Home Buying in Concord>Question Details

Jeffrey Cald…, Renter in Concord, CA

How can we get into a home with all of these investment companies buying up a lot of the market in cash?

Asked by Jeffrey Calderon, Concord, CA Sat Jun 22, 2013

My Fiancee and I have been pre-approved for a FHA loan of $250k. We both have stable jobs, and have 5 years with our current employers, and bring in about 85k a year. Both of us have good credit. We are having a hard time finding a house in our price range, because right now there are a lot of cash buyers in the market we just can't compete with. What can we do to try and secure a good starter home in our price range? We have our down payment saved up, and another 20k in our 401k's. We have been looking for quite some time now, and are starting to get really discouraged in our search. Other than the obvious (waiting and saving up more money to increase our budget) is there anything we can do to help in our search? Our fear with waiting and saving up more money is that by the time we have funds saved up that will actually increase our budget by a significant amount the market will have gone back up, and we will still be in the same position as we are now..... Any advice?

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I can think of several quotes from Winston Churchill to help you keep your spirits high, like this one:

“Success is the ability to go from one failure to another with no loss of enthusiasm.”

Cash buyers don't always win....perseverance with a bit of luck helps.

Asking what the sellers want and what the sellers are like may reap some answers that will give you a clue to how you can position yourself in the best light.

For example, if you find out that the sellers are buying a house too, you can offer to give them free rent up to a month after close of escrow.

For sellers who are very attached to their home, write a personal letter presenting yourselves as people who will love and treasure the home that the sellers have lovingly cared for.

If you're writing an offer above list price, prepare yourselves to waive the appraisal contingency --- which is a promise that you will make up the difference between your offer and what the property appraises for. Sellers are so turned off when buyers deliberately offer much higher than list price, and then negotiate to reduce the price if the property appraises for less.

Presumably you have a realtor working for you. What does he/she suggest that you do?
1 vote Thank Flag Link Sat Jun 22, 2013
We live in a world of multiple offers. Besides the REIT's and LLP's buying up properties cash we have had an influx of Asians, mostly Chinese. All cash buyers as well

The advantage you have over a cash buyer is that the cash buyers often try to get a discount. The reason they can get away with this is that so often people buying with mortgages do not close. Sellers many times are under the gun and can not chance it.

We offer the sellers a guarantee that we will close on time, and if we don't we pay their mortgage payments until it does. (terms and conditions apply)

So your offer looks just like a cash offer.

Now you have a 2nd advantage. People who have mortgages of course are resorting to making higher offers to get their offers accepted.

What we try to do is to come in close to appraised value, then we point the value based on comparable sales. Then point out that higher offers must have the difference in cash and be willing to do so. I recommend the sellers get proof of funds and an agreement they will close regardless in advance.

This raises your odds of getting your offer accepted quite a bit. We have one agent who uses us as a lender and has gotten 44 offers through this year, so it does work.

For a free no obligation consultation feel free to call me at 949-297-1207 or click on my picture to respond online.

NMLS 287206
0 votes Thank Flag Link Thu Oct 10, 2013
Not all cash buyers win.

For a recent listing, 9 buyers submitted an offer on the same property. All but one wrote for over list price. Five were countered. One of the buyers wrote a heartfelt letter addressed to the Seller --- the seller was touched by the gesture, not only because there is a letter, but rather, the buyer put into words things that meant a lot to the seller.

So when the seller reviewed the counteroffers, she didn't hesitate to pick the one with whom she felt the most affinity. That offer wasn't the highest offer, and neither was it a cash offer. But that's the offer that won against all odds.

By the way, this happens more frequently than you think.

I said it earlier. Asking what the sellers want and what the sellers are like may reap some answers that will give you a clue to how you can position yourself in the best light. So...before writing an offer, try to find out what the seller is looking for, what's important to the seller...and try to appeal to those needs.

Good luck.
0 votes Thank Flag Link Wed Sep 11, 2013
Go with a 3% down conventional loan if you are under a $417k loan amount. My bank has them, but they are going away at the end of the year for everyone. It will be a 5% minimum down-payment.

Many Realtors have been trained over the years that FHA is a hassle and in fact there are some downsides, specifically for flips. Many lenders are very picky about property condition on FHA loans. In the market of multiple offers the last thing you need is for the seller to decline your offer because they assume there will be repairs. The other issue is that many lenders take 45 days to close an FHA loan vs. the typical 30 day conventional. This could put you at a disadvantage also.
0 votes Thank Flag Link Wed Sep 11, 2013
I very respectfully disagree with much of the advice below. Persistence is a noble trait. But as Albert Einstein said, "Insanity: doing the same thing over and over again and expecting different results."

On the other hand, you do have to make offers. I'm concerned that you say you "are waiting to hear back from our second offer made." So you've made one that wasn't accepted and now you've made a second? That's definitely not enough.

