Low Ball Offers: How Low Have you Gone?

Buying & Selling Real Estate
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Low Ball Offers: How Low Have you Gone?

Drew Bursey
New to Real Estate · Tasmania · Member since 2020 · 29 posts · 10 votes

Hello Everyone,

I was looking at some properties and the numbers (based on the price and current rent) don't work for a decent ROI greater than 8%.
If the property was $20,000-$30,000 cheaper the numbers would work (8% ROI). Is that too low?
Have you offered a lot lower than the asking price? How much lower have you purchased a property for?

This will be my first property, would you suggest getting a property that has a decent ROI or would you recommend just getting a property that cash flows (say 4-5%ROI) so that I gain experience? I've watched Brandon Turner's videos and he wants a minimum of $100 per door, is that a minimum you go for as well?

Thanks

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
5y

Some houses don't work as rentals plain and simple.  Unless a house is overpriced and has been sitting on the market for months, it is unlikely that an owner will take an offer 8% below market value.

As for price per door, that is subjective.  You can get $100 per door by putting more money down, but that really isn't $100 per door.  It also depends on what you are renting it for-$100 on a place that rents for $500 vs $2000/month is very different return.  I don't focus on price per door, but on the house, expenses and rent I can get.  I'm in it for the long term.

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  • Forrest Williams
    Real Estate Agent · Chicagoland · Member since 2018 · 314 posts · 199 votes
    5y

    I would calculate what is the most you would pay for the place to make your numbers work. Then offer 5-10% less than that. That way you have some wriggle room if they want to counter. Don't be afraid to walk away if they say no. And like others in this thread have mentioned, it is free to write an offer. If they say yes, you'll be happy you did.

    0Reply
  • Jacob Lapp
    Rental Property Investor · Souderton, PA · Member since 2020 · 124 posts · 106 votes
    5y

    @Blake Schneider

    So when you make an offer thats contingent on inspections. You have the right to back out of the deal or give the seller the option to make repairs to things found in the inspection, or give you money towards the repair. They can say no or negotiate what you ask but you then have the option to back out of the deal.

    I’m pretty handy so I prefer getting money because I can ask for what it would cost a contractor to do something and then do it myself and make some money. (I believe you can ask for up to 6% of the purchase price, might be a different percent)

    This money then comes directly out of the cash to close so if originally your cash to close was 35k and you get a 10k seller assist you now only need to 25k to close.

    Hope this helps!

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  • Milo Milosovic
    Investor · Edmonton, Alberta · Member since 2018 · 47 posts · 22 votes
    5y

    I personally don’t like the term low ball, it starts off sounding like someone is being taken advantage of. Instead think of it as an embarrassing offer. Can be 20-30% off list and really depends on what the market in that area is doing. You need to run and know your numbers in order to hit your criteria. 

    I find $100 a door to lean for my self and target 200-250 and usually that means a property with more than 1 unit (Alberta). Set your criteria first and if an offer doesn’t pan out move on. Keep emotion out of it or you will pay the price. Make sure you account for ALL your expenses, vacancy, maintenance as well and don’t use any of these numbers as “cash flow” if they don’t get spent. At some point they will need to be spent. 

    Think of a landlord that didn’t keep a reserve and all of a sudden Covid happened and maybe their tenant couldn’t pay rent for months. Unfortunately these folks have found themselves in rough spot. 

    Know your numbers. 

    Know your market. 

    Make offers that work for you. 

    1Reply
  • Brian Fiorillo
    Investor · Denver, CO · Member since 2019 · 41 posts · 29 votes
    5y

    What @Stephen VanMeter said: write the offer. I'm currently working through a deal where the seller wanted $146,000 and I offered $80,000. They initially declined but called three months later and accepted. I'm certainly not as seasoned as most others on here but in situations where its clear the asking is way too high, I typically submit comps and the cost of repairs showing how I backed myself into the offer price. The term "low-ball" is subjective. If you have reasonable proof supporting your offer, I don't see the issue in taking a shot at it.

    3Reply
  • Mike Harding
    Investor · Nashville, TN · Member since 2015 · 11 posts · 5 votes
    5y

    @Drew Bursey

    Don’t be afraid to write an offer because of how you think it may come across. Do what works for you. If you have an agent that is willing to take the time to write it up I would say go for it and expect to get rejected or countered. Expect that in a tough market it may take many offers before one gets accepted. They may counter to a # that puts you to a tough decision you never know what the other side is thinking. They may be a day away from a price reduction anyways. When I am selling I never reject an offer that comes in unless I have another better offer in hand. I will always counter to what makes sense for me, I have been surprised by “lowball” offers that then are willing to accept my close to asking counter.

