Residential homes sales increased by 23% last month, but it’s still largely a buyer’s market throughout metro Vancouver. And, as we all know, it’s not timing the market but time in the market. So how do you capitalize on this soft market with strategies specific to NOW and get the deal of a lifetime! This week, Adam and Matt offer FIVE essential TIPS for buying in this current market. End-Users, Investors and Flippers unite – This episode is for you!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Tip #1: Adjust Your Timelines
These tips are definitely useful for the current Vancouver market if you are looking to buy real estate, but can also be useful in other markets. If you are a buyer in a slower real estate market, don’t be thinking about the 1-2 year life cycle. A regular market cycle is 3-5 years and you want to buy something that will allow you to meet the next uptick in the market before you need to sell. One way to do this is buy something bigger – a larger space that you can grow into. Try to be self-critical and think about the next 5 years and what your goals and life plans are. Don’t buy a small place if you are thinking of starting a family and will eventually need a lot of space. Look for a place that will carry you through that five-year term and a place you can still afford to live in if the market doesn’t do what you are expecting it to.
Selling in a 1-2 year time frame comes with added costs – property transfer tax on the buy side, realtor fees on the sell side, closing costs on both sides. When the market is performing well, these costs will net with your overall appreciation, but if the market has not had time to appreciate, you may be looking at an overall loss on a property as you attempt to move through the market too quickly.
A second component to this is to adjust your timelines in terms of your search process. In a hot market, people don’t have time to think, because things sell quickly, and you have to move now. In this current market, there are less buyers, more inventory, and much more time to decide if this is the property for you. Even if you like a place, hold off for a bit until the seller is feeling more pressure due to the extended period of the listing. This may allow you to get a better deal. Be willing to write offers on different places and be willing to lose out sometimes. Time in on your side if you are a buyer.
Tip #2: Hold Out for a Tier 1 Property
Tier 1 properties are properties that check all the boxes for most buyers. For example, the property is not facing a telephone pole, it doesn’t have an odd floorplan, it has parking, it has storage, it has a view. Properties that the majority of people will have little or no objection to are Tier 1 properties. A Tier 2 property is a property that has compromises. It doesn’t have storage, it doesn’t have a balcony, it is on a busy street – anything your average buyer would have an objection to.
In hot markets, Tier 1 properties are selling and Tier 2 and Tier 3 properties are also selling. Tier 1 outperform the others in any type of market. If you are in a slower market, hold out for a Tier 1 property. You have much more selection in a slower market with little competition from other buyers. This will allow you to get a Tier 1 property that will be more coveted by buyers when the market picks back up again.
Tip #3 – Don’t Fear the Reno
In this current market, people are looking for objections not to purchase a property. In a hot market, buyers will overlook a canon hole in the wall. In a slow market, a paint chip might turn a buyer off from a property. The older, beat up properties are very hard to move in a slow market and this creates opportunities for end users that are willing to renovate and add value to a space. In essence, you are creating a Tier 1 property to live in through a small renovation. You will have got a great deal on the purchase price and have a great place to live in.
For investors, something that works really well is the BRRRR method, specifically the buy, rehab, rent portion. There are great opportunities in today’s market for investors to buy a distressed property, renovate it and rent it out for neutral or even positive cash flow. In a hot market, there are lots of flippers competing for properties, but that is not the case in a down market. Down markets are great for investors because there is still money to be made and significantly less competition.
If you are taking on a renovation, try to find a property where you can purchase in one price band and renovate it so that it elevates the property into the next price band. This will maximize your profit.
Tip #4 – Recognize a Deal and Ignore Asking Price
Don’t pay attention to asking price when looking for a deal. Sellers have widely different pricing strategies that are not consistently related to market value. Therefore, you can’t assume that 5% under the asking price is necessarily a deal. This price could still be above market value. On the flip side, if you find a place that is priced sharply, there may be no need to negotiate on price to get it down another 5%. Sellers are motivated by different forces and have different pricing strategies, so it is important to be able to spot a deal independent of the price the property is listed for.
In this market, there are people pricing very high and accepting much less and people that are pricing sharply but won’t bargain on the price. You need to spot these differences, or you may end up missing out or overpaying.
This scenario is the same with assessed value. Assessed value is a broad valuation strategy that does not always represent the actual value of a property due to the specific aspects. You are much better doing a comparative market analysis on the property you are interested in and compare it to other similar properties to come to a reliable market value. Try to ignore asking price and assessed value when looking for a deal and you will be further ahead.
Tip #5 – Think Globally, Buy Locally
Vancouver is a beautiful city with social and political stability that operates in the global context with other superstar cities. Vancouver will continue to be popular in the future, but you still need to buy local if you are looking to purchase real estate.
Start monitoring the local trends in Vancouver. The current shift in the market has shown the most active price bands and the most active areas that the locals are buying in. When the market slows, speculators and investors will move to the sidelines. The people continuing to buy and sell are regular people and you can start to see the trends based on their activity. Pay attention to the local trends because this will show you which markets will outperform others in both hot and slow markets and maximize the return on your investment.
These local markets will continue to remain stable in slow markets and will be proven to be great investments. Focusing on the local market will allow you to offset your investment strategy within the local context.