This is in terms of buy and hold, or BRRRR....But when submitting an offer on a property that is priced well, let say exactly what it’s worth, $100k. You run all your numbers, conservatively, and at $100k, plus renovations, this property will cash flow your target number, let’s call it $250/month after you refinance. We’ll call it a B/C neighborhood so there is some long term appreciation possibilities. Do you: A: Bid 100k, thinking there is a chance you’ll be the only one at full asking and cash. B: Bid $90k, because $10k less is $10k less and your here for a deal. You’ll cash flow an extra $50/month, but there’s a chance that you are outbid. C. Bid $110k, because it’s only $10k, you’ll cash flow $50/less, but there’s a pretty good chance you’ll be the highest bidder. D. None of the above, explain what you would do. Ready, go. And why? A few disclaimers. There are obviously other factors, but imagine this is similar to other properties in your portfolio and try to focus on price alone, and whether you want to get the best deal, or make sure you get the property. This is for a BRRRR scenario, so it’s a long term hold and you’ll get most of your cash back out, so the 10k you spend or save is financed money. Use your current market conditions, and if that will affect your answer compared to maybe another time let us know. Let’s assume you are one of 3 offers. I’m excited to hear the wide range of answers BP is bound to deliver!

@William C. I like what @Jason D. said, also if you don't start low enough you don't know how much better of a deal you can get. Like Rich Dad Poor Dad says, " if you aren't embarrassed by your offer you offered to much".

@William C. I'm "A". If the numbers work and that's what I've determined that property is worth, I want the property. I may go in a little low, just to see what happens, but I'll never go high, and pay more than its worth.

I couldn’t agree more here. If it still makes sense go for it and get it. I play to win. Think about how much time it took to finally be in the position to get this. Don’t lose it for little money.

@William C. I did one with a C variant, I offered cash over ask because I knew there would be a lot of bidders then got it back to ask after inspections. If there are multiple bidders the high strong offer gets it and they are likely to negotiate with that buyer in escrow instead of going back to others. I’ve also done A and B. Sometimes you low ball with cash and they take it! Then you think-I wonder how much lower I could have gone?!? So it really depends on the situation but at the end of the day you want good deals for you and you don’t want to overpay. There is always a price that a deal is worth to you. Maybe you’ve got some secret knowledge that lets you go higher or lets you go in at ask. Like maybe you know that you can get 1500/mo for the units but they are assuming that you can only get 1200. Or whatever your secret knowledge may be. So sometimes ask is a screaming deal. Sometimes way over ask is a screaming deal. I guess my long winded point is that a deal is determined by you. Not the list price, not the sellers expectations. So if you know in your heart what you will pay to make it a deal and you don’t go over that then you win A, B, or C!

I’d go for number 2 . Yes , I lose many deals but the ones I get are great !

Am I paying cash or financing? Is the point of the exercise the hypothetical, or are we actually talking about a $100k property? Assuming we are really talking about a $100k property, it really depends on where I'm at in my own investing cycle. 1. If I'm already busy with other properties, and don't care if I get it unless I can stick it in my back pocket until I'm ready for it, I go lower. 2. If I'm ready to buy something and I like the property but I have other possible choices, I go with lower or even. 3. If I'm ready to buy something and there's nothing else out there, I go with even or above. But this is only assuming we're talking about a $100k property. Absolute figures matter more than percentages. I'm not going to reject a good deal over $10k if I'm ready for a deal. At $100k over (let's say 900k/1 mil/1.1 mil) it's a different story. As @Russell Brazil said, don't step over dollars to pick up pennies. I will admit to having done so before and probably missed out on a couple of properties that would have been nice to have. I find I'm becoming a little less dogmatic over absolute figures the older (and more comfortable) I get. But I'm in a good position where I can afford to "overpay" if I really wanted the property. A lot of first time investors aren't in that kind of position, which is partly what I mean when I say it really depends on where you are in your investing cycle.

Do you low ball, or make sure you secure the deal?

Michael T.

Los Angeles, CA · Member since 2018 · 326 posts · 279 votes

7y

@William C. this question will vary for what type of investment I'm working on. On a majority of the investments in Southern California I know it's not necessarily about the cash flow but about the opportunity so I'll go with either A or B. If it's an OOS investment where similar deals will come along every month I'll go with B.

Most investors and agents that understand investing can typically give good guidance on what the property is truly worth, what the appreciation will most likely be, what the cash flow will be and at what price point the buyer will need to be at in order to get the offer accepted.

