Many homebuyers today may feel discouraged by what they perceive as sky-high home prices and brutal bidding wars driven by record-high buyer demand and low housing supply affecting many real estate markets. Below are ten strategies that buyers might consider before abandoning their dream of owning a home at their next duty station. A few of them are particularly unique to my primary readers, overseas homebuyers. Hope you enjoy! (Send some comments and likes if you do!)
Strategy #1: Prepare to Make Compromises
If you can detach yourself from the idea of your dream home, you may just find the good-enough home that still fits within your budget. Are there compromises you are willing to make? If you always envisioned the single-family home with the white picket fence out front, could you broaden your search to include townhomes or condominiums? In San Diego County, the March 2022 median home price for single family homes was $870,000, while it was $570,000 for condos and townhomes. Many condo/townhome communities offer excellent neighborhood amenities and proximity to local services and entertainment. Rather than looking only at well-established communities where demand is highest, maybe seek up-and-coming areas with promising community plans that still have homes at more affordable prices (get in early before higher appreciation kicks in). If you still have very young kids (or no kids), does school district need to weigh so heavily in your decision? Can you tolerate a longer commute than your initial preference? Military homebuyers may have a higher likelihood of relocating again in the next 3-4 years; the temporariness of their living arrangements might make it easier to consider such comprises. In fact, could you consider living in a home that is more renter-quality with fewer high-finishes, with an eye on being able to easily rent and manage it after your next move? Bottomline, homebuyers with greater flexibility in their search criteria have better odds of finding homes that still fit within their budget and may end up being the far better investment in today’s market.
Strategy #2: Seek properties on the market longer than the average
So-called ‘Zombie Homes’, these are homes that likely have a particular quirk or negative feature from the perspective of most homebuyers causing the home to sit on the market longer than the competition. In March 2022, the average listing time for San Diego properties (from $500k to $1.25mil) was 18-19 days. Ask your agent in any market to highlight properties that exceed the local average. If you have greater tolerance (refer to Strategy #1 above) or more ingenuity to fix minor faults with a home, you just might find a great deal in the rough. Expect less competition, which translates to fewer frustrating bidding wars, and a sales price that is much closer to the listed price. Just make sure you budget for any immediate renovations/repairs that need to be made (and those that can wait until later down the road) on top of the offer price for the home.
Strategy #3: Purchase a home with income-producing potential
Perhaps you can find a property that can offset your mortgage/home expenses while you are living in it. Can you find a 2-4-plex where you can live in one unit and rent out the remainder (greater than 4 units will trigger more restrictive lender requirements)? Ideally, once you relocate again you will be able to rent the entire complex for positive cash flow as a pure investment property. If you are looking at single family homes, does the home have an above-garage apartment or other detached unit on the property that can be ‘AirBnB-ed’ or rented out long-term? Or for those more adventurous and open-minded, an extra bedroom or mother-in-law suite within the home? Is the home on a large property that can be sub-divided and a vacant portion sold to another buyer? (Ensure your agent checks county records to see if this would be permissible for your prospective property). Or maybe a portion of the land can be rented for RV parking or other types of storage. Many properties offer untapped income-producing potential to the creative and resourceful-thinking homebuyer.
Strategy #4: Build an additional income-producing structure on the land
This strategy is like the previous one but involves budgeting to build an additional income-producing structure on a property that doesn’t come with an existing one. In recent years, to address extreme housing shortages, California has passed legislation making it easier for homeowners to add Auxiliary Dwelling Units (ADUs), aka Granny-Flats, to their property and earn additional income. In general, it works like this: if you purchase an ADU from one of the state-approved vendors, the local approving agencies will fast-track the permits and reduce several normal expenses associated with building. Other states may have similar arrangements. Local restrictions may dictate the rental terms you can offer (i.e. short-term vs. long-term rental). As an alternative to building another fixed structure on the property, maybe you have an RV or other trailer you can rent out for short-term accommodations in markets that attract a lot of tourism. This option may suit those that enjoy hosting adventurous travelers and the idea of running a small hospitality side-business. Again, the key is to think creatively about how all the income potential of a property can be tapped into if it will help you attain your dream of owning a home.
Strategy #5: Live with Roommates
This one isn’t as practical for families, but for the unattached homebuyer, acquiring rent-paying roommates can help offset your mortgage/housing expenses. Do you have other single friends that you work with and that you could tolerate living with? If not, advertising and renting to the outside community can be an exciting way to expand your circle of friends. If you are on frequent deployment cycles, you will automatically have home-sitters to keep an eye on the place while you are gone, and maybe you could even rent out your own bedroom for that temporary period (not sure I’d be crazy about that one myself…but hey, it is a valid possibility!).
Strategy #6: Combine resources with Co-Borrowers or Co-Tenants
If you have trouble meeting the income/debt requirements to buy a home and/or qualify for lending on your own, you can enlist the help of others that you have close relationships with. If you wish to be the sole owner of the home but are unable to qualify for a loan, you can add a Co-Borrower to the loan. It probably won’t be easy to find someone to do this, as the co-borrower would be accepting liability on the home and suffer damage to their own credit record if you miss your mortgage payments or completely default on the loan. Parents are the most likely candidates to consider for this option, but even that might be difficult for many people. Another option is to purchase a property as Tenants-in-Common with other trusted partners, friends, or family members. This might look like the roommate option discussed above, except rather than renting their piece of the property, everyone shares ownership of it (in proportion to the amount of equity contributed or otherwise agreed to). Of course, not all co-owners are required to live on the property; some may be convinced of the investment potential of co-ownership, assuming the property can generate income through some of the means discussed above. This option may be more suitable when you know your next living arrangement will be temporary (a couple years) rather than of undetermined length, and the property would eventually transition to a pure investment property. Don’t forget the adage about doing business with friends and family; make sure everyone has a clear understanding about the long-term expectations of the partnership to avoid any future strains on relationships. It’s a good idea to ensure everyone has a way to exit from the partnership built into the formal agreement. Be sure to get professional advice before pursuing either of the Co-Borrower or Co-Tenant options described above, due to some of the extra risks involved.
