’s offer is unsuccessful is that the number is simply too low. It may be the case, in some markets, that sellers will, by and large, be desperate enough to seriously consider a lowball offer. That is not the case (again, for the most part) in Niagara’s current market. The prevailing market here in Niagara strongly favours the seller due to a lack of inventory. Nor is it likely, in today’s market, that an offer based solely on the economics of an investment plan will be successful. In other words, in today’s market sellers can (sometimes) sell their property for more than, strictly speaking, what the properties worth.
For example, in late July a cottage property I was tracking for an investor client of mine sold for $250K despite the fact that the building on it was completely uninhabitable (dangerous even). That’s not the curious part. I suggest that this property sold for more than it’s worth because (a) the 1500 square foot cottage two doors down is currently listed for a little more than $500K, (b) building a 1500 square foot cottage on the lot will cost about $450K, and (c) it will likely cost around $60K to remove the uninhabitable building. Basically, without even factoring in the cost of permits, legal fees, etc. a 1500 square foot cottage on the lot with the dilapidated property will cost $760K, significantly more than the 1500 square foot cottage two doors down.
The point here is clear, sellers in today’s market do not need to give lowball offers the time of day, not should they. Today’s smart investors will come to the table with reasonable offers and their realtors will save their clients and themselves the time, energy, and money involved in making offers likely to fail by advising their clients accordingly.
RE-Invest will be a regular series of posts offering advice for Real Estate investors. In the meantime, if you're contemplating an investment in real estate or curious about the sorts of opportunities that are available, give me a call (905.380.5334), send me an email (firstname.lastname@example.org), or DM me. I’m happy to offer advice and answer questions!