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episode # 183

Market Mistakes You Will Never Make Again!

You can always learn from your own mistakes… but why would you do that when you could learn from someone else’s mistakes! Vancouver’s TOP tier investors don’t move to the sidelines when the going gets tough, but instead they investor up, pivot, and keep money moving! This week, Adam & Matt cover some of the most burning questions from listeners – ones that carry the potential for life changing mistakes. Learn how to proceed in a changing market with caution and risk management. And, of course, level up!

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Episode Summary


 

Listener questions answered:

  • I am looking to do a flip. What type of properties should I avoid in this current Vancouver real estate market?

This goes back to our point about thinking global, buy buying local in our last episode, 5 Essential Tips for Buying in this Current Vancouver Real Estate Market. In this current market, the higher price points should generally be avoided. Right now, the 1 bed and 2 bed sales are still strong and the entry level is generally doing well. Avoid the higher price bands – in downtown this would be above $1.5M. Over this price, you start to see sales ratios drop off quite considerably. There is still a lot of pressure under $1.2M in this segment. Or the Westside between $1.75M to $2.75M is busy. After you get above this range, the sales ratios drop off considerably. These are the ranges where the locals are buying and this is what you want to focus on.

Flips are possible in this market because there are opportunities for distressed properties. Sellers paying attention to the media may be a bit nervous and willing to let their distressed property go for less than market value and this creates an opportunity for investors. One rule of thumb for this market is to avoid long rehabs for homes – stay away from a complete overhaul. A good rule would be to only be invested in the flip for 90 to 120 days at most. This allows you to be comfortable because you can generally see what is happening in the market in this short time frame. Greater than that may be anyone’s guess and you don’t want to be tied up in an expensive renovation for 6 months to 1 year. This is much riskier.

One other thing to note is always have a backup plan when flipping a property. Have a plan B and a plan C. For example, you buy something that you plan to be a 90-day flip. Plan A would be to renovate the home and have back on the market and sold all within 90 days. Plan B would be to keep it and rent it out if something doesn’t quite go your way in the market. Plan C would be to live in it after some renovations to your liking until the market turns around.

The best reason to pursue a flip in today’s market is that there are still deals out there. Focus on areas where the resale opportunities are. The recent slowdown in the market has forced speculators to the sidelines. This results in opportunities for people looking to make money. If you make your money in real estate, a market change shouldn’t cause you to take time off or move to other markets. You should thrive and adapt in the different phases of the market and that is how you make money. Maybe the margins are not as great as they were a couple of years ago, but money is still cheap to borrow and you can still make money. You just need to be strategic.

  • Should I get a pre-inspection before I sell my home?

There are pros and cons to this for sellers. One pros is that it is a positive for buyers. Although buyers will most likely still want to get their own inspection, a pre-inspection suggests a level of confidence by the seller that any known issues have been addressed and that the seller has performed their due diligence to ensure the home is ready for sale. They are getting out in front of any issues with the property and they are ready to sell.

In this market, buyers may have a tendency to collapse a deal if they find some small issue. Buyers have more choice and more time right now to make purchase decisions and are not willing to overlook issues that they may have overlooked in a really hot market. The pre-inspection should bring any issues with the property to the forefront so that the buyer is aware of them from the outset. Buyers are doing inspections in this market and there are very few subject free offers. Sellers will have to deal with these issues, so it makes sense that they deal with it at their own pace instead of being under the gun after they are under contract.

A con that people normally point to in regard to a pre-inspection is that you might learn something about your home that you didn’t know and now you will have to disclose it. You can no longer claim ignorance when selling and any known issues need to be disclosed. This argument doesn’t hold water. In this market, an inspection will take place at some point and the seller will have to address the issues if they know about them or not. So, there doesn’t seem to be a downside to know about these issues earlier than later. A pre-inspection makes sense in this market.

  • Should I sell my current home before buying a new one?

A couple of years ago, in a really hot market, people were choosing to buy first and then sell their current home. The market was rising at such a rapid pace that buyers realized that they did not need to sell their home before buying because there was no worry about selling – their home would be sold. Buyers also determined that if they held on to their current home during the subject period (60 days), they would benefit from any market appreciation. Maybe even benefit from the market appreciation on both homes since the new home was under contract.

In a soft market, waiting to sell your home before you find a new home is not a great strategy for various reasons:

  • It is possible that your home may be worth more today than it will be in 3 months from now and if you hold on to it during your subject period, you will receive less money for it at sale.
  • This market is more challenging to sell a home, creating uncertainty in the timing of the sale of your current home.
  • Finally, if you hold on to your current home, your offer to purchase a new home will be less attractive to sellers if it includes a subject to sale. Sellers prefer certainty. If you still have to sell your current home, your offer is uncertain. Sellers will ask for a higher sale price in order to offset this certainty, costing you money.

Generally, the rule of thumb should be – falling market: sell first, buy later; rising market – buy first, sell later. One caveat to this is for families moving through the market. Even in a falling market, in some instances, you might not want to sell your home until you find something you really like. If you are planning to live in the home, you may be willing to pay a bit extra to get the home you really want and will try to avoid selling your current home before you know where you will be living.

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