0 Reply

Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

7y

I always make the offer that works for me or I pass. Plenty of deals.

1 Reply

Henry R.Pro Member

Rental Property Investor · Saratoga County, NY · Member since 2013 · 178 posts · 73 votes

7y

@Ian Walsh, Ditto if it doesn't work for your needs have to move on.

0 Reply

William C.

OP

Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes

7y

Originally posted by @Henry R.:

@Ian Walsh, Ditto if it doesn't work for your needs have to move on.

My goal was to paint the picture of the deal "working" at all prices, and then see the different perspectives from there.

1 Reply

James Galla

Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes

7y

In reality, folks don't know how to value their properties, so assuming your post as true, I'd generally low ball with the 90k. Saving 10% on each deal really adds up in the aggregate, considering both your cash and credit reserves.

1 Reply

William C.

OP

Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes

7y

Originally posted by @Michael T.:

@William C. this question will vary for what type of investment I'm working on. On a majority of the investments in Southern California I know it's not necessarily about the cash flow but about the opportunity so I'll go with either A or B. If it's an OOS investment where similar deals will come along every month I'll go with B.

Most investors and agents that understand investing can typically give good guidance on what the property is truly worth, what the appreciation will most likely be, what the cash flow will be and at what price point the buyer will need to be at in order to get the offer accepted.

I appreciate the input and I completely understand. And I'm sure the answer would change for a flip or short term hold as well, the more variables, the further the range of answers from one investor. I think we all have default we go to when all other variables are equal. I agree with everything you said, except the last statement, or least I was trying to paint a picture where we all knew it was going to be within a few thousand dollars, and you have to decide whether to a little high or a little low. If we had 3 agents, and 3 appraisers, and 3 buyers, and 3 sellers tell us the "value" of a single home, down to the hundreds, we would have 12 different answers. Albeit close. On the retail side I find my buyers in this situation ALL the time, and for them it's impossible to remove emotions. When there are 3 offers, it's hard to exactly what the other buyers are thinking. I think this thread is good example of that, there has not been a single option that is a clear cut front runner. I maybe should have clarified and made the "market conditions" a little tighter. Not so much that the value is affected, but that the type, location, size, and condition is a model match to what YOU are looking for. For example some investors only buy a certain type of property in a certain part of town, or try to buy around their other properties. So for them, this is actually a more "rare" opportunity than the rest of the market may see it. Of course it's easy to say I'll just lowball with another deal coming through next month. But lets say you ONLY buy on one side of town, and the reason you buy on that side does not affect the property values either way. So now id say its worth a tiny bit more to you, since it fits in your box. This may change some of the previous offers but then again probably not. It seems like some are wired to get that good deal and move on unfazed either way, while others feel they have come this far, it checks the boxes, and don't want to let a few thousand dollars get between them and their next deal.

0 Reply

Ayne C.Pro Member

Rental Property Investor · Tampa, FL · Member since 2018 · 251 posts · 124 votes

7y

@William C. I think the whole point of having criteria and goals is that you know exactly what to offer. Emotions don't come into play.

2 Reply

Bjorik Mutize

Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes

7y

@William C. I think whatever option you need to justify your pricing and ensure your numbers work.

If you are coming in 10k or more off do you have reasoning.

If I have the ability pay market, the deal checks out short-term and long-term, my numbers cash flow to my criteria, then I will pay market.

If I need to pay a little over asking, but the deal checks out short-term and long term, my numbers cash flow to my criteria, then so be it!

I love this discussion. It all comes down to having reason to why you are paying what.

3 Reply

Victor S.

WorldWide · Member since 2016 · 1k+ posts · 1k+ votes

7y

if the competition is high and the numbers work, just lock that property in. if you want to scalp some more off the top, wait until the inspections are done - they always find something you can use as a bargaining chip.

2 Reply

Account Closed

Real Estate Agent · Austin · Member since 2019 · 100 posts · 28 votes

7y

I personally would act irrationally. Assuming that the profit is the same, I will give more if I would be emotionally attached to the house, in other words liked it too much. Many people disagree with me, but I just have a certain esthetic satisfuction when I purchase something say with a view or something that triggers my imagination as a rehubber as opposed to a rabbit hole.

0 Reply

Dan Crenshaw

Brick, NJ · Member since 2013 · 36 posts · 17 votes

7y

Don’t fall in love with a property, just because it’s a good deal. There are millions of properties out there. They come and go all the time. Don’t get hung up on just one.

