Making offers on deals is hard! How do you do it successfully!?

Question

Hey all,

As a newbie real estate investor, I have found that closing deals are pretty difficult.

I'm sure as I gain more experience, I'll look back on this post and laugh at myself for thinking this. So hopefully this is enlightening for my future self and for anyone new to investing.

I have been analyzing deals, networking, reading, listening... basically doing everything I could do to close my first deal... minus actually making offers on properties I saw as deals. I've been a "sideline investor"; looking at properties and determining if they are good deals for my area. I've found many deals over the past few months since I started this journey, but never actually went ahead and spoke with a realtor or the seller. I've have finally taken my next big step in participating in REI; I've contacted the listing agents for properties I saw as good deals to try to walk through the property and make an offer based on numbers that make sense for me, but I've hit somewhat of a snag. I keep getting callbacks from the agents telling me that an offer has already been accepted for a property!

I've analyzed hundreds properties and have found most of them suck for investing. I've also found that there are a few that are actually pretty good deals. It's frustrating to look at so many properties and only see a handful of them are actually worth pursuing. Since I started contacting the listing agents, I've gotten nothing but "already in contract" responses! Now I've only attempted to make an offer on 8 properties but this is crazy! I've read and heard that I'd analyze 100 properties and only find 10 properties that are worth it, and of those 10 I'd only be able to make offers on 5 and of those 5 I'd probably close on 1. That sentiment is completely spot on! I'm always getting beaten to the punch on these properties!

I've actually started getting leads for various properties in my area and have begun a marketing campaign for them to try to beat everyone else to the punch! Postcard marketing is expensive! Hopefully this marketing campaign will work out somewhere down the road. Meanwhile, I'm still analyzing properties and trying to get my first deal closed.

How do you guys go about getting your offers in before anyone else? Or even before another offer gets accepted?

Thanks in advance!

Marcus Auerbach · Answer

@Alan Caceres sounds like you are already doing a lot of things right, so probably just a few minor adjustments that will make the difference. Your post leaves me with making a few assumptions, please correct me if I am wrong.

First you can make it a lot easier for you if you select a farm area and become an expert in that area. My personal farm area has a population of about 12,000 people and I know it very well. I know the price points and the type of houses. So when a new listing comes up I know without running numbers if this could be a good deal. It also gives me the confidence to make an offer quickly and without hesitation, because I know.

It's like you are shopping for a used truck. You know you want an F150 in black with this engine, 3-5 years old and less than 30k miles. You look at every ad. You know the different configurations and packages. You know the typical price points. As soon as an ad pops up with the right truck (you know exactly what you are looking for) and for a below normal price - you know instantaniousley thats the one youve been waiting for and you are the guy how shows up within hours and cash in hand.

If you buy on MLS you need to work with a buyers agent (and not call listing agents) who understands how the game works. Find an agent who is an investor and develop a startegy how to work together (many agents are not investor friendly because many investors are not agent friendly in the way they work). Get set up with an MLS portal, do you own drive by's and have a standard offer contract package ready to go with your agent so all you have to do is insert the price and the address. Speed is very important as you have noticed.

Joe Villeneuve · Answer

Stop focusing on closing the deal.  That's no the goal, the goal is to make money on the deals you do close on.  There is an enormous difference.

Russell Brazil · Answer

@Alan Caceres Id contend that your investing criteria should ALWAYS BE CHANGING. Why? Because the market is always changing.

Lets use a real simple example here to illustrate, and these are by no means real numbers. You have a criteria that you will be any property under $200k.  The cheapest property in your target area is $225k, and hasnt seen a property under $200k in 10 years. Well then holding to that criteria in a rising price environment will get you nowhere.  But lets say in 30 days we have a sudden huge financial crisis like 2007, and prices are dropping by 50% in the next 90 days, well buying as things come under the $200k mark, if they are going to be $100k in 60 days wouldnt be a good choice either.

I think everyone is looking for a home run on an investment, and that is why they do not jump into the market. But you know what, hitting a few singles instead of a home run still helps you win the game. Im not encouraging you to make a bad investment choice, but might have been a good criteria to go off of a year ago just might not work today. Getting into the game with an OK investment is far better than not getting into the game while searching for a great investment.

Russell Brazil · Answer

If other people  are buying the properties, and you think they suck for investing, maybe you need to change your guidelines for investing to come more in line with what the market is telling you.

