Real Estate Economics: Supply and Demand

When people ask me “what they can get a good deal on” in the real estate market, my answer is usually the same thing:  buy what others aren’t.  I’m sure this isn’t the profound answer the person seeking my guidance was after.  I’m sure this simple tidbit leaves the investor feeling a little disappointed.  And I’m sure it seems I am oversimplifying a complex world of spreadsheets, algorithms, and advanced college degrees used to make well-educated investment decisions.  Maybe.  But the fact is– it’s the best advice I can give that almost always applies.  The basic rules of economics…supply and demand…apply to real estate investing and, more specifically, to acquiring foreclosures.  You want to buy what others don’t want, when they don’t want it, in order to get the best value.  If you have cash to fund the deal or the ability to sustain a leveraged purchase…..your discounted initial investment will likely payoff long term. 

Keep your eye focused on things like:

SEASONS:  For example, if you are considering a beach house as an investment buy…wait until the dead of winter to make your offer.  Typical peak time to make offers on beach property is spring through mid summer.  By fall, offers slow to a crawl and are usually whisper quiet during the winter.  As a result, a seller will likely be more responsive to your offer if it shows up in January.

MARKET CHANGES:  For a while, it seemed vacant land sales were slow in our office.  However, we have recently seen a large uptick in land and lot sales.  It appears that the national and regional builders are getting back in the new construction game, making a play for new projects.  Smart investors are taking this market knowledge and using it to their advantage.  In the past 30 days we have put 224 lots under contract.  Most of them were to investors who will buy from our clients and re-sell to a large builder over time on a take-down schedule at a significant profit.  They made offers on a product that wasn’t moving (over supply, no demand), bought it cheap, and will sell it at a profit.  It’s Profitable Economics 101: buy low, sell high.

Keep in mind that as an asset manager, my firm represents banks.   That’s all we do.  We work with lots of investors, but we don’t represent their interests.  This causes me to write from a unique perspective.  I think of how we package and present offers to our clients.  We generally include our recommendation along with it.  We factor a number of things into this recommendation:  recent activity on the property, other interested parties, season, comparable sales, competing listings, and likelihood of receiving another offer in short order.  If you are the person who makes the offer on the beach house in January, we are probably going to suggest the bank take a harder look at your offer and remind them that it may be their only chance to sell it before sometime in the second quarter. 

Bottom line:  You may have just bought yourself a new beach house….and my simple advice may have just paid off in a big way.

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