Strategy #7: Work an extra job or your own business
If you don’t meet the income requirements to qualify for a loan or to make your loan payments as comfortably as you’d like, one option is for you (or your partner) to get an extra job. In addition to traditional employment, the so-called digital economy has created a multitude of new ways to pad your income through side-hustles and moonlighting. Do you have a hobby or artistic talent that you could translate into a business? What about some expertise that would allow you to create some marketable online content (blogging, e-books, online courses, etc.)? Do you enjoy sales and have a large network of friends; many people are having success joining affiliate marketing teams to sell products and services they believe in. Do you like driving inebriated people home on late weekend nights?...Just about anyone can be a taxi driver these days! Keep in mind, as far as mortgage qualification goes, only your ‘seasoned’ income will be factored, meaning income that has met a threshold to be considered stable and reliable for the foreseeable future (typically established for the preceding two years). The lender wants some assurance that you can maintain your stated level of income to make your monthly payments for the long term.
Strategy #8: Save for a larger down payment
If you are planning ahead and have a few years till you expect to enter the market for a home, then you could benefit by having some savings to make a larger down payment. Most of my readers will qualify for a zero down VA Loan, an excellent benefit indeed, but unfortunately not from a competitive negotiating standpoint in a hot sellers’ market like we find ourselves in today (circumstances could change by the time you are in the market). Sellers like to see a large down payment because it reduces the appraisal risk that can potentially scuttle a transaction. From a buyers’ perspective, making a down payment puts instant equity into the home and reduces depreciation/default risk if the market were to turn after the purchase, sending home prices down, and putting many homeowners ‘underwater’ on their loans. You can refer to my previous blog 4 Advantages to Being a Military Expat Homebuyer to read how buyers can leverage their overseas assignment to save for a larger down payment.
Strategy #9: Creative negotiation
Knowing all the tools to negotiate a transaction could mean all the difference between getting the home you want on the first try versus losing out on multiple bidding wars. Your goal should be to make a seller an offer that stands out favorably against all other incoming offers. Some general things sellers like to see (besides, obviously, larger purchase amounts) are larger cash down payments/deposits and fewer deal contingencies (things that put a deal at greater risk of falling apart and lost time for the seller). In today’s hot market it has become (unbelievably) accepted for buyers to waive appraisal and inspection contingencies to be competitive, thereby forfeiting the main protections a buyer typically has in a transaction. (I still recommend having thorough inspections performed and being prepared to forfeit any deposits if any major faults are discovered and the seller is unwilling to correct them). Some other negotiating tools include escalation clauses (agree to match or beat a higher competing offer), lease-back clauses (allow the seller to remain in the home for a period after you become the owner), allocation of closing costs, among others. One unique negotiating advantage many of my readers (overseas military buyers) will have is the ability to make an offer that is not contingent on the sale of their current home (since few will own the home they live in overseas). Many other buyers (i.e. your competition) will make the sale contingent on selling their current home in order to have the proceeds available to put towards the down payment and other closing costs for their next home. Consequently, you (overseas homebuyer) can offer the seller greater flexibility to stick to their own moving timeline and be less dependent on yours. For determining a seller’s motivations and circumstances, it can be helpful to employ the services of a real estate agent, better positioned to probe for such information. Armed with the knowledge of what is most in the seller’s interests you can possibly craft an offer that rivals others, maybe even at a lower price than the seller could get elsewhere.
Strategy #10: Live where you want, invest where it makes sense
So maybe you’re not prepared to make some of the compromises needed to land the home where you want to live within the budget you have to work with. You want to be where the action is or close to your work, not have to drive great distances to get there. You need to be within one of the premier public school districts for your kids. You want to live in a house or a neighborhood with great amenities and all the comforts you’re looking for. You want to be able to walk to the beach with your surfboard every day. Unfortunately, many of those things may be unattainable in today’s market for those solely earning within current military pay charts. But that’s OK! If you can find a place for RENT that meets all your needs (or stay in base housing), then maybe that is the best choice for you. Indeed, for many living the mobile military lifestyle, renting may often be the better choice over purchasing. But if you still are committed to achieving the wealth-increasing benefits and investment portfolio diversification that real estate can offer, one option is to go ahead and live where you want (RENT) and invest (BUY) wherever it makes good investment sense. By taking your emotions out of your decisions you will likely make a much better pure investment. It will be much easier to find a home within your budget if it doesn’t have to meet any of your personal criteria, and you could help provide affordable housing to others. The only important criteria is that the property produces enough income to cover all its expenses, leaving you additional cash flow that can offset your own rent expenses or be rolled into future investments!
There you have it: 10 Strategies for the Overseas Military Homebuyer in a (Crazy) Hot Seller’s Market! Hopefully you found one or more strategies that will help you on your way to achieving your own homebuying goals. Of course, if you’d like to discuss any strategies in more detail, you can contact me for free consultations at Onwing Expat Realty. I’d love to be able to help you.
Do you have any additional strategies that weren’t mentioned? Please share in the comments!
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