What is with investors paying way too much for property?

Question

I used to buy around 20 houses a year and sell about 30.  Lately I can't get any offers accepted and I'm offering as much as 15k over list price.  I haven't had an offer accepted since November and I've probably made around 300 offers since then.  Many of them have been over list price.

This is not just listed properties, I'm talking about off market stuff too.

But lets say a home is listed for $30k.  I can barely make the numbers work at $35, so I'll offer $37, but someone else offers $60k.

This sort of thing has been going on since I can remember, especially at auctions, but it has been out of control lately.

Funny thing too, is that I know I can get the rehab done cheaper than most too.

I'm not throwing in the towel, but I'm throwing my hands up in the air and shaking my head in disbelief.

James DeRoest · Answer

Two things spring to mind.

There seems to be an abundance of 'investors' out there right now, trying to live the dream of easy money, whether it's the tv shows about rehabbing and flipping for profit, seminars on flipping, gurus on wholesale, etc. The number of sharks in the water right now is way higher than it's ever been.

And then there was a complete lack of house building during the depression in the last few years, as the economy gets back on it's feet (slowly). Plus there are the people who lost everything, and are probably now approved for a mortgage again. So again, more sharks in the water.

Walker Hinshaw · Answer

@David S.

Owner-occupiers could be bidding up those duplexes as well. People who want a house but can't afford one on their own and are forced to get a duplex to help them subsidize the cost.

@Anson Young and @Dan Mackin you both make great points about the Denver area. It is impossible to make your money back as a builder right now unless you are pricing your inventory above $350k because there aren't any scalable building options.

While I think Denver's owner-occupier crowd is definitely bidding up prices, I also think investors in Denver have started investing for appreciation due to the ridiculously high appreciation the market has seen in the past year. If you buy a $400,000 property and it recognizes 10% appreciation in one year, you suddenly made $40,000 in one year off of $80,000 if you put 20% down. That is a massive cash on cash return (50%!) and I think there are plenty of people out there willing to risk it at the moment considering Denver's strong growth and demographics.

Anson Young · Answer

Dont forget the construction defects law, making builders/developers take condo or townhome projects and turn them into apartment/rentals to avoid the inevitable lawsuits.  Thats your source of affordable housing, in the city anyways.  Nobody is going to do infill affordable housing, there is no money in it unless its heavily subsidized or the city gives away the land.

Linda Weygant · Answer

I'm not sure the folks paying $60k for a $30k house are investors.  Here in the Denver market, the owner occupants are the ones in the bidding wars (according to my realtor).  He says he's working with a couple now that is writing offers that they will cover up to $40K in additional price if a house does not appraise.  In other words, when they bid $360 for a house that appraises for $320, they are fine with covering the spread.  And they have put this kind of bid in on 5 houses - and lost every single one.  I don't even know how to interpret that.

I mean, think about it.  Our market is so tight, these people (and many just like them) are willing to overpay for a house just to get into it.  I know the "value" of a house is technically whatever a buyer and seller in an arms' length transaction will pay and accept.  But this is ridiculous.

The investors I'm talking to here are scratching their heads and complaining about the lack of ability to find a good deal.  So I think it's owner occupants driving the prices up, not investors.

Darryl S. · Answer

Same thing here scarce properties at premium prices. (Irrational Exuberance).    Might be a good time to cash out some of your weaker property holdings? Pretty sure it is not a good idea to be buying right now when the markets are hot and every tom dick and harry is out there chasing crumbs. Might want to sneak at peek at those big oil stocks to sink some of that cash into?????? Come back in 3 years and tell me I am wrong haha. Gota go do some big url stock research see you later

David S. · Answer

I'm wondering the same thing around here, but for small multi-family places. Unless my numbers are way off, I don't see the cash flow on a financed purchase of a duplex at $300k+, when rents might only be $2400-$2800.  Saw one on market at $420k, and $2500/month in rent.

Dan Mackin · Answer

@Anson Young

Very true.  Makes sense why the bankrupted developments in my area all got purchased and continued... except for the townhomes.

Dan Mackin · Answer

In my area the development is happening, but not in the right price range.  Lots of people are looking for sub 300k homes, but all of the builders are over 300k.  A lot of it is due to water costing so much here, but on top of that apparently the smallest home builders will do anymore is at least 2000 sqft.  There are a few under that, but they're charging premiums for those since they're ranches designed for retirement.  There's always a lot of investors, but I'm betting netflix has a bit to do with it since now the flipping/income property shows are accessible to a lot more people.  Heck I'll watch them sometimes, but can't stand most of the people in them.

Lisa Kohl · Answer

I feel your pain. We've been experiencing the same thing in my area with the lower priced inventory. It's a rat race out there.

What is with investors paying way too much for property?

Most Popular Reply