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Score a South Bay Income Property “Black Friday” Deal

As you know, Black Friday and Cyber Monday are typically awesome times to score holiday shopping deals on your favorite items.

But 2020 is no typical year. Is Black Friday still going to be a thing or is a month-long sale? Will Cyber Monday take place every Monday with everyone staying home? Who knows.

I preach that Thanksgiving to New Year’s Day is the Black Friday and Cyber Monday of real estate shopping. But, does it apply to 2020? And, will regular seasonality occur during the holidays?

Real estate is certainly different this year, but it is definitely possible that there will be great real estate deals as we head into the holidays.

Last year, I wrote about “Black Friday” deals in the single-family home market in my blog titled, Score a South Bay Real Estate “Black Friday” Deal.

Two of the four properties listed in that blog post were ripped for amazing deals. Let’s take a look…

3609 Paseo Del Campo had $89,000 shaved off its price during Thanksgiving and sold for just a little above land value. It was a super solid buy.

812 Via Conejo continued to linger well-after the holidays and gave a $1.2 million discount as the sellers capitulated during the scary, early times of the pandemic.

A Different Approach this Year

With the unprecedented strength in the home market this year, the “holiday home deal” opportunities are basically non-existent in the four South Bay areas I cover on this blog.

Squeezed inventory, ultra-low interest rates, and the desire by many to own a home with more space has essentially wiped out any lingering listing that might offer a below-market deal. Finding great value right now is next to impossible.

If you read my blog last week, you know that I believe 2021 values are going to be found in income properties. For reference, here is last week’s blog post as a refresher.

This holiday season might be the time to make your move on passive income real estate.

Steps to Score a Great Deal

Just like last year, the same rules apply for the single-family-home list, but with a few additional bonus items:

  1. Focus on properties with extended days on market.
  2. Find properties with multiple price reductions.
  3. Make embarrassingly low offers.
  4. Do not be afraid to walk away from negotiations.

Last year, I dove into the above in more detail. I have included the same list of those four items below for context.

Extended Days On Market (DOM)

My first rule of advice: STOP looking at brand new listings everyday. The newest and accurately-priced listings get the most eyeballs and will sell quickly in an efficient marketplace. The most important thing to do is mine the MLS for properties that have been on the market for three, six, nine month, or longer. Those Sellers are beginning to tire and have probably gotten very little action from buyers.

Reduced Asking Prices

Next, to spot a real Seller, look for reduced asking prices. Better yet, find a Seller who has been on and off the market with multiple real estate agents. Anyone who is chopping their price, going on and off the market, or changing agents is working hard to get their property sold. They want to do a deal and the combination of days on market and price cuts makes for a ripe prospective Seller who just wants to move onto the next chapter in their life.

Make Embarrassing Offers

Most likely, these Sellers priced their properties way too high. As a result, no one has taken the property seriously or made any offers. At this point, Sellers are wavering on their idea of value and psychologically are down on their property. If you make an embarrassingly low offer, you might be very surprised with what they might counter to try and keep you around.

Walk from Negotiations

The best, and I mean the BEST way to get a great deal is to walk away from negotiations. If a seller loses a buyer after months on market, price cuts, and countering you with a surprisingly low counter offer, imagine how they will feel if they lose you? Let them sweat during the holidays while they are getting zero interest from the market. Then, come back a couple weeks later and start all over again…they may come down even lower.

The two bonus items to include when hunting for income property deals are the following:

  • Under-market rents or non-paying tenants.
  • Difficult to finance properties (condition or property-type).

Under-Market or Non-Paying Tenants

The pandemic has changed everything when it comes to collecting and raising rent. Presently, landlords cannot raise rent or ask tenants to leave a property unless the owner intends to move-in and occupy the space. Any income property with ultra-low rental rates must stay at low until these short-term Coronavirus restrictions are lifted.

Additionally, any non-paying tenants can not be evicted thanks to the courts being closed. And, with the backlog of eviction cases coming, income properties not collecting rent deserve steep discounts in price for the added risk.

Difficult to Finance Properties

This one is obvious because most of us know that properties in poor condition oftentimes cannot receive traditional bank financing. That said, the not so obvious aspect is that small mixed-use properties are almost always difficult to finance since they do not fit into a nice box that banks like to see.

If you can find a promising mixed-use property, and have the funds or lending sources to close on that property type, then that is another opportunity for a deal to be made.

Some Example Properties to Consider

There are not a ton of listings that are screaming deals yet, but here are a few that might be interesting options to pursue. Go out and make those low offers!

Here are two in South Redondo Beach:

This property came out way too hot asking $2 million. After less than a month on the market, the price was dropped by $201,000. The asking is still too high for a pure-play triplex buy and hold on the Avenues, but the real value is in the land where two ocean view townhomes can be built. Try to negotiate this one down another $200,000 or more. There will be little to no cash flow, but this is a covered land play with big upside for the right investor.

This property has been on the market for over two years and has seen its asking price cut by $776,000 over that period. It is a mixed-use property in need of repair which makes financing extremely difficult. The seller might be ready to capitulate, so a major low-ball offer might actually be received well. A buyer open to doing work and holding a great beach location for the long-term, should do well.

Since the Beach Cities and Palos Verdes do not offer great cash flow options, here are two other properties outside of our normal blog areas, but still local to the South Bay.

This is about as cheap as it gets in the South Bay for a cute duplex. The property has been on the market for seven months and the rents are under-market. Without a price cut, this owner is still holding out for their price, but patience might be wearing thin. If you can nail a lower price and wait for the pandemic to pass, you can then raise rents for a solid ROI. This is the perfect example where you should make an embarrassing offer.

This duplex was purchased in 2018 for $1.1 million. Since then, it has been on and off the market for over a year. The building is not much changed and the owner might want to “just be done.” One should offer what the current owners closed for in 2018 and not budge too much from that price. An easy to manage Walteria duplex will do very well over the long term.

Conclusion

It is a tough time to find deals in the South Bay real estate market. Even when switching the search to income properties, the potential great buys are few and far between.

The beauty of income property shopping is that it is all about math. So, stick to your numbers and do not get emotional. If your offer does not stick…so what?

Make low offers and find property that will perform well in a recovery when you can raise rents late 2021 or in 2022 to increase your ROI. Let low interest rates and a recovering economy do the rest.

Happy Thanksgiving!

DRE: 01779425