How low below the asking price is to low to offer?

[Benjamin Zwiebel]

TL;DR: I want to offer on a few properties but the number that works for is well be low asking price. Like 30% lower than asking. Other than the risk of rejection is there any down side to offering? 

My market is pretty rough. My city is only 7000 permanent residents and then a few thousand other transient oilfield workers. The entire economy is tied to oil and gas, which means that when times are good rents are high and vacancy is low and then suddenly it can go bad for years. So, with that in mind, when I have been running my numbers for rentals I have been doing the math using exclusively bust time rental prices, to make sure I can survive the bad times. The problem is, is that for some reason that I don't understand, property prices here are exceptionally high whether the town is booming or busting. Because the town is very small, it also means there is very few opportunists as properties don't change hands often and 95% of the town is a mix of single family homes and low income apartments. So, I have found few properties and in order to make them work, with any kind of positive cash flow, I have to offer WAY below asking price. 

For example, there is a triplex for sale of 3, 1 bed 1 bath units. They will rent for approximately $500 per month in bust times. The asking price for the triplex is $165,000 and it has been on the market for 6 months. Doing the math at the asking price with all 3 units rented, this property will cash flow negative -$5.59 per month. In order to get to a meager $150 a month in positive cash flow, I cannot afford to offer more than $128,000. This is obviously $37,000 (or 22%) below asking price. Is this an offer worth making? Getting my offer rejected will not hurt my feelings, but is there an down side to offering this low that I am not seeing? 

Thanks in advance. 

[Tom Shallcross]

@Benjamin Zwiebel  - you'll probably received mixed replies on this one, but the majority (and I strongly agree with the majority) will say that there is no downside.  The asking price is a number thrown out there by the seller and might not be based on anything except what he needs.  Everything is negotiable and you owe it to yourself, your partners, your contractors, and your team to stay within your discipline and only make offers that will provide value to you and the people you work with. 

So two things:

1. Before writing up an official I recommend calling the listing agent directly to see if something even lower than your target offer would even be reviewed by the seller.  This does two things, you can let him/her represent you on the buyer side so she's incentivized to make it work and she may give you info you need ("Seller told me his drop bottom is $120k"  "if you come cash to close he'll be willing to talk as he bought another house and needs to move asap"  "he's not accepting a dime under $140k"....etc).  You can also look up what the seller owes on the county site.  If he owes $145k than even if he wanted to sell at 120k you're going to have a lot of red tape and might be time to move on to the next one.  Maybe you can offer seller financing so you pay 120k but with the interest payments he gets closer to the 160k over time.  There's a lot of ways to make it work. 

2. Chris Voss was on podcast 260 and he does a great job of explaining negotiations.  I read his book and now apply what he calls the  Ackerman model to my negotiations:

1. Set your target

2. Offer 65% of your target

3. Make three raises of decreasing increments - 85%, 95% and 100% of target

4. Leverage empathy framework explained in the book without ever saying no to the seller 

5. Use precise numbers on your final offer so it is perceived as well calculated and your bottom offer

6. Offer up some sort of non-monetary incentive to show you are at your bottom dollar and also trying to make the deal work.  

There's much more to it than these 6 steps, but it's a good framework for starting a negotiation.  Be prepared to get a lot of No's, but persistency will prevail and you will be able to find common ground with one of these sellers.