How low is to low when making an offer

[Jeff Pagano]

I am new REI but I went and looked a property this past weekend. I want to make an offer but I'm not sure how low is to low to start out with. It is a 1 bed 1 bath apartment. It is in a good area and I know that the units rent well. The place smelt like smoke, has 1970s style wallpaper, needs new floors and paint, complete bathroom reno, needs new appliances, and new electrical outlets. The place is small enough that I can do the work myself with the exception of the floors in about a months time for around $5,500 or less. It is on the market for 114,900 which is just under market value for a property that is in good shape. They have been selling for around 120,000 in good shape. I run the numbers through the BP calc. and I can make the deal work for me if I am able to get a purchase price of 95,000 or lower. My question is what is a good starting point? I don't want to be ridiculous with my offer but don't want to give away too much either. I also found out that the day before I saw the property it was under attorney review but the deal fell apart. Any advice is appreciated.

[Thomas S.]

Consider what it would cost you to hire out all the work necessary to make it rent ready. This is the number you begin with after determining exactly what would be a good all in number on the property including closing costs..

If you can do the work for $5500 I would triple that number. If $95K is your top number I would subtract the contractor cost from that and not go above that number. If contracted work costs $15K it reduces your top number to 80K and I would offer below that to begin.  If you are a strong negotiator you will get close to what you want to pay or walk away from the deal without giving it a second thought.

Spell out on paper why your offer is where it is to soften the blow to the sellers agent.