Now may be the best time for you to start looking. Savvy apartment buyers know it’s good practice to pursue an effective strategy and regularly learn or refresh their memory about the submarkets.
Use a Strategy That Works
The basic process is simple and proven. Over 50 years ago, William Nickerson wrote the first income property classic, How I Turned $1,000 into Five Million in Real Estate in My Spare Time. His strategy still works. Buy “the dog on the block,” a property with the right things wrong with it. Improve it, sell it for a profit, and repeat the process.
Our team has helped clients win with this core strategy for a generation. We developed and refined some simple systems to improve the process.
Don’t waste time chasing “the one best deal.” That’s a poor strategy for two reasons. First, your objective isn’t to get a near-perfect deal, it’s to close a superior opportunity from the available options. Second, the multiple-offers strategy is the surest and quickest way to capture a better opportunity.
Investing Is About Relative Value
Investing is about the relative values, not about the best value. The relative prices change over time. Beach property is always more costly than inland. When El Cajon costs half as much as Encinitas, buy El Cajon, if Encinitas is only 10% more costly than El Cajon, buy Encinitas. Once you understand relative values, it can be an excellent time to write offers.
Write Multiple Offers
When you write several well-informed, close-to-realistic offers, the sellers are likely to counter. That’s how wise buyers can become well-informed about the relative price of various available options. The buyer who writes many offers learns more and learns faster than the buyer who never writes an offer or only writes one a month.
Recall that buyers have the option to buy for the contract price. Sellers must sell at the contract price. Buyers can decline a property because of condition, title issues, financing, etc. A buyer may lose some time, but not one of my buyers has ever forfeited earnest money.
It’s a Good Time To Invest in Apartments
It can be a great time to buy when the market slows down, as it recently has. Three years ago, there may have been three to ten times as many offers, which resulted in some bidding wars and high prices. There is no desperation among San Diego apartment owners today, but there are fewer buyers. Most buyers would prefer to have fewer competitors instead of many competitors.
Astute investors write offers when there are fewer competitors. Now is one of those times. If you wait three to 12 years, there will be far more buyers and higher prices. Inflation boosts the values. However, the number of buyers has an immense effect that most apartment investors underestimate.
Don’t wait for interest rates to come down. They’re higher than the lowest rates in our lifetimes, but those below-4% rates were a fluke and may not return for a generation, if ever. The current interest rates are lower than the average rate in the last generation.
Try investing now. In five, ten, or 25 years, you’ll be glad you did. Ask the people who bought 5, 10, or 25 years ago. Most of them paid what seemed like a high price then. You can’t buy those assets for the old price.
If you owned an income property for five years or longer, you might sell for $10,000 less than you hope. However, your bigger equity may save you $25,000 – $50,000 on the bigger asset you buy. Plus, more units mean more rent checks and bigger assets benefit more from inflation.
No matter who wins the Presidential election, both candidates have, in effect, told us to expect bigger deficits, which implies great inflation in the next decade.
Let’s talk.
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What might slow you down from trading up?
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Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”