If you'd made a lot of offers, then it would be time to try a different approach. The typical advice would be to raise your offering amount and to strengthen your offer. And that's often OK.

Still, what I was getting at in my first paragraph was that you also have to look where other people aren't looking. Find houses that other people are overlooking...most likely because they aren't on the market (at least for sale). First, take a look at my blog on finding lease-options: http://bit.ly/findalease option Note: I'm not suggesting a lease-option. But look at the advice for people for finding properties that aren't listed for sale. Use the same techniques. Look for properties that are for rent; then make a purchase offer.

A lot of investors use direct mail, especially to out-of-town owners, to find properties. The out-of-town owner is likely renting the property. One bad tenant or bad experience--and they happen regularly--and the owner starts thinking about whether it'd be better to sell. Or the owner would like to sell but knows the house isn't in the best condition and the owner does want to (or isn't able to) do the upgrades. Yes, it means you might find an owner with yellow kitchen appliances and green shag carpeting. But at least you've found something with no competition.

Here's another suggestion I never see: Buy a home from a wholesaler. In real estate investing, a wholesaler is someone who goes out, finds a property, puts it under contract, then sells the contract (usually to a rehabber). The rehabber fixes the place up and puts it on the market. The first two transactions--original owner to wholesaler and wholesaler to rehabber--seldom appear on the MLS. Now, wholesalers will be reluctant to sell to you, but for the additional profit, they will.

Here's an example of how it works in my area. (And my area is very hot right now.) A wholesaler finds a house that, when fixed up, will sell for $500,000--maybe $40,000. The house needs a lot of work. The wholesaler puts it under contract for $215,000. He assigns (the contract) to a rehabber for $240,000 total--the $215,000 contract price plus a profit of $25,000. The rehabber rehabs the house and puts it on the market through the MLS for $485,000. It sells in a day. (And, yes, wholesalers are finding properties like that.)

What if you went to a wholesaler and offered $250,000? That's an extra $10,000 for the wholesaler.

Or another example. The house would be worth $300,000 fixed up. It needs $30,000 in repairs. A rehabber will pay the wholesaler a maximum of about $170,000. The wholesaler probably put it under contract for $145,000-$160,000. What if you came in and offered $200,000? That's an EXTRA $30,000 for the wholesaler.

Most folks reading this are going to say: A house in that condition won't qualify for FHA. Answer: Look into a 203(k) loan--an FHA loan that includes rehab costs.

How do you find wholesalers? Find a Realtor who's investor-friendly. He/she will know. Or attend some meetings at your local real estate investment association (REIA). You can probably do an online search for "real estate investment clubs Concord California." I just did and came up with a bunch.

So: Two keys to your problem:

First, make offers.

Second, look for properties where your competition (so-called "retail" buyers) isn't.

Hope that helps.
0 votes Thank Flag Link Sat Sep 7, 2013
Don Tepper, Real Estate Pro in Burke, VA
Hi Jeffrey

You make good money and have good scores.

It is prudent to work with the right Agent to help you
Get the home.

Clearly, you will have to write offers, loose many, but ivory likely have
1-2 come through.

Be focused, and plough on with a good Agent.

Good luck.

Web Reference: http://ruthandperry.com
0 votes Thank Flag Link Sat Sep 7, 2013
It is difficult but possible, keep on top of the market and analyze the areas that you want to target. Most importantly have an agent that is your true partner in acting swiftly in making offers for those properties in which you have interest.
Also have all your documents and financing ready to pull the trigger. Some areas are subject to over bidding and you have to make sure that your offers are in line with the market.
Real Estate prices are not going to abate any time soon.
0 votes Thank Flag Link Sat Sep 7, 2013
Patience is a large part of the game. Inventory is improving now, so I believe that you are right around the corner from being able to make a competitive offer and get it accepted. Part of the issue is the overbidding which is prevalent right now and the appraisers do not have the right data to support some of the overbid prices. The overbidding has appeared to drop recently as inventory has risen along with rates. Where it was taking about 10-20% above list price to capture the deal for awhile there, it now seems to have fallen to between 5 to 10% over list for highly renovated homes. I have strategies I would share with you as my client, but it sounds like you are working with a realtor now. So, I wish you the best of luck.
0 votes Thank Flag Link Sun Jul 21, 2013
the solution to your situation is directly related to the dimensions of real estate in which your agent has experience. Most agents only experience is in the PPP arena and this works for the rountine buying and selling of real estate. As you have discovered, your situation, competing head-to-head with cash buyers at your price point, is frustrating to say the least and begs for unique solutions.
These solutions can be as simple as creating secondary markets and as complex are structuring a proportional seller financed option. What works best is dependant on the details of your situation, the existing market, agent resources and skills, and your level of comfort.
The less stressful and more easily understood would be the secondary market and the one that is most easly developed by your agent. Chat with your agent regarding this approach. Be aware, this approach is neither rare or uncommon, it is simply more effort and EXPENSE than many agents are willing to invest, ecpecially at low price points. After all, this is a businesss, not a hobby. See if you can piggy-back on existing efforts of your agent.
Be prepared. You agent WILL require a committment, that means you will need to sign a buyer agreement.
0 votes Thank Flag Link Fri Jul 12, 2013
Jeffery, Great question, There are many buyers in the same situation. Start by writing a letter, Make it real, tell your story that appeals to the heart strings of the sellers.
Ask your RE Agent to personally present the offers to the seller ( with Letter and story ), most will not allow this but it only takes One!
Make Sure you have a complete package when submitting the offer.
Offer to make up the difference of a low appraisal, within reason.
Make sure your agent is networking for Sellers who do not want to be on the open Market. Some people want to sell without the fuss.
Look for HUD homes that are only sold to owner occupied for the first 15 days, you need a Hud approved Broker/Agent.
Believe one of these will work and you will be living in the home you desire!
0 votes Thank Flag Link Fri Jul 12, 2013
Thanks for all of the feedback / advice. We did end up going with a 5% conventional loan, and hopefully that will appeal more to the sellers and also eliminate some of the red tape we have to cut through as well. At this point we are trying our best to optimistic, and are waiting to hear back from our second offer made. I know eventually we will get into a house, and just need to patient.
0 votes Thank Flag Link Sun Jun 30, 2013
It is tough and there is no easy answer. You do need to keep trying. I posted a blog post on the subject linked below. Try other areas that are cheaper. Also can you get a parent or relative to help out with money or going onto the loan in order to increase your buying power.

