Your Personal, Powerful Hedge against the Soft Housing Market

Every day seems to bring more doom-and-gloom news about the current real estate market. Just two days ago, I read an article on Reuters in which Robert Toll of Toll Brothers builders said that today's soft housing market reminds him of the awful sag of the 1980's. That slump was so dire, it took housing prices more than three years to recover.

It sounds dismal, but as I explore in my book Trump University Real Estate 101, which I wrote with Donald J. Trump, there are many ways to make money in any kind of market, hard or soft. Of them all, perhaps the simplest is to buy properties for below market value.

How can you do that? Many authors of get-rich-quick books encourage you to find sellers who are so distressed financially, they will practically give their properties away.

That strategy works. But the fact is, panicky sellers are a lot harder to find than you might expect. I would estimate that only about one percent of all property sellers meet the criteria.

There are other sellers who are eager to sell their properties for less than market value too, and they are far easier to find:

• Opportunistic sellers don't value their property as much as they value something else. Maybe they want to sell their properties so they can move into a retirement condo or launch a business. To get them to lower their price to below market norms, offer a quick and sure closing.
• Don't-wanters are selling to get away from a particular burden. Maybe they no longer want the property because they have moved into a newer home or have been transferred to another part of the country. To buy at a reduced price, stress how happy and free they will feel when you remove their burden.
• Unknowledgeable sellers, who are often out-of-towners, don't know the current market price of their property. Sometimes they are so inattentive, they let their realtors intentionally set low prices to make quick commissions. You can check to see if properties are owned by out-of-towners by scanning the billing addresses in your local tax assessor's office. Also look for "for sale" signs with the names of real estate firms that rarely appear in a neighborhood. That might tell you that an out-of-town seller picked a realtor randomly from the Internet or yellow pages.
• Windfall gainers prefer the fast buck to the last buck. They are often people who have inherited a property from parents or other loved ones. For emotional reasons, they are eager to sell. You can close a deal by offering a quick close and a no-hassle discount offer.

How can you find these eager sellers? Cultivate a network of realtors and other professionals who will alert you. If you are meeting directly with sellers and you don't know if they fall into these categories, use a subtle approach to uncover the reasons why they are selling. Compliment the property, don't criticize it. Ask cordially about their situation. Don't interrogate, since the way you phrase your questions is more important than the questions themselves. Probe gently, like Peter Falk used to do as Colombo.

Buying properties at below-market prices lets you control your market. It allows you to establish your own appreciation for the properties that you buy. You might not be able to laugh at the housing bubble if it really does burst, but you will profit and survive.

Gary Eldred, PhD is a professor of real estate at Trump University, where his courses include the The Real Estate Investor Training Program.