    I had an offer of 100k accepted when they were listed for 159k on MLS, I am pretty sure this is my lowest accepted deal and it is one of the worst deals I have bought in long while. List price doesn't always equal market value. You could pay over asking and make a great buy.

    Good Luck to you! it’s a numbers game, if you get every offer you write accept, you are offer way too much.

    2Reply
  • Amanda Rome
    Cambridge, MN · Member since 2020 · 7 posts · 1 vote
    5y

    Before I go see a house I run my numbers to see how much I'd need to get the house for. I then have my realtor sent the seller/agent something along the lines of "I have a client interested at $xxx are we wasting our time?" And as long as we don't get a straight "yes, waste of time" answer I go see and generally put in an offer. My last one was nearly 50% of asking price. The whole house needed to be gutted. They ended up counter offering too high and we moved on. 

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  • Michael Coates
    Rental Property Investor · Clinton pa · Member since 2019 · 20 posts · 15 votes
    5y

    @Drew Bursey I personally made offers alot lower than asking price .. I purchased a estate sell after it sat on the market for 3 years . They was asking 119,000 for it , after 3 offers at 80,000 and walking away from it , they finally decided to accept my offer . Did a different estate sale after a deal fell apart also they was asking 139k . I came in at 110k , but I ended up buying at 115k . Its my best performing rental so far with 3 bedroom 2 bathroom house and 2 one bedroom apartments behind it .. I also walk away from many homes because of the prices remember home buyers by with emotions, investors buy according to the numbers !

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Drew Bursey:

    @JD Martin

    Wow that is pretty low! Was it a brrrr property? How much work did you put into it?

     It was a 3/2 where they turned one of the bedrooms into a hair stylist room. It had pipes sticking straight out of the floor and going through the roof. It took me about an hour to cut and cap the fresh water lines and cut and cap the drain line and remove the roof vent and patch the hole and redo a couple of shingles. 

    I kept it a cash deal, put a roof and new HVAC in a few years later. It's worth about 140 today and I've got 65 in it. I've made about 50 grand in rent from it since I've owned it. It's been a good property. 

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  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    Kinda think you're asking the wrong question.

    If you're ranking stuff by how much you knock off asking, you're letting the seller drive the deal.  Lotsa brokers/owners over-price stuff knowingly.

    You should ask, based on ACTUAL numbers and well-thought-out strategy, what is a realistic price I can get a property for.

    3Reply
  • Jeremy Isaac
    Member since 2020 · 18 posts · 17 votes
    5y

    Something JD said that should be emphasized - it was a cash deal. One way to justify a lowball offer is if you're paying all cash and can close in less than 30 days, especially if the property in question MAY not qualify for traditional financing in the end (not up to code, etc.). The seller may be worried about certain issues arising from inspection and may not want to risk falling out of escrow. I recently had an offer accepted at $45K cash and it was listed at $70 in a fairly hot market. It had previously fallen out of escrow due to a title issue which ended up being fixed pretty easily.

    2Reply
  • Suzanne PlayerPro Member
    Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
    5y

    @Drew Bursey Have you considered looking in the US?  There is a wide variety of markets here & taxes are lower than Canada - but you still may want to stay out of high cost (& high tax) states like California & New York.   I believe it's easy for non-residents/non-citizens to buy here, but I'm not a tax advisor so I can't tell you if there's any additional taxes you'd have to factor in.

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  • Drew Bursey
    OP
    New to Real Estate · Tasmania · Member since 2020 · 29 posts · 10 votes
    5y

    @Suzanne Player

    Investing in the US has crossed my mind. I'm very new to investing. Investing in another country sounds a little scarier. I think I'd like to invest closer to home first before I invest out of the country. I know it's pretty much the same thing when you're investing far away whether you invest 50kms away or 1000kms away...

    Hopefully I'll put my big boy pants on soon

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  • Drew Bursey
    OP
    New to Real Estate · Tasmania · Member since 2020 · 29 posts · 10 votes
    5y

    Funny update:
    I asked the real estate agent for expenses. I did the numbers based on her numbers and they weren't very good.

    I shared my numbers with another investor and he said the insurance was about twice as high as what it should be! It turns out that the numbers aren't actually as bad as I thought they were.

    Lesson learned: get a second opinion on the numbers!

    Thank you so much everyone for your help! I really appreciate all your advice!