Marcus Auerbach · Answer

@Alan Caceres you will probably only need one agent, unless you want to target multiple areas which are hours away. Working with an agent who is also an investor makes a huge difference (compared to how I started out). When I am working with an investor client we spend a lot of time talking startegy on the side. And it also helps to have someone who understands your situation and startegy to validate your deal before you make an offer.

I set up MLS Portals for my clients so they can browse inventory and have real time data, which basically gives them MLS access for their target area. It's a website with a personal login and pre-set searches for example a specific zip codes and all listings between 100k and 200k. I would recommend you becoem an expert in a certain area, a certain price point and a certain house type. it helps to make good and fast decisions.

The difference between working with a buyers agent vs working with listing agents is that the listing agent represents the seller and has to do whatever is in the sellers best interest. A listing agent will present your offer, but cannot represent you or advise you on price - that would be a conflict of interest and a viloation of his feduciary duities.

@Steve Vaughan makes a good point about prices. When I shop for myself I usually write $120,200 as opposed to $120,000. Never 119,900. You might be lauging, but I see that more often than you would think! My most recent purchase was on the market for almost 6 months and started at 139k followed by price reductions in fall to 130, 125 and finally 115k heading into winter.

I had several conversations with the listing agent for a couple of months and was able to get more and more information about the seller. The owner had to move into a assisted living home and the proceeds from the sale would go to the state to pay for those expenses until all personal funds were depleted and then the state would pay for the rest. Basically the price did not matter, because they would not get the money anyway, but there is always pride of ownership and nobody wants to be the "looser" in a deal - it can only work as a win-win. The place needed a gut job and my math indicated 95k max purchase price. It's very hard for a seller who started out with a six figure price to settle on five figures.

So I offered 100k (with 000 in this case) cash, no contingencies and 10 days to close. They countered at 105. I countered at 102 and asked for a home warranty (which looks like will now pay for a new HVAC) - they accepted. And here is the other side to the story: If they would have put the property on the market for 115k last summer they would have had multiple offers likly ending up in a highest and best situation and could have probably sold it for 120k in a few weeks.

Russell Brazil · Answer

Yes LOI are to be presented. Verbal offers should be presented too.

I was using price point as an example for any criteria set. Your criteria set is ROI and maybe that needs to be adjusted. 16% is a pretty lofty goal no matter which way you measure your return. It's important to note that a return is only a potential return, and with higher potential returns typically comes a higher amount of risk.

Steve Vaughan · Answer

The MLS is pathetic for value in my area, too.  If I was new I would still have a quality buyer's agent I worked with, but would need the flexibility to offer solo on my own off-market finds.

I use a letter of intent (LOI).  It is personable and offers 3 purchase scenarios -  cash out, with seller financing and a lease with option generally.  I've used them on listed property a couple times successfully on my own, but had to have a much higher DP to cover the commission.  If listed, I don't offer the LO method, just a second creative way like a second SF option.

With a written offer, even an LOI, the LA must present to the seller generally.  Prevents over the phone 'highest and best' or 'other offers already in' tactics.  If the LOI looks good to the seller, I draft a proper PSA.

Hang in there @Alan Caceres!

Joe Villeneuve · Answer

You got it....just don't look at the closing of the deal as the goal for success...it will surely lead you to negotiate against yourself...and then rationalize why your losing money was a good thing, because....

Alan Caceres · Answer

@Joe Villeneuve Thanks! I'm actually focusing on closing deals that I have analyzed where the numbers show I'll make money on them. Like they always say, "You make money when you buy, not when you sell." I'm not looking at closing deals that I will then try to make money on; I'm looking at closing deals I know has more potential to make money than lose money. Am I going about that incorrectly?

@Russell Brazil The properties I think suck for investing, I still see listed on listing services and real estate agencies. The properties I think are great for investing, get contracted faster than I can finish analyzing them. I do have pretty specific criteria for properties I'd make an offer on and I'm not really keen on loosening them up. I've read on BP and many REI books that I should stick to my criteria once I've created it, and it seems to be similar to the criteria of the other people scooping up these properties before I get the chance to. Should I be looking to change my criteria because of that? Should I be looking in other areas?

Thanks for the input all!

Joe Villeneuve · Answer

Homerun for Mr @Russell Brazil ...again

Making offers on deals is hard! How do you do it successfully!?

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