How to Navigate a Bidding War
An often overlooked aspect of profitable business dealings is the fact that you make your money when you buy, rather than when you sell. The underlying truth here is the better price you get when you purchase goods, the more profit you can make when you sell them. With that said, as a real estate investor, your goal should be to get into properties at a price that will permit the generation of positive cash flow as quickly as possible.
“You make your money when you buy, rather than when you sell”
Learning how to navigate a bidding war can be useful in this regard. After all, the more you pay for a property, the higher the mortgage payment will be. This means you’ll have to charge more for rent to cover it. Depending upon the property you’re considering and the nature of the market you’re in, this may be difficult to do if prices are artificially inflated because of a bidding war. Thus, the first strategy for navigating a bidding war is to know what the market will bear.
The best way to do this is to work with a real estate professional with thorough knowledge of your market. They’ll know what comparable properties are going for in the area, they can tell you how much rent similar properties are bringing and they can help you make sure you get in at the right price. An experienced agent can also help you with negotiations and they can keep you apprised of current market trends.
Avoid becoming emotionally involved. Remember, you’re doing this as an investment. Of course you want the nicest property you can get for your money, but falling in love is the fastest way to overpay. If you suspect you’re going to be in a multiple bid situation, run the numbers, figure out what your strongest bid can be (with room to cover your obligations and make a profit) and make that your bid right off the bat. This way, you’ll also avoid a lot of back and forth.
Find out what the seller’s needs are. Are they looking to do a quick sale so they can move on another piece of property? With this knowledge, you can leapfrog ahead of the crowd by offering a short escrow period. Will they need a leaseback because their new place won’t be ready for a while? You’re a landlord and the place comes with a built-in tenant. Bottom line, being flexible in terms of a seller’s needs can make your offer more attractive, increasing its likelihood of success.
Minimizing contingencies will also give you a leg up on the competition. Have your financing all ready to go, so the seller doesn’t have to wait to see if you can swing the deal. Send your property manager over to inspect the property as soon you become interested in it so you can make an offer without physical inspection contingencies.
If your offer is rejected, ask for the first backup spot. This way, if whoever beat you out can’t make it work; you’ll be in prime position to acquire the property.
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