What to offer seller in a hot market?

[Summer Noyes]

Hello,

Just starting out in San Diego, which is a difficult market and I'm looking at my first REI in a condo. Mostly because this is what I can afford in this area and because I take some comfort in knowing that my exterior maintenance, some utilities, and amenities are taken care of for me. I'm analyzing a deal and come up with different answers because of what the property will potentially sell for. Meaning, do you always offer below asking price? If so, how much under? I feel like you should always offer below, because you might get lucky. However, units in this area are flying off the self within 5-10 days and seem to be selling within a few thousand or for the asking price. I happen to know that this unit was in a "pre-forclosure" state and is now on the market and vacant. I don't doubt it will go quickly. It needs slight updating (refinish cabinets, a new refrigerator, maybe paint). Seems like other condos in the area that sell at asking price are completely redone. I can offer the seller a conventional loan that I am already pre-approved for, along with my 20% down in hand and a quick close...but probably a lot of people can. Depending on where the price lands, I stand to be anywhere from $200 cash positive/month to breaking even. After listening to the Webinar today, it seems like that's not bad for your first rental. Homes in this area have been appreciating on average 6% over the last few years. Thanks in advance for any advice on this matter.

[Kenneth Garrett]

@Summer Noyes

I pretty much disregard the asking price.  I acknowledge they have set a price, but in my mind it’s irrelevant.  Your offer should only be based on what your willing to pay for it, which is all based on your numbers.  I never purchase based on appreciation since you can’t count on it.  I recognize the fact the California market is much different than the Midwest, but it’s speculative if it’s based on values increasing 6% each year.  Look at your long range plan.  Are you going to hold it for 5 years and sell based on appreciation.  I would encourage you to not buy if it doesn’t cash flow.  No negative cash flow investments in my mind.