NEED ADVICE PLEASE! Loan Vs Cash!

[Mateo Arteaga]

Hey BP fam! 

I need some help! We found a great off market deal on a local duplex that will cash flow, appreciate and could potentially be a STR on one side. Went and looked at the property, minor rehab (maybe 10k). Problem is that we will be needing to use a conventional loan. We were the only offer a few days ago, the guy gets back to us and says there are more people interested and probably going to make an offer. I'm almost 100% sure there will be a cash offer of some sort that we will have to go against.

What can we do to at least give ourselves a chance against cash? Is there anyway to make our offer better and more appealing other than putting a higher offer? What would you guys do in this situation??
I appreciate any and all feedback! Thank you! 

[Lorenzo Prieto]

Often times the realtor would do this but in this case it's a off market deal so you are wearing multiple hats. I think there are many little things you can do to make your offer stronger including: no appraisal contingency, offer post occupancy time (if they are needing more time to move out), waive inspections, have your lender give them a call and tell how quickly they can get things closed and ensure the loan will go through, etc etc.  With this being said these are just a few ways to strengthen a offer and not by any means saying this is what should be done as each of my suggestions come with their own risks.

[Scott E.]

OPTION 1: Offer more than everybody else

OPTION 2: Get a hard money lender

[Dave Skow]

@Mateo Arteaga...1) offer  at least the  list  price  if you think  there is competition  2)  offer  a  large  non refunable deposit  for  earnest money  3)  offer to close   quickly  4)  offer  the seller a  free  30 day rent back post  closing  4) eliminate  financing and inspection contingencies 

[Joe Villeneuve]

Quote from @Mateo Arteaga:

Hey BP fam! 

I need some help! We found a great off market deal on a local duplex that will cash flow, appreciate and could potentially be a STR on one side. Went and looked at the property, minor rehab (maybe 10k). Problem is that we will be needing to use a conventional loan. We were the only offer a few days ago, the guy gets back to us and says there are more people interested and probably going to make an offer. I'm almost 100% sure there will be a cash offer of some sort that we will have to go against.

What can we do to at least give ourselves a chance against cash? Is there anyway to make our offer better and more appealing other than putting a higher offer? What would you guys do in this situation??
I appreciate any and all feedback! Thank you! 

 You're asking the wrong question.  You should NEVER ask the question "what will it take to get this property".  The question should always be, "what will it take to get a deal"...and base your offer on that.  You don't want the property...you want the deal.  Chase the property, and you will lose money.

Now, as far as the "potential" of there actually being other offers that came in goes, that shouldn't matter since this isn't a contest...it's a mathematical formula based on the answer (profit/cash flow) and not on the question (getting the property).  I would be willing to bet your offer is the only offer.   Your "knee jerk reaction" to submit a higher offer is exactly what the goal was for them saying "there are other offers".  Even if there are other offers, if you need to bid against yourself to get the property, and the deal disappears because of that "too high of" an offer, you win the property...but lose the game (money).

You are a REI that collects profit, not a property collector. If you want to collect properties there is a much cheaper way. Take pictures of all the properties you like, transfer them to your computer, and use them as your screen saver. That way you can win all the properties you want, and it won't cost you a thing.

[Rick Albert]

I agree with @Joe Villeneuve, this isn't supposed to be an emotional buy, it's supposed to be logical. If someone else overpays, good for them, that's one less buyer you are competing with.

I would focus on taking the risk off the table to the Seller within reason. Don't get a home warranty. That automatically saves the Seller $600+ over any other offer that requires it.

You could also just shorten the contingencies to match what a cash buyer would use for the due diligence. That way, if you are the Seller, it is the same amount of contingency time as someone with cash. I wouldn't waive inspections because there could be so many things wrong with the property and could be a money pit.

[Joe Villeneuve]

Quote from @Rick Albert:

I agree with @Joe Villeneuve, this isn't supposed to be an emotional buy, it's supposed to be logical. If someone else overpays, good for them, that's one less buyer you are competing with.

I would focus on taking the risk off the table to the Seller within reason. Don't get a home warranty. That automatically saves the Seller $600+ over any other offer that requires it.

You could also just shorten the contingencies to match what a cash buyer would use for the due diligence. That way, if you are the Seller, it is the same amount of contingency time as someone with cash. I wouldn't waive inspections because there could be so many things wrong with the property and could be a money pit.

100% agree.

[Sergey A. Petrov]

What does the seller want? Figure that out and give them that so long as the deal still pencils. Lots of ways to skin this cat so to speak. While cash is often great, it is not always the king. Agree with everyone else’s ideas. You could also include an escalation clause (again, make sure the deal pencils). Don’t let emotions get in the way - if you don’t get this one, another one will come

[Nathan Gesner]

Joe is right. You need to know what makes this a "deal" and pursue that. If you lose out to a cash buyer, or any buyer, at least you'll know you didn't pay more than you should have.

