Are you looking for deals on real estate, but can’t seem to find them? Sure, the market’s hot right now, but that doesn’t mean that there’s no deals to be had – you’ve just got to dig wider, deeper, and probably get a bit creative with your digging style! If you’re constantly on the lookout for a deal on real estate, then you might want to incorporate this new strategy we discovered with our last rental purchase.
How We Found a Crazy Deal on Real Estate
We put our John Hancock on the documents just yesterday. We’re officially the new owners of a 3 bedroom, 1 bath house and we only paid $75,000 for it!
“How the heck did you land such an amazing deal?” you might ask.
I’m ready to teach you, my friend. Hopefully you can use this same method and buy a screaming deal of your own in the near future.
Hire an Amazing Realtor
Notice I used the word, “Hire”. A realtor works for you, so do your research and find yourself a good one. Ask your friends, family, co-workers – tell them you’re looking for someone that’s active in the house hunting business and can repeatedly scope out deals for their buyers.
My sister and brother-in-law are into house flipping. They always seem to find deals and are able to sell quickly, thanks to their real estate agent. Luckily, there were gracious enough to share their priceless realtor with us, and now we’re getting in on the amazing deals as well!!
By the way, you likely won’t find an amazing realtor from the get-go. Heck, we had to fire one that just wasn’t cutting it, and that’s okay! You might have to cycle through a few people before you find the realtor that’s right for you and can actually find you a deal on real estate.
Watch the Trends
Houses go on the market all the time, but their trends are all quite different.
- Some houses list low out of the gate, hoping to attract a ton of buyers that start a bidding war, which drives the price higher than what it may have even listed for
- Other houses come on the market toward the top end of their value, then they slowly come down until they attract the right buyer
- And then there’s some that start moderately high, but start dropping their price like a rock. These are the houses I’m interested in looking at!
I have my Zillow account set to view all houses that are listed for $120,000 and under. I saw a 3 bedroom, 1 bath home listed for $109,000 on August 1st. It looked like it was priced right for the location and the size of the home, but there were no pictures of the inside (which typically means it’s either outdated or just a complete disaster).
On August 15th, the price dropped to $99,900…
Houses don’t typically drop in price by 10% after just 15 days. The chart above shows the typical price reduction stages in blue. This house (shown in orange) was 3 months ahead of schedule in terms of the price drop.
My sense was that:
- NOBODY was interested in this house, and
- The seller had zero attachment to the property and wanted to sell it quickly.
It turns out, I was right on both accounts.
I walked through the property in the beginning of September. It was like stepping back in time to the 1970’s, and not just with the looks of the house, but the smell too!! This house wreaked of smoke….and DOG! Most buyers would have clenched their noses and ran right back out the front door. Me – I was smiling. I knew I had a potential deal.
There’s so much crap on the internet that says you should put as little down on a house as possible and borrow for 30+ years. And you know what? They get a ton of views because nobody has any money anymore – so they’re left searching, “How to buy a house with no money down.” They’re too busy financing their cars, their “education”, and their lifestyle to save up anything.
The reality of the matter though, is that putting cash on the table makes a huge difference – especially when it comes to buying houses.
Imagine you were the seller, and I’m the buyer. Here are your two choices:
- I offer you $85,000, but the offer is contingent on the bank approving my loan, an appraisal of the property, and an inspection of the house. Closing is in 4 weeks.
- I offer you $81,000 cash. No appraisal needed, just an inspection. Closing is in 2 weeks.
You see how enticing a cash offer can be? I save myself $4,000 on the buy (not to mention on closing costs, interest, etc. etc.), and you have almost a sure deal because you know I’ve already got the cash in hand.
I’ve purchased houses with cash twice now, and it’s absolutely the only way to go.
Offer Low and Start Playing Chess
I don’t play chess often, but it is undoubtedly a game of strategy and foresight. One simple move can quickly alter the entire game. In order to become a chess champion, you’ve got to be able to see several moves ahead, and understand what each one of them will do to your overall plan and your next move. The same is true when it comes to bidding on a house.
Our prospective house was outdated, musty, smelled like smoke, and had some water stains. It needed some serious TLC. The asking price was $99,900, which was still pretty high given the condition of the inside.
My initial offer was $80,000. It was lower than I ultimately thought the home was worth, but it was high enough that I figured they would counter (instead of just saying “screw you” and moving onto the next guy).
Their counter was $84,000….
LOL! They came down almost $16,000 from their current asking price. Man, were they ready to sell!
Since they were obviously motivated, I raised my offer just slightly to $81,000 to continue playing the game, and to hopefully get an accepting offer.
Sure enough, they accepted.
And now it was time for the inspection – the next stage of the chess match.
Get the Inspection and Revamp the Offer
Many people think that the accepted offer is the final stage of the game. Not so. The home still needs to be inspected, which means there’s still one more opportunity to put in a lower bid.
The inspection took 2.5 hours and he found a few more things wrong with the property that we weren’t aware of:
- the roof needed to be stripped and replaced in the back of the house, and the upper roof needed patch work
- the furnace wasn’t working properly and needed to either be repaired or replaced entirely
- and, it turns out that the water heater was 30 years old. It was still working, but was in pretty bad shape and really needed replacement
I quickly got a quote for the roof and the furnace, which totaled about $10,000. Add on a new water heater and everything added up to $12,000. Goosh!
This sounds pretty bad, but honestly, I could repair the garage and shed roof myself, and I could probably get the furnace and water heater fixed for cheaper with another company. My total additional costs would be somewhere around $4,000.
Our new offer? $75,000. It was only $6,000 lower than our previously agreed-upon $81,000, which looked pretty reasonable considering the additional $12,000 estimate.
Needless to say, they accepted! BOOM! Here’s a picture of our new rental beauty!
Note: Be careful with the offer after the inspection. The seller has every right to reject your offer and give the house to another buyer since you broke the original contract. I was fairly certain that no one else was lining up for the house, so I was willing to take the risk.
It’s Time For Your Deal on Real Estate
Are you still looking for a deal on real estate? Remember the steps we took to land our deal:
- Find an awesome realtor
- Look for the motivated seller
- Make a low, but reasonable offer and respond to the counter according to their apparent motivation to sell
- Get the inspection, and if something new pops up, don’t be afraid to re-negotiate the price
And that’s it!
If you’d like some other ideas to score a deal on real estate, check out this post that I wrote a few weeks ago: We Just Missed a $40,000 Opportunity, and We’re NOT Letting It Happen Again.
So what do you think about our deal? Don’t worry, I’ll have some before and after pictures coming!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.