It’s an investment. No more, no less. Treat it as such. Crunch the numbers and pay what’s it’s worth to you. If you pay what you feel it’s worth, 1.) you’ll have no regrets, and 2.) if some other guy outbids you and overpays for it, let HIM take the loss, not you.

1 Reply

Patrice Boenzi

Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes

7y

What @Russell Brazil said - you are not in the game until you have a property. I see so many investors try to save a few thousand bucks and never win the bid; especially in a call for highest and best. I paid over list price to keep it out of the MLS and it is a cash flow cow and is appreciating by leaps and bounds. You need to know your market and what the "rules of the game" are for the area to be able to get into the game. In my area, no one will every take an "as assigned" contract. Market moves too fast. I feel as investors we need to figure out how to make money in the market we want to invest in. It can be done.

2 Reply

Linda S.

Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes

7y

@William C.

You said it's priced correctly, and worth $100K, so why would you get greedy and try to nickel and dime them? Sometimes, places are priced lower in order to stir up the competition.

Only you know the market, but in a hot market-- easily go for the $110K, but if it's a solid one, but say lukewarm-- I'd probably do like $103K, something where I'd beat the others that will come in at full ask, and make mine the obvious best without overpaying.

2 Reply

Bjorn AhlbladPro Member

Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes

7y

If the numbers work I will do what I can to tie up the deal. A full cash offer with POF and EM will get more attention so that is what I go with. Often that is enough to satisfy the seller because he knows he has an offer that will close.

0 Reply

Austin Smither Langley

Real Estate Agent · Houston, TX · Member since 2018 · 65 posts · 49 votes

7y

Originally posted by @William C.:

Originally posted by @Austin Smither Langley:

I'd take Option D and analyze the situation. My answer to questions like this is almost always "it depends."

Option A may be necessary to lock in a property that has interested buyers. You may be able to use more earnest money or a quicker close date to display confidence to the seller.

Option B may make sense if the seller has been trying to sell it for a while and/or you offer a quicker close date

Option C may be necessary if it's listed under market value and it's in a bidding war or they are taking "highest and best." If it fits into your criteria, pay it.

Obviously it always depends. Thats why I wrote the disclaimer, to avoid 100 replies of...it depends on the situation....all of us have a natural go to mode.....I tried to paint a clear picture, deal is on the table, everyone KNOWS its worth 100k, there are 3 offers, what do you do? No bidder wars, no feeling the seller out, no second chances. Highest and best. Try again maybe?

You gave 4 options and I chose D. If they are looking for a highest and best offer, there is always the possibility of another bidder unless your offer is accepted immediately. They don't have to accept an offer at asking price. Saying everyone would KNOW that it's worth $100k is a difficult situation to apply in the real world because the standard in real estate for value is price that a buyer and seller agree on (sold prices). If everyone knows it's worth $100k (including buyers and the seller), then they would offer $100k and a $90k offer would be rejected by the seller in your example.

If you don't consider Option D a viable answer, then seems like you are looking for a perfect answer to apply to every situation and I simply don't believe that's the way to approach real estate. The beauty of real estate is that you can get creative. Every investor has different strategies. I know some buyers that always offer below and they rarely get accepted but it's part of their strategy. I also know investors that only come see properties if they are confident they can offer above asking price if they need to because it's such a deal. The most successful investors I work with and learn from tailor their strategy to each unique situation and property.

Just my two cents. Hope it helps.

0 Reply

Account Closed

Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes

7y

Tell the seller to lose the agent and save 6%. You get a good deal at 95,000. Seller gets 1k more than by selling at 100,000 and losing 6K to commission.

(I don't do this .. just being controeversial for fun)

0 Reply

Deneuve Brutus

Investor · Woodbridge, VA · Member since 2019 · 162 posts · 64 votes

7y

D.)

I have a set of rules I follow. Bid at a certain percentage below the asking price, Always. If I don't get the bid, I move on to the next property. I try not to lose sleep or over think the biding process. I see it as there will always be another deal, I'm not missing out on a anything. That's just extra stress, which is not why I got into REI. The funny thing is I'm looking at a property in a new market I'm analyzing. There was a house on my watch list. Didn't worry about it, kept trucking, two days later, the price goes down. Guess what, I'm going to analyze it again. It might be a deal.

0 Reply

Nate Marshall

Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes

7y

@William C.

I use a 3 tier offer.

1. Lowball Cash Offer 50-65%

2. Small down with payments for 60 months and a balloon. 1-5% interest. Seller carryback.

3. 0 down 5-8% interest. 30 years but balloon in 10.