It's a competitive market. Offer what makes sense to you as an investor, and move on if you lose.

[Galen Ikonomov]

"It takes 50 offers to get 1 deal".

Unless the home owner is distressed, I don't even listen to most of them. They are in the game to make as much money as possible. I put the numbers down on the BP Calculators and make the offer. That being said, you have to have a buying criteria "Net Cashflow" and "CoC%". Whatever deal makes sense to you offer a little less and then counter with your best deal. If that does not work out, get onto the next one.

Story from my last purchase off market:

 "Wife: We have sooo many deals on the table and we are deciding which one to take so give us your best deal.

 "Me: My offer is still the same.

"Husband comes by 30 minutes later and and the wife is not present: Maaan, no one is calling us after I put the FSBO sign, you will have the deal.

 Here is an idea for you about "I have other offers".

[Navid A.]

I wouldn't call it a "great off market deal" if there would be other offers! The point of an off market deal is that you would have the first pick at it. That makes it a deal. If you are competing with others, might as well be on MLS.

I had the same situation happen to me and I lost the deal to a cash buyer who paid asking price. I may have got the deal if paid way over asking. If paying much more over asking still works for you as far as the numbers, you may still have a chance against a cash buyer. But I wouldn’t get my hopes up. 

[Ryan Deasy]

@Mateo Arteaga

your answer is hard money. no, its not exactly cash but most HMLs can move just as fast to the closing table. a conventional lender will drag the purchase out and you'll surely lose out. i used hard money almost as cash and won out on many bidding type wars. happy to share HML info too.

[Joe Villeneuve]

Quote from @Ryan Deasy:

@Mateo Arteaga

your answer is hard money. no, its not exactly cash but most HMLs can move just as fast to the closing table. a conventional lender will drag the purchase out and you'll surely lose out. i used hard money almost as cash and won out on many bidding type wars. happy to share HML info too.

...except that this deal has no room for the HML fees

[Steve Vaughan]

I'm confused why there is so much competition for your 'off-market ' deal as well.

Not all LL sellers want cash. Tax burden and the hassles of redeploying to optimize are real. 

You're strength should be knowledge.  How long have they owned it and what did they pay?  Cash could equal a large tax bill. Why are they selling?  

An LOI offering 3 scenarios is my go-to. Seller financing or an MLO could be the ticket.

Creativity should be your strength here, not cash faster.  This is the innovative strategies forum after all. 

[Joe Villeneuve]

Quote from @Steve Vaughan:

I'm confused why there is so much competition for your 'off-market ' deal as well.

Not all LL sellers want cash. Tax burden and the hassles of redeploying to optimize are real. 

You're strength should be knowledge.  How long have they owned it and what did they pay?  Cash could equal a large tax bill. Why are they selling?  

An LOI offering 3 scenarios is my go-to. Seller financing or an MLO could be the ticket.

Creativity should be your strength here, not cash faster.  This is the innovative strategies forum after all. 

 ^^^^^^^^^^^^^^  These are all the votes I cast for this...that BP wouldn't accept.  Go figure.

[Brian G.]

@Steve Vaughan MLO: Monthly Lease with Option to purchase?

[Joe Villeneuve]

Quote from @Brian G.:

@Steve Vaughan MLO: Monthly Lease with Option to purchase?

How would this work?  Are the two contracts the same length?  How do you have an Option Agreement that goes month to month, or are the agreements for just one month?
This is illogical.  You can't have a month to month Option agreement but you want the two agreements to be the same length.

[Steve Vaughan]

Quote from @Brian G.:

@Steve Vaughan MLO: Monthly Lease with Option to purchase?

 Master Lease Option. 

A lease option on a multi with the right to sublease. 

[William Anderson]

I know that this is late because that deal is probably done.  I strongly suggest you work with a realtor.  Yes, there are lots of people who love the idea of walking up to a seller and cutting a deal.  Remember, you are not paying your agent.  Even most FSBOs will pay your agent a commission.  If you are working with a good savvy agent with investor experience they will be in a better position to negotiate for you.

Should you have engaged a good agent, you would not have had to visit this forum to get your questions answered.  Your agent would have formulated a plan based on their knowledge of your situation and the property.  You would be surprised how often agents know the sellers and their motivation.  

I am working with a client out of state to buy investment property on the Mississippi Gulf Coast.  Every property that he pointed out to me was one that I was familiar with.  I knew the owner or the selling agent or had been to the property or at the very least had investigated it for another client.  Partner up now so you are ready for the next opportunity.