You might also check to see if a 5% conventional loan might be a better option for you in terms of what you can afford.
Web Reference: http://actvra.in/XBC
0 votes Thank Flag Link Mon Jun 24, 2013
Another Churchill quote comes to mind:

"Never give in--never, never, never, never, in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy."

Our team uses the spaghetti analogy: "If you throw enough spaghetti at the wall, something is going to stick."
0 votes Thank Flag Link Sun Jun 23, 2013
Both answers below are very spot on about the persistence and preparation you need, and type of market we're in. It is super frustrating for buyers Since it is a sellers market, other efforts could include, having conversations with pretty much everyone you know (friends/family) about your frustrations. Ease into these conversations by asking "where do you live", or "do you like where you live", and then transition into "my family is having the most difficult time finding a house to purchase, do you know anyone thinking about selling?". The next part is key, know the comps for certain areas, which I'm sure you're slightly aware of with your current home search. To respond to someone that says yes they have a neighbor looking to sell soon, say "can I come by your house and see the property or meet the neighbor". Or, "could you (the neighbor) mention that I'd (you) be willing to buy the property in its current state without repairs (which is pretty much the norm for purchasing these days) for current market rate?" I'm sure you're already doing this, but again, your persistence should payoff, especially if you don't have to compete with another buyer.

Second, visit open houses in neighborhoods that you can afford and are looking to purchase in. Sometimes these open houses are attracting potential nearby sellers

Third, speak to your agent about your intentions on the above scenario and see how they can benefit the sellers if you were to help find a listing and potentially purchase that house.

Fourth, take a small (several week) hiatus from the home search, work on your overall happiness and financing. Let your real estate agent contact you when the right property hits the market.

More than likely you will purchase your future home through a real estate professional. I can tell you that your price range is the most difficult (detached single family property under $275k). The majority of investors are topping out at $320k with all cash.

Hang in there, work on eliminating that FHA loan by saving more of a down payment. Sellers want to see proof of funds these days, even if there is a loan.
0 votes Thank Flag Link Sat Jun 22, 2013
Working towards saving as much as you can in reserves will help you compete with the investors (because you can then afford to pay for things that come up during inspections - things you would normally negotiate with the seller on)...also working with an agent that gets creative in the offer writing process helps. Using someone with an excellent reputation w/in the area you are searching is critical - this is a business where if you know a certain agent is professional, organized and knows their stuff, you want to work with them again. And finally don't give up - I just finished up my 34th offer after 6 months and FINALLY ended up getting my buyer the house she loves (with an agent I've done several deals with previously, and the agent called me to say hey! I've got one that might fit your client...) good luck!! It is tough, but have faith in the agent you are working with.
0 votes Thank Flag Link Sat Jun 22, 2013
Keep at it - we've found that buyers that keep writing offers and have a creative agent will eventually land a home - every one of our buyers that keep going end up with a home. Also, look at other types of properties than those you'd normally consider "premium" - the goal right now is to get in - not land your dream home.

Lastly, it seems that the market is slowing a tiny bit - it might be catching its breath - we're seeing fewer offers than a few months ago.

Here is a post that may be helpful:

Current Bay Area Market NOT A Bubble: Top 5 Buyer Recommendations
0 votes Thank Flag Link Sat Jun 22, 2013
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