Offer price vs asking price

[Jeremy K.]

Since I am about to make an offer on my first property, I was wanting to know if it seems way out of line.

The lisitng agent stated that the property had a NOI of $19,500 with a asking price of $249,000 for a CAP rate of 7.8%. If I paid the full amount, my Cash on Cash return would be 9.26% and a cash flow of $82 a month per door.

My figures show a NOI of $15,582 so I was going to offer them $146,182 for a CAP rate of 10.66%. My Cash on Cash return would be 15.78% and a cash flow of $99 per door.

I am basically offering him 58.5% of the asking price. I know the numbers are the numbers but S---, that seems low. All opinions are welcome!

Thanks!

[Brandon Nelson]

Jeremy, in my market offering 58% of list price on about 98% of listed properties will get you nothing but a lot of wasted time and angry responses. The SFR's and MF's sold in the past 30 days in my area show an average sale price to list price of 96-98%,and it's been that way for years.
But there are those 2% that go way low. The trick is getting the story behind the sale before you invest a lot of your own and your agent's time throwing out low-balls where they have no chance. There's always a story behind the deal, and if your agent is good they can sleuth it out -- or you can, too. Or better yet, help create the story, like Don Konipol's example of the $125K auto repair shop, with a seller willing to file bankruptcy once he was educated about it.
I've got 2 sales pending for clients right now that fit into that 2% category, a duplex pending for about 70% of list after only 3 weeks on the market (because the listing agent screwed up on pretty much all the numbers, and everyone else is apparently waiting for him to drop the price before they submit an offer), and a SFR listed at $279,900 -- the only house for sale in a super-desirable little neighborhood of 36 homes -- we now have pending for $195K, but only because we were intimately familiar with and helped shape the story.
As an agent, Yes it's my job to get my clients the properties they want, but it's also my job to avoid wasting ridiculous amounts of theirs and my own time chasing no-chance deals.