How My Buyers Are Winning
As many Buyers pump the brakes, and take a seat on the sidelines, my Buyers are out acquiring properties at discounted prices. Below I want to share three examples of this happening since the summer. The goal, of course, is not to shame anyone who has taken the more common position of pausing and to “see what happens”; but to encourage you to go against the grain, stop believing the hype, and seize what I see as a market where buyers can win and make money while at it.
You may have heard the old adage that the money is made on the buy. I heard it from an investor years ago who I showed a lot to in lower Bel Air. He didn’t need the deal, so he preferred to only buy it if he could get a significant discount. These client stories I am going to share with you below, don’t necessarily satisfy developers' intentions to outright “steal” something, but with interest rates having doubled since the winter, the deals I am getting my clients now, is most certainly a way to acquire property and offset these higher rates. (Never mind there are not 20 offers on every home in the first five days, and you are buying something you don’t even like, as it’s the only thing you stand a chance at getting.)
My first story involves a young doctor client of mine named Grace, who has worked her butt off to be in a position to buy. We met at a rental listing of mine at the end of last year, and a few months ago I got a message from her that she was now looking to get a condo. The lender she teamed up with, was quoting a 6% plus interest rate. We made our first offer on a unit that had been sitting a couple weeks, but suddenly another buyer materialized and we found ourselves in Multiples. Not wanting to go much above the asking price, we lost the deal. I made the call and let her know the hard news, and on sensing her deflation, I chimed in, “Dr Choi, here’s what we’re going to do. We’re going to go out and see every single unit in the neighborhoods you like. Every weekend, every open house. We are going to make a handful of offers, and in the end, get you a place at a nice discount” She liked the plan. I explained to her, this is not the season to be paying full price or above asking. I told her, “Stick with me on this, and we will win.”
Within another week or two, and now two failed bids behind us, we narrowed in on a Larchmont-Village adjacent top floor unit now listed 50K below a comp from one floor below. We wrote the offer, got an acceptance and we are closing next week. But guess what… It wasn’t only us who saw this as a smoking deal, her bank’s appraiser evaluated the unit at the 50K over what she was paying—$825,000 (which as you may know, more or less NEVER happens.) 7% below market value is enough to offset this higher rate. Now she owns, can get out of the shit show that renting has become, and you know the rest of it.
Story two, is a deal in an area I have never sold, but having a client who had to back out of a deal in Silverlake this past summer, they had confidence in my abilities, no matter if I am far from being an expert—in this case—in Anaheim. Their family has always wanted a Disneyland vacation home. Coupled with their daughter ing in SoCal now, a home walking distance to one of the world's most popular tourist attractions was the target, they had found a townhome the daughter saw at an open, and they called me in. BUT too late, sellersthe accepted an Offer that same morning. Soooo, I searched for anything in the perimeter of the park, and saw a fixer. Leslie wasn’t sure she wanted a fixer, but Byron, who I knew has a construction background, was keen. I called the agent, got the price it would take, wrote it and now we’re in Escrow closing this month.
But get ready for the takeaway here. Three months prior, this property was in Escrow at their full 1,040,000 asking price, to which an Appraiser brought the value in just shy of that at $1,025,000. Rates spiked, and the buyer backed out. Listed now to sell at $899,000 and Seller being “over it” and behind on payments, we wrote 900K. And good for the seller who needed to make a sale now, which I think speaks to a point I made the other month about decisiveness.
My Buyers can put 100-150K into the home, have a 7 Cap rate on a short term rental basis, and sit back pretty with the quick equity they have created in the investment. A deal that others could have had (in fact they had two counter offers when I came in with our offer--again speaking to being decisive in this uncertain market explained in the video above.) This is such a handsome deal my clients have won, even Mickey Mouse is kicking himself for listening to too much hype, and not being a Buyer right now.
In the last of these case studies I wanted to share, it is a deal that if you do follow me on Instagram already, you certainly would have heard enough about. It’s a charming little Spanish style duplex my friend Michael and I picked up this summer. Having seen it too late back in May, the property was already Under Contract. A gorgeous Original West Adams charmer, two identical units, with one on top of the other, on a larger lot in a sweet little pocket I had always wanted to own in. So I started touching base with the agent once or twice a week until eventually the buyer in Escrow backed out. I know why they did, for the interest rate was now at 6%. We ran the numbers, and as long as we could rent the units for above 3K/month, we wouldn’t lose. The property took four months for us to rehab, and so here it is on the market for rent. Having picked it up below 900k, we are now sitting with a couple hundred thousands of equity in it. Sure a 6% rate sucks, but so does retiring with no assets. Again, the point is that this downturn, or market shift, shouldn’t slow you down. See what I had to say about it, right as we closed on the purchase.
I hope these stories help demonstrate that this doesn’t have to be a period where you sit back and wait. OK, yeah maybe there will be further discounts next spring. Maybe…or maybe not. My Buyers and I are seeing the opportunity now, and in instances as shared above, I am almost needing to pinch myself to believe such deals are happening. As a friend and mortgage broker Simon explained in a recent office meeting of ours, people believe too much hype. I shared here what I am seeing and doing, so you may decide to stop listening to your friends at cocktail parties, turn down the volume on CNN, and realize that now is a great time.