Low balling for $100,000 off market value, possible?

Question

If a house could go for $320,000 as is in market value how would someone go about contacting the absentee owner losing money as a rental with $50,000 worth of repairs, with an offer no higher than $220,000 but honestly hoping they'll settle for $160,000 to even $192,400? Will convincing them of a price at or under $200,000 even possible? What pitch should I sell them to pull this off?

P.S. I'm a newbie.

P.S. I'm a newbie.

Doug Pretorius · Answer

@Amiris Brown If I found myself in a position where I had to "convince, pitch and sell" I would know that I've done something wrong.

I know that as a newbie it must seem like professional investors have got to be the greatest salespeople on earth, able to sell ice in Iceland etc etc. The reality is we offer ice cold lemonade on Miami beach during a heat wave. How much "convincing, pitching and selling" do you think it takes to do that? Answer: None.

Instead of trying to learn how to convince people of something. Focus on mastering the skill of finding people who already want what you have to offer. Then you don't need to pitch them or sell them. All you have to do is let them know you're there.

David Dachtera · Answer

@Amiris Brown,

Oh, dear. This sounds like one of those cases where not getting educated before taking on a challenging deal could lead to a financial disaster.

In general, though, here's how you to calculate your MAO - Maximum Allowable Offer:

(ARV x .65) minus repairs, minus holding costs, minus closing costs, minus your expected profit = MAO

Some people use .70 (70%) instead of .65 (65%). That's up to you. The 30% to 35% helps leave room for unforeseen issues and also helps allow you to "price it to sell" when you're done with the repairs while still making a good profit.

Be careful to estimate repairs leaving LOTS of room for unforeseen issues! You'll want to get a contractor on your team to help with that.

Levi T. · Answer

Yes this is the name of the game. Firstly just find the owner via tax records or a skip trace (@Corey Crane is your guy for that) if the tax record is bad.

Just write them an open ended letter saying your interested in buying the property and to give you a call. You may have to mail them 2-3, or 10 times before they do call. Once you have them on the phone try and get a feel for if they want to sell at your price or at a crazy price, then start explaining some of the repair items you see that is needed, then tell then your looking at a price around x, and play it from there. Sometimes you hit a home run, at lot of  times you don't. But yes this is the name of the game. Market price really don't matter, if just comes down to if the person want's to let it go for a price your willing to pay.

David Faulkner · Answer

Another alternate could be to make 3 different offers ... something like:

• All cash, quick close, least hassle, lowest price.
• Owner financing, their price, your terms.
• JV, they supply the property, you supply the renovation materials and labor, you sell it retail off the MLS (and collect a reasonable commission as a RE agent) and split the profits. longest time, highest hassle, highest return.

Describe to them the pros and cons of each and let them choose what best fits their needs. You can get more creative and help them in other ways, like hiring a moving company for them, putting their things in storage and paying for a month, helping them as a RE agent to find a replacement property to buy or rent after close of escrow ... you get the idea.

To echo what others have already said, though , whether it is one offer or three, they need to be fair. Create a "win-win" by solving the seller's problems in a manner that gives you a reasonable return for the work and risk you will be taking. If you focus on doing this then you will not have to worry about "selling" anything to anyone, you just have to be transparent and explain the offer(s) you've come up with and why it is good, fair, and reasonable for both parties ... it will come across as genuine because it is genuine. Then you can get referrals from people you've helped along the way and sleep well at night knowing that you've conducted yourself in an honorable fashion. That is the way to build a sustainable RE business IMHO.

David Faulkner · Answer

I submit for your consideration that part of it may be due to your inexperience as a flipper. It is very common for newbies to underestimate the amount of work, uncertainty, and risk involved in flipping a property. Things can and always do to some extent go wrong during a flip, and when they go wrong you would be amazed how much time, money, and effort it takes to correct the issues. You need this margin in order to protect your investment and insure a reasonable return on your time, effort, and money (and to protect investor money too/especially). It is no different if you plan to be a wholesaler and not a flipper, as this is how your flipper end buyer will view the deal. I'd bet after you get a few flips under your belt you may not consider it lowballing ... I know that doesn't help you too much as a newbie, but maybe you could talk with a few experienced local flippers about this and maybe even shadow on some of their projects to hear and see for yourself. Probably a good idea to do for other reasons aside from this anyhow.

Ray Slack · Answer

First off do you have the cash to buy the house if the seller agrees to your offer?

Amiris Brown · Answer

BTW, thanks Levi T..

Amiris Brown · Answer

I see, I don't approach the buyer with my numbers at all. Instead I ask how low they're willing to go, and if it meets my criteria then I go for it and if not I just walk away. I still need these numbers for my own reference though, but I need not convince a seller of anything.

David Dachtera · Answer

@Amiris Brown,

One bit of acquired knowledge / skill is the understanding that when the numbers don't work, you walk away. There's a reason that formula is the way it is. It's to keep you from coming up short at the closing table instead of making a profit when you sell.

Is there a REIA - Real Estate Investor Association - in your area? Most of the them only meet monthly, but you can find a lot of active investors after you sort out the other people like yourself.

Make some contacts so you have people you can ask, invite out to lunch and otherwise consult with to help you acquire "the mindset".

Low balling for $100,000 off market value, possible?

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