Buyers can still secure assets with a high return potential in a seller’s market. We have successfully bought properties in a seller’s market by leveraging our relationships, maintaining strong underwriting standards, and staying competitive without overbidding.
As a result of high prices, low inventory, and competitive bidding, the current real estate market favors sellers. In this market environment, the seller holds the power to ask for higher prices and more favorable terms, which can be discouraging to buyers.
It shouldn’t be! Buyers can still secure assets with a high return potential now. Our firm, Lucern Capital Partners, focuses on multifamily real estate, and has transacted on over $2.5 billion of debt and equity real estate transactions during the founders’ careers. We’ve successfully bought properties in a seller’s market by leveraging our relationships, maintaining strong underwriting standards, and staying competitive without overbidding.
Relationships always matter in real estate, but they are even more paramount in a competitive market. There are three main ways a robust network of relationships and a strong reputation can help buyers. First, when evaluating bids, brokers favor firms and individuals with a reputation for keeping their word because brokers want to ensure that the buyer will make it to a closing table. Thus, a reputation for delivering on promises can work to the buyer’s benefit. Secondly, a strong network can help buyers source assets, especially off-market deals. This is especially important in a competitive market because buyers may have to evaluate many more deals before finding the right asset. Finally, a relationship with a trusted lender is key; buyer financing with a credible firm will improve the competitiveness of a bid.
Know your numbers
Bidding wars sometimes cause competitors to abandon reason in hopes of making an offer high enough to secure the deal. But, successful investors will resist the temptation. Winning the wrong deal is not winning at all. It’s easy to overbid and win a deal, but securing an asset, adding value, and creating cash flow are much more important. Our strong underwriting capabilities help us determine at what price we can purchase an asset so that the property is positioned to generate high returns after renovations. Before an acquisition, we already have planned what value-added improvements will be made to units, amenities and operations to increase rents and contribute to the bottom line.
The highest bid doesn’t always win
Often, the highest bid without a well-thought-out business plan will lose to a lower bid with a detailed strategy. Strong underwriting can help buyers secure a competitive deal. Brokers and sellers want to be sure that the transaction will close. A detailed business plan instills confidence in the broker and seller that the deal will get done. The ability to authentically present why they are interested in an asset and how they plan to operate it is more important than being the highest bidder. Brokers and sellers know that sometimes, the highest bidders may attempt to negotiate a lower sale price or back out of a deal once they do due diligence (and realize that their bid is too high), which brokers try to avoid.
Successfully buying assets in a seller’s market is possible if approached with careful attention and humility. Buyers can acquire real estate properties according to their strategic criteria if they leverage relationships, resist the temptation to overbid and exercise strong underwriting. Above all, the name of the game is remaining patient and winning the right deals.
About Lucern Capital Partners
Lucern Capital Partners is a real estate investment firm that targets value-add multifamily and mixed-use assets along the U.S. East Coast with a focus on the Carolinas. With over 55-years of combined real estate experience, the Lucern Capital Partners team has successfully transacted on over $2.5 billion of debt and equity real estate transactions during their careers. They bring that knowledge to accredited investors to provide income-generating investments in institutional-quality multifamily and mixed-use assets through fund vehicles and standalone transactions.
Contact us to learn more about multifamily real estate investing with Lucern Capital Partners.