A hot real estate market can be tough to break into, considering inventory is usually low. Buyers also often get outbid, as asking prices and competing offers continue to escalate. While real estate markets have recently shown signs of cooling because of rising interest rates, home prices remain high.
In many areas, demand for homes and rental properties still exceeds supply. The effects of higher mortgage rates and slightly rising inventory levels have yet to swing sellers’ markets toward buyers’ interests. So, how can someone interested in buying or investing in the real estate market get in? Although buying in a hypercompetitive landscape is more of a struggle, involving compromise and patience, it’s possible. Here are four ways to do it.
1. Buy Real Estate Investment Trusts
This strategy is more for investors who want a completely hands-off approach. They want to reap the financial rewards of owning real estate. But they don’t want all the nightmares and headaches that come with being a landlord.
Real estate investment trusts, or REITs, offer the best of both worlds. You can put your money into investment properties without becoming a landlord or property manager. As one of many alternative investments, REITs also let you fast-track your way to owning property. You can skip the showings, bidding wars, and contract negotiations.
When you invest in REITs, you’re essentially buying a percentage of various properties. Real estate investment trusts work like mutual funds in the sense that a broker makes critical decisions. The broker determines which properties you’ll be invested in and makes efforts to optimize your potential returns. You may have a stake in townhomes and commercial buildings across the country. It’s a way to hedge market risk and get in the real estate game.
2. Work With a Savvy Agent
Looking for a property on your own in a hot real estate market is like trying to ride a bike on a busy interstate. If you’re lucky, there might be a bike lane. However, it’s usually off to the side, and the risks of getting run over are still high. Without a good agent’s expertise, you’ll get passed by when you try to scope out available properties. Some homes never hit the multiple listing service or MLS and get offers before their first day on the market.
Some research shows that the number of homes sold without public listings has increased by 67% since late 2019. Pocket listings are properties real estate agents know about from their existing networks. Agents are aware the owners are interested in selling but haven’t made the “for sale” sign official yet. Real estate agents sometimes show these properties to qualified buyers, negotiating sale contracts before listings happen.
The practice of pocket listings is controversial, and the National Association of Realtors is cracking down on it. However, versions of the practice are alive and well in the industry. This includes listing homes that are “coming soon” on the MLS. Some of these properties are already spoken for by the first open house. Working with an experienced agent can help expose you to more properties and get a head start on your competition.
3. Be Willing to Negotiate
Contrary to popular belief, the highest offer doesn’t always win out. Sellers often have other needs besides getting top dollar for their properties. Part of the selling process means finding another place to live. In hot real estate markets, a seller may also be trying to buy a replacement property. They might be downsizing, upsizing, or relocating for a job or family.
This means a current owner might be looking to stay in the home after closing. They could need a few more days, weeks, or months to move out and want a rent-back clause. After closing, you’d technically own the property but rent it back to the seller. You wouldn’t have possession of the property until the rent back period is over. This might be less convenient for some buyers, but negotiating rent back periods can help seal the deal.
Sellers might also be looking for a quick and seamless closing. Cash offers can help expedite the closing process since there aren’t any appraisal or financing contingencies. However, not every buyer is flush with enough cash to bypass a lender. You might have some luck beating cash offers by negotiating other contingencies like the inspection. While it’s not the best idea to waive a home inspection, you can offer to ignore minor repairs or issues.
4. Consider Properties With Sweat Equity Potential
Even when real estate inventory is low, some of it includes properties most will find less than desirable. These homes could be foreclosures, properties that need a little TLC, or ones with cosmetic issues. In short, they’re not move-in-ready and require some work before someone can call them home.
But if you’re willing and able to put in that work, you could negotiate a deal. Owners may come down on the asking price, especially if the home’s been on the market for a while. You’ll also likely face less competition for the property and may place the only offer. As a buyer, this will give you more negotiating power with any contingencies, including major inspection issues.
However, buying a distressed property or one that needs some work upfront isn’t for everybody. Know what you’re willing to compromise on and how much you can spend on improvements or repairs. Spending five grand on paint jobs and fixture replacements might not be a deal breaker. But $100,000 for extensive home renovations isn’t feasible for first-time homebuyers unprepared for hiccups and delays.
Making Headway in Hot Markets
Some aspects of the real estate market are showing signs of moving in buyers’ favor. However, it’s still challenging to find suitable properties. Inventory remains historically low, and prices aren’t coming down that much. For buyers, compromises, flexibility, and patience are essential. Nonetheless, strategies such as REITs and sweat-equity properties can help people move forward when the market is tight.