How to negotiate offers?

[Kyle Wahl]

I am browsing the internet looking at multi family investment opportunities. Is it reasonable to offer 80% of the asking price on properties that have no real issues? Also, would doing so insult the seller to the point where no deal could be reached? My strategy is to buy and hold these properties and not necessary flip them, so I do not want to get into a property that has a high rehab number. 

[Erik W.]

@Kyle Wahl, hi and welcome to BP!

What you offer depends on a lot of variables.  First, you need to know your market inside and out vs. just randomly throwing out numbers.  80% of asking price could in fact be fair market value.  Realtors sometimes knowingly overprice a property to test the waters, so if you come in at 80% and your appraisal comes back at precisely that amount, then you've basically paid full retail price.

Don't worry about insulting Sellers.  Most of that talk is B.S. agent talk to get you to make a higher offer.  Now of course don't waste someone's time offering $100 on a 100 unit apartment complex in a prime location and in excellent condition, but don't worry about starting the discussion at 20-40% below what you hope to eventually buy for.

Price isn't the only consideration either.  TERMS play a big role too.  Do the Seller's want all cash now, or would they prefer to do some owner finance over 5 years to make a little interest and reduce their tax bill?   Do they want to totally sever all ties to the property, or would they hold the note for you for 5 years and continue to receive a regular income?

So many variable go into offers, especially on larger deals.  Find a good agent who is experienced with multi-family and chat with them about the deals they've done.  Learn the ins and outs.

Always be prepared to walk away if the numbers don't make sense.

Use the "if I take away" strategy.  Example: "Oh, I'm sorry to hear you won't owner finance.  I understand and that's fine, if I take away owner finance, would you come down $50,000?"

A wise investor / friend of mine once said if his first offer doesn't cause him to blush, he knows he offered too much.  

Get used to hearing "No" a lot.  If you hear "Yes" right away, you probably paid too much.  Unless the property is across the street from Disney World....but these days you might even get a bargain there.

Best wishes!