Having a difficult time buying a single-family home as an investment?

A commonly used phrase in the single-family investor world is, “You make the money when you buy.” This is nothing more than a nuanced way of saying, “Don’t pay too much for it.” Over the past two years, most buyers of C and B class properties have struggled to find good deals. Property values have risen to the point that purchasing a structurally sound home in a desirable neighborhood has become harder for mom and pop investors. Without doubt, profit margins have narrowed to the point that “home run” deals have been replaced with “solid singles.” It appears mom and pop are being squeezed by bigger pocket industry buyers with Wall Street ties. Making “the money when you buy” is now significantly harder for new investors. Followers of the 1% Rule have had a tough time lately.

There has never been a risk-free time to buy investment real estate. In hindsight, those investors who purchased distressed homes during the Great Recession have largely seen their investments pay off. There was considerable uncertainty at the time, many mom and pop investors “white-knuckled” their way through it, lost sleep over their home purchases, and now have a story of profit-making to tell. We were told about the “glut” of single-family homes. We were told the baby boomers were going to sell their homes in droves and live in retirement communities while Gen X/Gen Z/millennials were going to reject home ownership in favor of convenient community living. I do not recall ever feeling overly confident that investing in single-family homes was a sure thing.

By an unforeseen mixture of an HGTV driven interest in rehabbing, a Federal Reserve that quantitatively eased its way out of a depression, a President that cheered on a business climate that assumed risk, and a pandemic that reminded everyone that a generous amount of personal living space is desirable – Americans are buying single-family homes in a historic frenzy. Which gets me back to my point, how are mom and pop supposed to find deals?

The MLS has never been a good way to find investment homes. Most of the great deals are locked up by real estate agents or brokers before mom and pop ever know they exist. Ever wondered why so many real estate agents are also landlords (landholders)? Auctions level the playing field a bit, but inspections can be difficult. Frequently, banks buy the properties back at auction in a sealed bid. Estate sales can be good. Estate sales often involve attorneys; these attorneys often have friends, brothers, spouses who invest in real estate. Do you think they have an inside track? Do you think life is fair? Distressed property and wholesale buyers have teams of people searching for homes to buy. Ever get cold calls or mail asking you to sell your home?

It’s not hopeless for mom and pop, it’s just harder. This cycle will eventually top and again head toward a bottom. My advice is to be ready. Be preapproved. Know the neighborhood you want to buy in. Check Zillow and Redfin frequently and have a search saved for the area you want to purchase in. Search Facebook Marketplace regularly. Make some business cards for yourself and politely hand them out to people living in the neighborhood you want to invest in. Get to know the people running estate sales and the attorneys doing probate work. When your hard work pays off to the point of writing an offer, remember that “You make the money when you buy.”