If daffodils are blooming in the yards of local listings these days, then you may be considering making a horrible real estate investing mistake. Thanks to the toxic combination of media headlines proclaiming the “spring home-buying season” is upon us and misconceptions among new investors about just how to find good deals on investment properties, May is the month where would-be investors decide to postpone getting started in real estate until summer is over.
Bad move, folks. Very bad move.
Sure, getting started now is going to mean you are entering a competitive market. There is an established, recognizable trend indicating more retail buyers make their move to a new home during spring than in other seasons. There is certainly some innate advantage for homeowners listing their homes in the spring. As Lawrence Yun, a chief economist and senior vice president of research for the National Association of Realtors, observed somewhat euphemistically at the end of Q1 2019, last spring’s price peaks caused “homeowners [to benefit] greatly.” Cumulative net wealth of homeowners rose by more than $1 trillion last spring thanks to that home-buying fever.
Not surprisingly, this year homeowners started to get excited about listing and getting paid sky-high prices around the time new investors started to get cold feet about investing.
It’s hard to resist the season, however. As the end of the school year nears, the weather warms, and we’re surrounded by growth, real estate investors and traditional homebuyers alike seem to find something irresistible in the allure of the housing market. Retail buyers are jumping in, but that does not mean investors are being left behind. Kristin Weekley, a Boston-area realtor with LAER Realty Partners, noted warmer weather brings everyone out, including investors who may have eased off their activities during the holidays and colder months.
“There is a lot more competition for investment properties in the spring, mainly because there are a lot more buyers looking,” she said.
Beating Buyers’ Spring Fever as a New Investor
Does this mean you are simply out of luck if the season of growth led you to believe the time had come to get started in real estate? Should you just put things on hold until fall? Of course not! After all, you are not just a real estate buyer; you are a real estate investor. Most investors will tell you bluntly: the key to success in real estate investing is to not put too much stock in “the rules.”
“In most situations, you go into the operation with the idea that the smartest guy or the strongest guy or the most-educated guy in the field is going to be the one who gets the win, but in real estate, you actually start out with a completely different concept,” explained real estate coach Brad Chandler, co-founder of Express Homebuyers USA and president of Brad Chandler Coaching.
“In any real estate situation, you need to do three things,” he added. “Get your mindset right, identify what is really driving you, and create a follow-up system.”
Chandler, who believes the key to succeeding in any market – seasonal or otherwise – lies in being able to generate and leverage qualified leads effectively, said these three steps enable real estate investors to identify potential deals that other buyers are likely to overlook.
Reaching the Right Sellers for the Season
When it comes to lead generation for real estate deals, your messaging will be crucially important. As Chandler pointed out, this is why it is imperative an investor figure out what they will do with a lead once they have it prior to obtaining that lead.
For example, if you are hoping to dive into real estate for the first time and have extremely limited capital, regardless of season, you will need sellers whose needs can accommodate your needs, which will include putting little or no money down. Likely, you will be looking at strategies that involve:
- Wholesaling, when you essentially flip a contract on a property instead of the property itself
- Bird-dogging, when you find qualified leads for other investors and are paid per-lead (in most cases)
- Creative financing, including seller-financing and subject-to deals
In all three of the above examples, you can gain short- or sometimes long-term control of a property without having to invest a great deal of your own capital. In fact, in some cases, you can begin investing in real estate using none of your own capital, although you will trade off in time and “sweat equity.”
On the other hand, if your version of real estate “spring fever” has you itching to switch strategies and try your hand at something new, you may have a little more flexibility in terms of both strategy and messaging. For example, if you are considering moving out of flipping and into acquiring long-term rentals, you may want to tailor your messaging to fit the types of properties that you are likely to be able to acquire without entering into a bidding war, such as those belonging to frustrated landlords, often referred to as “burned-out” landlords. Because of your existing familiarity with real estate investing already, these individuals may be your ideal audience. These landlords are particularly prone to selling at certain times in the rental cycle, including:
- During or immediately after the eviction process
- When a unit is vacant
- After a natural disaster
- Following the departure of a particularly troublesome or, interestingly, particularly reliable long-term tenant
These pain or pressure points for a landlord exist regardless of season, but you may use them to tailor a message to reach a landlord who might be a perfect fit for your desire to buy a rental property without having to compete in the open market. For example, you might customize your marketing to address spring-related issues such as insect problems, moisture damage, and weather-related delays that affect repair and maintenance timelines (see sidebar).
Find Your Edge and Keep It
Every investor can offer something “special” for sellers that may elicit a lower price in a competitive market. This strategy can be hugely successful, but only if you take the time to listen to your target selling audience and are very careful when you make your offers.
“Every spring, I see the increased competition to buy properties lead every buyer, not just investors, to agree to increasingly aggressive contract terms,” said Lorraine Beato, an Atlanta-based real estate investor and realtor with PalmerHouse Properties.
“Unforeseen repairs [for any owner or seller] can create a situation where they just want to be done with the property, and spring is prime time for issues behind drywall and in crawl spaces. Sometimes, the issues do not even stay hidden,” she added. “I just completed a flip where carpenter ants had eaten right through two-by-four’s and into the foundation! That is the kind of issue that can send an already-frustrated seller over the edge and encourage them to make the decision to sell fast rather than fix the property and try to sell high.”
The key is reaching the seller when they reach the point they are willing to compromise on price in order to gain another benefit, such as a fast sale or another convenience.
“It is so important for buyers, both investors and owner-occupants, to understand the seller’s motivation,” agreed Weekley. “You might be able to get a much more competitive price on a property if you are willing to do something for the buyer, such as provide a place to stay while they are finding another home,” she said.
If this type of arrangement, which generally involves rent for the time after closing before the seller moves out, is agreeable to you, then targeting these homeowners could be a great way for you to get started in real estate investing and even generate some rental income before you have to find a new tenant or start the process of flipping the property. These individuals may not necessarily be listing their homes at present because they believe they will not have time to find a new house before they close. Offering this type of option could incentivize a seller (who likely also has spring home-fever), to sell to you in order to gain peace of mind and, to their mind, the advantage of a closed sale.
“There is so much more that goes into an offer than just the price,” Weekley said.
Similarly, there is so much more that goes into your messaging as an investor than just your goal to buy a house at a discount.
Respect the “Itch” to Act
Whether your desire to dive into the spring home-buying season means you are finally taking the leap into real estate or you are finally making a strategic shift that you have seen coming for a long time, do not allow the season to intimidate you right out of action.
“Success in business is chasing the business, not waiting for it to come to you,” emphasized Bill Twyford, co-founder of Investors Edge University. Twyford, who has been investing in real estate for decades has this advice for investors:
“Find out where your buyers want to buy. Find out who is distressed in that area and go to them. Figure out how to help them solve their problem and, in the process, help your investing as well. Do not wait for those sellers or those properties to come to you. If you wait, someone will take your deal.”
Twyford, a long-time advocate of “door-knocking,” wherein investors physically visit properties in areas where they wish to invest and speak with homeowners one-on-one, recommended this strategy as an ideal option for investors wanting to take advantage of the season. “Done right, it’s the fastest way to find a deal,” he said.
Just be certain your preparations include the follow-up aspects, so your spring fever does not end up infecting your sellers with false hope.