    0Reply
  • Suzanne PlayerPro Member
    Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
    5y

    I've found it's best to get the information directly from the best source if possible.  For insurance quotes, go to a broker that services properties in the area you're interested in.  It serves a dual purpose - get the info, but also start to get to know the broker so when the time to purchase comes, you won't have to be looking for a good broker on top of everything else you'll need to get done.

    I saw the value of getting an accurate insurance quote when I was in the mortgage business.  One time, a prospective customer was sharing the monthly payment breakdown another mortgage banker gave him.  The interest rate was lowballed - no chance he was getting that rate without paying lots of points (he was quoted no points).  But, I noticed the hazard insurance (a/k/a "homeowner's insurance") monthly payment was way too high.  I realized the other mortgage banker was inflating it so that later, when the principal & interest payment turned out to be much higher, it wouldn't be noticed because the real insurance monthly cost would be low enough to offset it!  The customer was focusing on the total monthly payment, which would remain the same once he got close to closing.  So, the other mortgage banker gets the deal, the customer will probably not notice at closing, but even if the customer did notice he would still qualify for the mortgage - and by then it would be too late to apply for a mortgage at another bank!

    It's always best to run your own numbers from direct sources - this goes for the property taxes as well.

    516-503-7959
    1Reply
  • Edgar Verdin
    Rental Property Investor · Modesto, CA · Member since 2019 · 16 posts · 4 votes
    5y

    @Jonathan Greene would a contractors bid written up help to be submitted with an offer? Assuming the property has some damage that needs repair.

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  • Chuks Erinne
    Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
    5y

    @Drew Bursey, its best to decide what ROI and cash flow that works for you. I suggest having a realistic target, for example, 10% Coc return, $250 min per door etc. The key is that you're being realistic for your market and for your capital.

    For me $100 per door is not worth it and 4-5% roi is also not worth it because an ETF can do better without the hassle.

    I hope this helps

    0Reply
  • Dylan ThomasPro Member
    Rental Property Investor · PA · Member since 2019 · 63 posts · 57 votes
    5y

    @Drew Bursey

    Get over the feeling of a “low ball” offer. I just bought arv of 200 house for 92k. Needs 30k in work. The family is thrilled because the house is costing them a lot of money, and they can’t afford it. In my opinion, the deal made sense to me. It wasn’t a low ball offer. Some other guy offered them 70k. That’s a low ball offer. He was truing to take advantage of them. Some other dude offered them 100k. They went with me because of trust and the fact I’ll close. Other people don’t close. I told them straight up I can do it for 92k, I’ll make money, you’ll make money, and we will both be happy.

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    5y

    @Edgar Verdin only in some cases. If it's been sitting a while and has no offers, it might help to show that you aren't low-balling, you are estimating a rehab project. I think that's fair. I don't think it will help much for a new listing though. Any more info you can give to rationalize your offer makes it a real offer and not a lowball so I like how you are thinking.

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  • Edgar Verdin
    Rental Property Investor · Modesto, CA · Member since 2019 · 16 posts · 4 votes
    5y

    @Jonathan Greene I was asking because I one of my buddies that is a contractor and he was ok with looking at the inspection and coming up with a proposal for what’s on the inspection. So no necessarily just lowballs but to help me with backing up an offer. I agree it won’t work for new listings but for something that needs work or we can add value on.

    1Reply
  • Charles Large
    Rental Property Investor · Brownsville, TX · Member since 2019 · 60 posts · 33 votes
    5y

    Hello, Drew!

    I stay away from rental houses because I find it or difficult to get a decent ROI, which in my strategy is 10-12%.

    Your success as an investor will come from two chief variables: good purchase price and good rental income. Once you purchased a property, you cannot change what you paid for it. It is best to wait for the right house, condo or multi-family opportunity than to try to make them work after you own it.

    Good luck! 

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  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

    Get creative with your offers, see what the seller needs, you would be surprised how much information the listing agent will tell you after 45 days on the market.

    Listen and then make that offer!  

    Read between the lines and ...example....

    Owner has several properties and wants to dump them.

    Maybe your offer on a $200,000 list price would go like this

    Providing the property needs some work ..

    Kitchen, bathroom, upgrade, new floors and paint.

    Agents give up your 3 comish going in ($6000).  Take the back end of new sale!

    No inspection needed, contractor can give this to you for the work!

    Have contractor inspect it , so now you saved 10 days headaches!

    Go $185,000.  $9500.00 down at closing. remaining $179,500. within 120 days

    or at sale of property which ever comes first. 

    Have listing agent explain to seller that thousands of re hab money will be going

    into property shortly after closing.  So that seller will be in great position is buyer

    can't preform .

    I have done several of these!!!!

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