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Buying Right To Sell Fast
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A common mistake I see in new investors and by some veterans is choosing the wrong price range home to retail. When you buy homes in the wrong price range, you will end up holding those houses a lot longer and in some cases, you will not be able to sell the home to a retail buyer. A retail buyer is defined as someone that can get approval for a new loan and buy your home for full price. Need to find your market’s sweet spot? Then read on…
The sweet spot has a large number of buyers that are less selective and eager to buy. In most markets, it’s the blue-collar price range. Especially if you’re rehabbing houses. The blue-collar price range has homes from 15 to 35 years of age and most fixtures and features are outdated. The bathrooms are avocado green, banana yellow, pink, and orange! Dark cabinets are common in the kitchen. Paneling and vinyl flooring is the norm. I think you get the picture. When you update these older homes and a buyer compares your renovated homes to a standard home in the same price range, there’s no competition. Your home will sell first! The buyer is getting similar or the same amenities as the higher priced new homes.
Blue-collar homes usually begin at 50% of the market’s median price. For example, if your market median price is $140,000 the blue-collar homes would start at $70,000. If you want to sell your homes, I’d encourage you to stay above $70,000 (Repaired FMV). You can obtain your median price by calling your local Board of Realtors and inquire. They’ll be glad to give it to you!
Anything below the $70,000 (50% of median price) is a rental or you’ll have to owner finance the property. The reason is these buyers below $70,000 (or below your blue collar market) cannot obtain financing or they do not have income to support the blue-collar homes. I can take you to a street in my market where 3 homes have been rehabbed and they have been on the market for over 18 months. The investors made the critical mistake of rehabbing a home in the wrong area to retail. These homes will eventually be rented out, sold with owner financing, sold to a landlord or they’ll be lost to foreclosure. Do not make this mistake! Make sure your homes to retail are at median price after renovation or above!
Remember this formula is used to find the bottom of the retail market .
Average Cities
|
Price Range |
Buyers |
|
$20,000 - $60,000 |
Buyers in this range have bad credit, poor jobs, or unemployed. Renting, Rent-to-Own and owner financing are the best exit strategies in this range. Only a few are credit conscious & homeownership is not a priority. Very few lenders will even consider these buyers. Most lenders have a floor of $50,000-$60,000 for owner occupant loans. |
|
$60,000 – $140,000 |
Best Pool of Retail Buyers. These are your blue-collar workers which include technicians, mechanics, truck drivers, health-care workers, etc. Being the largest pool of buyers, your focus should be on this group. By providing clean, bright, updated homes in good areas, you’ll have no problems finding buyers! |
|
$140,000 - $250,000 |
Normally these buyers are moving up from another home. These buyers know what they want and usually want more space, prestige/recognition, safety, or new features in a home. You should not ignore this group. You’ll just have to understand they tend to be picky and the homes must be in perfect shape including the yards. You cannot skimp on cheaper items in this price range. |
|
$250,000 - $1 million+ |
With the higher priced homes, the pool of buyers is greatly reduced and they become more particular. Try to stay within neighborhoods or subdivisions where these homes are consistent & comparables are easy to establish. Homes in this price range that are in average areas are difficult to sale. Any decline in real estate values affects this range of properties the most. Beware that FMV is more subjective in this range as well. *Note: This range of homes is great to work preforeclosures and then use the silent auction. |
Higher End Markets – Example: Southern California
|
Price Range |
Buyers |
|
$90,000 – $150,000 |
Buyers in this range have bad credit, poor jobs, or unemployed. Renting, Rent-to-Own and owner financing are the best exit strategies in this range. Only a few are credit conscious & homeownership is not a priority. Very few lenders will even consider these buyers. Most lenders have a floor of $50,000-$60,000 for owner occupant loans. |
|
$150,000 – $450,000 |
Best Pool of Retail Buyers. These are your blue-collar workers which include technicians, mechanics, truck drivers, health-care workers, etc. Being the largest pool of buyers, your focus should be on this group. By providing clean, bright, updated homes in good areas, you’ll have no problems finding buyers! |
|
$450,000 - $700,000 |
Normally these buyers are moving up from another home. In the hotter markets, you can also have a large pool of buyers in this market just as the blue collar segment. These buyers know what they want and usually want more space, prestige/recognition, safety, or new features in a home. You should not ignore this group. You’ll just have to understand they tend to be picky and the homes must be in perfect shape including the yards. You cannot skimp on cheaper items in this price range. |
|
$1 Million - $3 million+ |
With the higher priced homes, the pool of buyers is reduced but not as much as the smaller markets! Try to stay within neighborhoods or subdivisions where these homes are consistent & comparables are easy to establish. Homes in this price range that are in average areas are difficult to sale. A decline in real estate values affects this range of properties the most. |
Action Items:
- Contact the Board of Realtors and get the median price home for your market.
- Take 50% of that median price and determine your blue collar market.
- Then make better buying decisions for your market.
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