There are generally two types of investment properties out there on the market to buyers like me. These are:
- Investment properties that are owned by other investors.
- Investment properties that are owned by banks.
I have bought from both of these owners over the course of my investing career. Both present their own unique circumstances. But no matter who the owner is, they have to be motivated. Without motivation, there is generally no deal to be made.
Investor owned properties that are on the market are generally going to be listed with a real estate broker. Many times the broker will list the property with an “exceptional” price. In these circumstances, you have no idea why the owner is selling the property. The owner may be retiring, he may be sick of dealing with tenants, he may have an illness or he may be trying to gauge the market. He may just be trying to see if there is someone out there who will “pay his price” so to speak.
In other words you have no idea if the seller is truly motivated or not. You can ask the broker why the owner is selling, but most likely you will just receive a vague answer. If you want the property, all you can do is view it, run your numbers and make your offer based on those numbers. If the seller comes back with a counter offer, you can begin to gauge the motivation. If not, move on, he is not motivated.
The second type of seller is generally always motivated. Banks do not want to be landlords. They may have unrealistic prices in their heads, but they are generally motivated. Again these properties will also be listed with a broker and what I have found is that banks often need to be educated on the true value of the asset they are holding. Sure, the asset may be worth the price they are asking if it was fully rented, generating top of the market rents and lacking repairs of any sort. But that is rarely the case with bank owned properties. It can take a little time to educate the sellers and work these deals.
I like working with either type of seller, but for the deal to work for me, they always have to be motivated to sell. If the motivation is not there, the gap between ask and bid is just too wide to bridge. So determine the level of motivation as best you can early on. If you find it lacking, move on to the next deal.