I can send you a copy.

1 Reply

Jonathan R McLaughlin

Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes

7y

Offer 100 with a 5k escalator clause up to 110 :)

Since you have already walked through with a contractor you trust you waventhe inspection

0 Reply

Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

7y

This 100% "I dont pass over dollars to save pennies. I close deals. Too many people pass over good properties over a few grand, which is just absurd."

As a realtor who works mainly with investors I see this all the time. There are two sets of people. My successful repeat clients who buy a deal if the numbers work and don't care about going up 1-3% and another group who low balls and ends up never getting a deal they then eventually give up and never get into investing.

I will say probably depends on your market. In Chicago the north side is growing and in strong demand. In somewhere that is more of a buyers market what works may be very differant.

1 Reply

Rich S.

Central, MN · Member since 2015 · 148 posts · 184 votes

7y

The bottom line is develop your criteria and stick to them. If you are comfortable at $100K because it meets your cash flow percentage or amount, offer that. The time you spend trying for the perfect offer is time wasted not working on your business, evaluating other properties, etc. The other thing I would say is get creative, say $100K, but offer expires in 2 hours. It may or may not work, but it also might get them to feel like they need to decide or counter. If you are willing to pay $100K after negotiating back and forth, you might as well just offer it straight away and be done, either way.

0 Reply

Hoang Nguyen

Rental Property Investor · Mill Creek, WA · Member since 2017 · 35 posts · 10 votes

7y

@William C.

I go with the B to make sure I got a right price. Maybe A if I’m very interested

0 Reply

David Fernandez

Real Estate Agent · Vienna, VA · Member since 2016 · 289 posts · 253 votes

7y

@William C., I hardly run into properties that are priced well. Some pro-formas I look at are borderline fraud, the best ones are just VERY optimistic.

So, I run my numbers and I offer what I need to meet my investment criteria. If it happens to be the asking price, great, but I usually go with option B (lower price), but offer cash and no inspection contingency. I don’t buy volume. I buy two to four deals a year (10-25 doors) and I want them to be great, not just good.

The last property I bought, there were two other offers, one was at asking price, the other $5k over. I came $35k under asking and got it accepted. I was the only one who could pay cash and close in two weeks. It’s better to understand the Sellers’s motivation to sell and solve their problem/s. Sometimes money is not the most important factor.

0 Reply

William C.

OP

Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes

7y

Originally posted by @Nate Marshall:

@William C.

I use a 3 tier offer.

1. Lowball Cash Offer 50-65%

2. Small down with payments for 60 months and a balloon. 1-5% interest. Seller carryback.

3. 0 down 5-8% interest. 30 years but balloon in 10.

I can send you a copy.

Very rarely are sellers willing to carryback a loan, at least in my experience. I usually ask anytime the public records indicate the ability to do so, or the situation like vacant, or troubled renters.. But I do like this approach. I follow a similar approach on flips. This was for a BRRRR. And also I should have maybe clarified a seller that cannot carry back loan. I love the approach though, just wish more sellers were willing to do it. In fact, 90% of agents I ever mention this to immediately say no without even asking their sellers. They are afraid of sounded stupid and saying they don't know what I am talking about, so it's just a non option. I'm sure you get much better results directly to seller.

0 Reply

William C.

OP

Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes

7y

Originally posted by @David Fernandez:

@William C., I hardly run into properties that are priced well. Some pro-formas I look at are borderline fraud, the best ones are just VERY optimistic.

So, I run my numbers and I offer what I need to meet my investment criteria. If it happens to be the asking price, great, but I usually go with option B (lower price), but offer cash and no inspection contingency. I don’t buy volume. I buy two to four deals a year (10-25 doors) and I want them to be great, not just good.

The last property I bought, there were two other offers, one was at asking price, the other $5k over. I came $35k under asking and got it accepted. I was the only one who could pay cash and close in two weeks. It’s better to understand the Sellers’s motivation to sell and solve their problem/s. Sometimes money is not the most important factor.

I was referring to single family, and a good example would be an REO that the bank prices pretty close to market value. I understand where you are coming from with those types of deals. It's a bit easier to "overpay" by $500 on a 100k SFR. 1-2% on deals that size starts adding up to real money quick I bet. I also hear you in terms of learning the sellers motivation, like I mentioned above, a better way to have posed the question might have been an REO, where the bank has no feelings, and money is everything.

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Do you low ball, or make sure you secure the deal?

Do you low ball, or make sure you secure the deal?

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