The Inherent Advantages Of Investing In Real Estate Over Winter

The Inherent Advantages Of Investing In Real Estate Over Winter
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Spring and summer have been touted as the most active months in the housing market for as long as I can remember, and for good reason. Not only does the warmer weather allow homeowners to portray their properties in a better light, but summer — and spring in particular — represent a period of transition. Children are gearing up for months away from school and adults are ready to move on from the frost leftover from last winter. If for nothing else, people appear to be more willing to make decisions regarding their permanent residence when the weather permits, and the data says as much.

It’s worth noting, however, that real estate investors don’t share the same sentiment towards summer and spring buying trends that most traditional homeowners do. While the summer housing market is certainly a welcome site for real estate investors, the winter months boast advantages that can’t be overlooked. All things considered, the latter end of the year — or at least when inclement weather becomes more of an issue — has become synonymous with perfect conditions for real estate investors.

Let’s take a look at a few of the reasons real estate investors should remain just as active over the holidays as they do during spring and summer.

1. Sellers Are More Motivated Than Ever

While spring and summer certainly hold their own, investors intent on targeting motivated sellers are advised to pay close attention to the year’s colder months. If for nothing else, when the temperature drops, sellers appear more motivated than ever to rid themselves of their property; the reasons are well-documented. While each situation is contingent on each particular seller at the time, there is something about the end of the year that encourages homeowners to sell faster, and perhaps even at a discount. Let’s take a look at a few of the sellers who may be willing to part ways with their home for less money when winter rears its ugly head:

Out-Of-State Absentee Owners

As their name suggests, out-of-state absentee owners are those homeowners that own a property, but reside in another state. And while the reason they choose not to live in the property is irrelevant, their situation deserves your undivided attention. If for nothing else, owning a home has already become synonymous with a lot of work; work that is surely to be compounded by the impending winter weather. Now, extrapolate that over state borders and you have the perfect recipe for a motivated seller. Who would want to deal with the added burden of routine winter maintenance in Chicago from their home in San Diego?

Winter puts a lot of stress on a home, not to mention the homeowner. There are a number routine maintenance checks that need to be accounted for, let alone the preventative work required to keep the home safe. Leaky roofs need to be repaired before the first rain, pipes need to be insulated so water doesn’t freeze and routine snow removal is almost a must. There are a number of things that need to be done to a home over the course of winter that warmer months just don’t require. That said, homeowners are expected to conduct more maintenance on a home just to maintain status quo. Those living in another state may not want to deal with the added hassle, and are probably willing to at least entertain the idea of selling. If winter is nearly upon them, it’s reasonable to suspect they may even drop their price a bit to accommodate a faster transaction.

Banks With Nonperforming Loans

Winter has proven to be an efficient home selling catalyst, and not just because of the weather. If for nothing else, winter coincides with perhaps the most motivating factor of them all: the end of the calendar year. Nothing, at least that I am aware of, motivates a seller more so than the end of a year, and banks are no exception to the rule. In fact, some of the most motivated sellers I have worked with as a real estate investor aren’t individual homeowners, but rather traditional lending institution.

It’s worth noting that banks are not in the business of holding properties, nor do they want to deal with the additional costs that coincide with maintaining the foreclosures they repossess. So while a bank will gladly repossess a home for the owner’s failure to meet mortgage obligations, they don’t necessarily want to hold on to the property any longer than they have to, which would explain why short sales are becoming more commonplace in today’s market environment. Every day a bank holds on to a property that isn’t performing (making them money), it’s costing them valuable capital.

Banks stand to benefit from selling off their inventory before the end of the year two-fold: they can remove non-performing loans and improve their financial standing heading into tax season. It’s reasonable to assume that, for these two reasons, banks are more willing to part ways with a property sooner rather than later.

Remember, banks still have to answer to shareholders, so they will request a competitive price point. That said, their willingness to rid themselves of the dead weight (non-performing loans) may elicit a discount. In other words, it may be worth it to sell the home for a cheaper price if they can remove the non-performing loan from their books before the end of the tax year.

2. Less Competition

Real estate investors have benefited from an incredibly hot housing market for the better part of 2016. As a result, the average gross profit for real estate investors across the country has risen to a historical level. On average, flipped homes sold for $62,000 more than the initial purchase price, “the highest average gross flipping profit since Q1 2000,” says RealtyTrac’s latest U.S. Home Flipping Report.

What’s more, this year’s attractive profit margins have convinced more investors to get in on a piece of the action. According to RealtyTrac, “39,775 investors (including both individuals and institutions) completed at least one home flip in Q2 2016, the highest number of home flippers since Q2 2007 — a nine-year high.”

The data suggests competition has never been higher for investors, but that doesn’t mean there aren’t plenty of deals to be found for those that know where to look — or when. In fact, those investors willing to work through the latter end of the year will be rewarded with considerably less competition. For better or for worse, most entrepreneurs take time off around the holidays to spend with friends and family. That means there are typically fewer investors competing for deals.

It’s also worth noting that the winter isn’t nearly as active as its warmer counterparts (summer and spring) in terms of selling. And you had better believe that homeowners are more than aware of the lack of interested suitors come winter. That said, it’s not uncommon for homeowners to drop their asking prices with the intent of gaining more interest. It’s safe to assume more homes will be priced to sell when inclement weather prevents most prospective buyers from leaving their own driveway.

While summer and spring have earned the right as the most active time of the year for real estate investors, those that take advantage of the winter months could be in for a big surprise. If for nothing else, winter poses an inherent advantage for the investors that treat it with the care it deserves.

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