How low is too low for offer on a 2 family in Northern Illinois?

Question

I am looking to make my first investment purchase and I am doing my research on a duplex in my home town about 5 mins away from my current residence.

It's a 2 story 4 - 2 and it looks to be in really good shape. It's in a fairly decent area in town but the property values in this area have dropped significantly and I feel that the seller is asking way to much for this duplex.  He's asking $74,000 for it and he's only charging $400 a month in rent. He's says that they are good responsible renters and that they have stayed there for about 5 years.

My problem is that after running the numbers I don't see this property cash flowing for me.

Should I give him a really low offer?

Should I consider upping the rent once I purchase even though the tenants seem to be consistent?

If I could get this property at for example $45,000 than the numbers could work out pretty good.

Any advice much appreciated!

Thanks.

Kumar Paj · Answer

something is missing for sure...$74K asking price and $400 rent, doesn't make sense to me...what is the fair rent in that neighborhood for a similar property? look up Rent Zestimate or at Rentrange..

Kevin Hughes · Answer

If he is asking $75k, then I think $45k may be too low. Maybe try running the numbers at 25% off the asking price, so $56.250. If the numbers are good there, then make an offer. Also, you could try to get creative with how you structure the deal. That could help make it cashflow. Good luck!

Account Closed · Answer

It doesnt matter what he is asking. And you cant make arbitrary offers based on rent. There is a market and there are comps. What do they say about the value?

Kyle N. · Answer

I would find my possible offer on the current numbers, then look to add value as soon as you own it.  I've had conversations with owners before, and in fact I'm working on one right now in Rockford, where I crunch all the numbers to figure out where I need to be.  Then I'll call the owner back and tell them something like, " I'm sorry, I doubt we will be able to make a deal together on this property, because all I can afford to pay is $X."  That way, you're not insulting them with a  low offer, but you have made a verbal of where you are at... and who knows, it may turn into something.  In my mind, it's better than just walking away, because you don't fully understand the seller's position of wanting/needing to sell.

Zack Carlson · Answer

I used to live in N. IL and always thought Rockford was similar to Detroit. I even saw some duplexes for sale under under 20k on Rockford Craigslist last week.

One thing to take account of is taxes.. I didn't realize how terrible taxes were in N. Illinois. I was looking at a pair of duplexes about 30 min south of Rockford for $148k and the taxes were $7500 a year!

Emmett R. McCarthy · Answer

I agree with @Vishal Gadhia, no offer is too low and you never know until you ask, but you do run the risk of the seller shutting you out. You also want to know how long the current leases are because you can't just raise the rent once you become the owner. Run the comps to see what similar buildings are going for and what similar units are renting for and then make an economic decision on your offer or whether to just walk away and look for another building.

Jack Butala · Answer

@Philip Williams

Great Post, Philip.  If your first deal isn't perfect, walk away.  Here is what to do to make sure it's perfect:

Send out a direct mail campaign every week:

1) Identify a market and property type

2) Send the owners offers (not letters or post cards)

*(make sure you do not send offers to property owners with mortgages - there is no room for negotiation on a leveraged property)

3) Field the responses you will get from the mailer - there will be tons if you do it correctly.

4) Pick the best one.  If you say something like this to yourself: "I did not think this type of real estate deal existed.  I need to drop everything, go to the bank and get this thing done before this seller changes his mind."

5) Buy that property.

Here's my advice:  Spend the next 30 - 60 days researching how to do an effective mailer.  Forget about buying property until that happens.

I am buying 40 acres in Oregon for $2,500 this week from a mailer I sent out in 2007.

Vishal Gadhia · Answer

@Philip Williams, there is nothing such as how low can you go. You need to make an offer that seems to be a potential winner for you. Numbers don't lie. So if your numbers come ot 45K then go with it. if it come lower then go with that number.

One thing you should know in REI is you make money when you buy and there is nothing stopping you from making that offer.

Hope this helps

Philip Williams · Answer

Wow, this really helps. I'm gonna take this approach when I talk to the seller tomorrow.  Thanks @Kyle. It's also great to see that you are investing in Rockford, Illinois also.

Philip Williams · Answer

Yes, this does help indeed, thank you!

How low is too low for offer on a 2 family in Northern Illinois?

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