Quote from @Benjamin Sulka:
Hey BP,
Seeking some help on negotiating/offering a price to an off-market seller.
I cold-called an off-market opportunity today and the seller expressed interest in selling if the price was right. This would be a house hack.
The property was purchased in April of last year for $155,000. The seller said they re-did flooring, repainted the interior and added some other fixtures in the past year since they've owned it. I have no experience estimating rehab costs and I know costs have drastically changed since books like J Scott's were released.
The property is a 3/2 duplex. One unit is a 1/1 rented for $900 and the other is a 2/1 that could rent for $1,200-1,300. We could offer $210,000 to make it a 1% deal, but I understand that the seller paid for the rehab, would have to pay capital gains tax, and closing costs.
Based on the info provided (potential rent roll, the fact that it would be a house hack, and the appreciation potential), what do you think a reasonable offer price is to get them to sell a property they recently bought and put money into? The property is in a city/town that is appreciating quickly, is in an excellent school district, and is going through continuous development.
How would you go about price anchoring and negotiating the deal? The seller was adamant about me throwing out a price first.
Grateful for any advice. This would be my first real estate transaction.
-Ben, aspiring multifamily househacker
Why are you wasting time with time with someone with no motivation to sell? They’re “interested” if they can get well above market value. You’re making the classic mistake of pursuing a deal just because the property owner didn’t give you a quick no.
If you want to pursue for some reason just make them an offer that’s good for you and after they reject it you can go forward with finding a deal that can be purchased at an “investor” price - or at “investor” terms.
Here’s my bias - I don’t waste my time worrying about how much the seller paid, how much he invested, how much he owes, the asking price, what his motivation is (which is probably a lie or “half truth” anyway), whether he’ll be “insulted” by my offer, whether he’ll “like” me or “hate” me. If I’m interested in purchasing a property I make an offer that benefits ME. The property owner’s reaction to my offer will tell me more about his motivation and the likelihood of making a deal than all the research, strategizing, angst, information gathering, and other time wasting in the world.
Since we’re looking at INVESTMENTS we have to realize there are virtually unlimited investment opportunities out there. If I decide to invest in say a SFR and for some reason none of the 3,262,000 SFR on the market can a deal be made with, I can invest my money in commercial property, real estate syndications, REITs, real estate notes, real estate note funds, money market funds, index equity stock funds, bonds, and about 10 million other investments, to obtain the ROI I seek.
A benefit of making an offer good (or GREAT) for you and not worrying about what the seller wants or needs (at least in your initial offer) is that if you get a quick “no” you can move on to the next deal without wasting a month negotiating a deal that has no chance to close. But a bigger benefit is that your original VERY LOW offer with Terms very favorable to you might actually be accepted. In which case you have significantly turbocharged your timeline for wealth accumulation. Not often, but often enough to make a HUGE difference in my net worth, I have had offers accepted for 50% or less of market value and 30% (70%) discount to asking price. The best deal I made (for me) was an 75% Interest in a small property rented to a convenience store. The property was worth $300,000 and was free and clear of all liens, debts and encumbrances. The seller needed an immediate sale, and was asking $200k. I offered $5k for an immediate close (no title insurance, payment and deed transfer immediately) and it was accepted? Three days later the 25% partner bought me out for $200k.
