After hours of research and house tours, you’ve found it: an investment property worth bidding on in Indianapolis.
Now the only question is: how much should you offer?
An increasingly popular option is to overbid. Between January 1st and February 15th of 2022, over 5,897 homes sold for $100,000 or more above the asking price. In addition, over 80% of Millennials said they would overbid in a recent survey. At the same time, home sales are down as the housing market contends with high prices and mortgage rates (deterring buyers) but low inventory (favoring sellers).
Is there ever a good reason for real estate investors to overbid?
What about stepping back and letting a property go?
Like most situations in life, there are pros and cons to each. The best way to find out what’s right for your situation is to research and understand the risks and benefits.
Here are five good reasons to overbid on a house in Indianapolis.
The Market Favors Overbidding: In a seller’s market, expect to overbid to win. Homeowners might accept bids for X amount of days to spur competition and entice bidders to offer above the asking price. Underbidding, or offering the asking price, isn’t likely to result in your favor. Keep in mind: housing market conditions may differ depending on the overall economy and the property’s location. Pay attention to how fast properties sell in Indianapolis to determine your strategy.
The Property is Undervalued: Some homeowners list a property under its market value to achieve a quick sale or spur a bidding war. If you believe the investment property is undervalued, overbidding can be a successful tactic. In this scenario, you might overbid and still pay less than what you believe the property is worth.
It’s the Perfect Investment Property: Does this property tick all the boxes? Is it in a desirable location with minimal work or undervalued? When a home meets all your requirements and you don’t want to lose it, overbidding may be worthwhile. Consider all factors related to the property (including repairs and maintenance). If it’s reasonable to overbid for its long-term investment value, make the offer.
You’re Losing Bidding Wars: One way to tell if it’s time to bid more is to look at your success rate. If you’ve placed multiple bids and lost as many times, the market might be more competitive than you’ve rated it.
You Have Other Properties: Don’t place your eggs all in one basket for your first investment property. If you already have other properties or are a homeowner, you’re better able to estimate how much you can overbid vs newcomers, because you know the risks and ongoing costs firsthand.
On the other hand, these are bad reasons to overbid on investment properties in Indianapolis.
You’re a High Roller: If you’re financially well off and can afford to overbid without problem, it doesn’t mean it’s a good financial decision to do so. Set your eyes on a home worth the cost, and don’t overbid for the sake of overbidding.
You’re Pre-approved: Pre-approval doesn’t equal affordable. If you’re considering a bid at your maximum, it may not be a good investment. Remember: there are costs outside of the mortgage, taxes, insurance, and utilities. Are you able to afford repairs and maintenance as well?
You’re Competitive: Before entering the market, determine the price you won’t go beyond when bidding on a house. Don’t allow emotions to override reason in a bidding war. Have a threshold to ensure the property remains a good investment. If you need to go beyond that number to stand a chance, search elsewhere. It’s no longer worth it.
You’re Feeling Attached. Sometimes, you see a property and believe it’s perfect at first sight. If you feel a connection that isn’t based in reality, re-evaluate your attachment. A good investment property might not need to check every box, but it shouldn’t be love at first sight.
You’re Tired of Property Hunting: When you’re hungry, you become irritable and more likely to make poor decisions (Snickers based an entire advertising campaign on this). Similarly, if you’re feeling fatigued looking at property after property, you might be tempted to take whatever comes your way next and is halfway decent. Instead, take time to relax. You don’t want fatigue to lead to a poor financial decision.
Evaluating options in an objective way will help you decide if overbidding on an invest property is appropriate at this time. Don’t forget to collect estimates on property management if you won’t be personally managing the house and tenants. At WILMOTH Group, we are available to discuss property management costs in Indianapolis before you make a bid, so you can make an informed decision on your threshold.