Strategies for Acquiring Real Estate in a Limited Market

Real estate is one of the best investments you can make. Not only does real estate typically appreciate in value over time, but it can also generate value during the time you own the property. In addition to the potential income a real estate purchase can generate, there is also a feeling of security and emotional satisfaction to be gained if you are buying a personal home.

Many potential buyers are uncertain about whether it is possible to purchase a home right now because of the housing market. Many cities across the nation are suffering from a limited selection of real estate. Don’t worry, though! If you are struggling to enter the real estate market because of a limited selection, there are still options for you.

What causes a low housing inventory?

Housing shortages occur when there are fewer houses for sale than buyers looking to purchase. This can be caused by a lack of new builds, an unwillingness of homeowners to sell, or a high level of interest in a certain market.

If you’re looking to buy in a market that seems to have far too many buyers and not enough sellers, it can be difficult to figure out how to proceed. However, it is always possible to buy, if you keep a few principles in mind.

Remember, sellers become buyers.

One of the reasons that market selection becomes limited in a “seller’s market” is the fact that people who are selling their homes almost always become buyers at the moment of closing. While sellers can benefit from a lack of supply, many people are scared out of selling their homes in a market where buying can be difficult. The best way to close a deal in a limited market is to make the deal as attractive to the seller as possible.

Act Quickly

The first rule of buying in a market with low inventory is to act quickly when you find a property that meets your needs. In extremely hot markets, houses can be closed on the same day they are put on the market. Some houses might be sold before they even hit the market. If you find a house you love, be prepared to make an offer immediately.

Align With Your Partner

If you are buying with your spouse or another partner, make sure you are aligned on what you are looking for and when you are willing to make an offer. Go to each viewing together, even if you don’t think that house will be “the one”. This will allow you to quickly make offers and not have to take too much time on the decision-making process. Laying out your non-negotiables and timeline beforehand can make all the difference when securing a property in a seller’s market.

Budget For Bidding

When looking at houses in a market with a limited selection, don’t just look at the “sticker price” of the house. Take into account the fact that you might have to out-bid other offers in order to be more attractive.

Make sure to let your real estate agent know that you are open to outbidding other offers. Your agent should be an expert on closing deals, so lay all your cards on the table. This will allow them to negotiate better.

Consider The Fixer-Upper

You might have been dreaming of buying a perfect move-in-ready property. However, if you are trying to buy in an area where there is a low housing inventory, you might benefit from investing in a less-than-perfect house. Once you own your home, you can turn it into whatever you want it to be.

Many times when people think of “fixer-uppers”, they imagine small shacks that are on the verge of falling apart. However, that’s not necessarily what a fixer-upper is. Think about it like this: if your budget for a house is 1 million and you find an “okay” suburban home in a great area at $750k, that means you can invest $250k towards turning the house into your dream home. In markets with low housing inventory, this might make far more sense than continuing to search for a $1 million home that is perfect for you.

In fact, the “fixer-upper” approach often makes sense even in a market with a relatively high housing inventory. After all, if you really want to make somewhere your dream home, there is almost certainly going to be an element of customization involved. You are an individual, with unique desires from your home. Searching for a previous owner with the same design inclinations and desires makes far less sense than simply investing money to customize the house to your needs.

Choose Your Real Estate Agent Wisely

The most important thing you can do when trying to break into a difficult real estate market is to be wise with your real estate agent selection. Experienced real estate agents know the market like the back of their hand, and can lead you to properties you might not know otherwise. They can also help guide you to check out up-and-coming areas that might not have otherwise been on your list.

A good Scottsdale real estate agent is constantly checking the market and searching for new properties. If you have an agent that is dedicated to their real estate business, you could be the first customer to see a home and put in an offer. This can make all the difference when buying in a tough market.

Do The Cold-Approach

If very few people are selling in the market you want to purchase in, you might consider cold-approaching people with desirable properties. Sometimes people would be willing to sell if they knew an interested party was already lined up.

Many people are interested in selling their homes but have doubts as to whether it is the right time. Being approached by a buyer can help push these sellers to take action. There is a lot of time and money that goes into putting a house up for sale. The process of staging, listing, and connecting with potential buyers can leave sellers overwhelmed. By using the cold approach, you remove all of these obstacles from the seller’s path. This can result in you getting a better price or better property than if you had just limited yourself to already-listed properties.

Consider Financial Alternatives

Typically, if money is not an obstacle, anyone can find a property to purchase. If you can increase your budget, you might be able to find a property, even when the housing supply is limited. Here are a couple of methods you can consider when trying to expand your financial options.

Lean On Your Real Estate Agent

This goes back to one of our earlier points: your real estate agent can help guide you through the financing options. If the real estate agent you are working with is experienced, they have likely seen it all when it comes to financing. They might even be aware of options you didn’t know were on the table.

Rental Income

If you have to spend more than expected on a property, you might consider trying to generate some amount of income from the property. This could mean renting out a room or generating an income by listing part of the property as a short-term rental. Some people are able to convert their basements, and apartments above their garage, or even build a free-standing structure in the backyard in order to generate thousands of dollars of additional income a month.

If you are going to be able to successfully generate income from your property, you may be able to justify spending more on the initial purchase.

Home-Based Businesses

If you own a business that operates out of your home, you can typically deduct office space from your taxes. Talk to your tax accountant about potential tax breaks you can apply for and how much money those tax breaks can save you per year. Take this money saved into account when planning how much you can justify spending on a home.

Build It Yourself

This isn’t going to be a viable option for everyone. However, for certain individuals looking to purchase real estate, it might make more sense to purchase the land and build yourself. The lack of new builds is one of the common reasons for a limited selection in the housing market. If you are able to build yourself and are willing to live in an area that hasn’t been fully developed, it will expand your purchasing options.

Stay In The Market

At the end of the day, the best thing you can do to insure that you find the perfect property is to stay in the market and not give up. If you have spent a long time searching for a property, you might start to feel that the task of buying is impossible. However, even in limited markets, new listings are appearing every day. If you have a good real estate agent, they will keep you informed about all of your options as they evolve.