• When I started out as a real estate investor, I thought that if I had the money and found “a” property, it would be easy to make money. I soon came to realize that there was so much more to be aware of – like finding the right property and knowing the right time to buy the right property. I thought that if I “timed” the market right that I would find a tenant quickly and life would be easy. Was I completely wrong? Well yes and no – let me explain!

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    We chose to invest in Rent-To-Own properties, simply for the reason that we did not want to be running for small complaints at all times of the day, we wanted to be able to help people own a home one day and we wanted to find an investment that would provide cash flow, equity growth and add to our bottom line. We were so excited to get going life as property investors, that we failed to understand the difference between “when” and “what” when it came to shopping for our RTO property. The “when” refers to the market and the “what” was the type of housing. We understood the “what” to mean single family home or starter home. But our biggest mistake was the timing of “when” we were looking for our property and understanding the difference between the two markets. One is a buyer’s market and the other a seller’s market. We went looking in a seller’s market – this was our first rookie mistake! Our agent should also have known better but that is another argument!

    The difference between a Sellers’ and Buyer’s markets is huge and can affect cash flow, which is key to an investor. In a Buyer’s market, there are more houses (or inventory) to sell, then available buyers. Buyers get to pick and choose what they want to buy, which means that not every home will sell. For an investor, they get to also be choosy, take their time and negotiate the price – especially if the property has been on the market for a long time and you have a motivated seller.

    On the other hand in a Seller’s market, there are more buyers than available inventory, which most times results in a situation where buyers are competing against each other for the property (multiple offers)– which results in a higher price for the seller! As an investor, this was a huge mistake we made as it cut into our cash flow – not by a huge factor but nonetheless it did affect our cash flow. We were still able to cash flow the property but if we had purchased the price in a buyer’s market, it would have resulted in a few more hundred dollars a month in cash flow. Can you see the difference?

    Knowing the key differences can be very useful when shopping for your property. For instance, in a Seller’s Market:
    -Sellers will make few concessions – unlike a buyer’s market, sellers are unlikely to pay for closing costs and inspections;
    -Buyers usually purchase the home “as is” and cannot command that the seller fix small or big issues, as they will lose out to other buyers who are willing to accept less;
    -Sellers not buyers have control over the transaction. Sellers get to dictate closing dates, purchase price, etc. Not having that control was difficult for us as it was our investment and it felt like we had hired an advisor who was dictating the terms of our investment – not a good situation to be in!

    Now that we understand the difference between a Buyers’ market and a Sellers’ market, we are able to dictate when we go “property” shopping, what we will accept and not accept and most importantly negotiate the deal so that all aspects are under our control – as an investor these things are important to understand if we are to control our cash flow and our investment.

    The next time, you go property shopping – know what your market is so you can keep more money in your pocket, rather than the sellers pocket.