Is it Bad to LowBall on Houses?

Question

So lets be honest, majority of houses that are sold on real estate websites, are either overpriced or just simply not worth their value. am curious is it bad to constantly low ball on prices for houses? For example, I asked a seller, if he would take 225,000 on his 250,000 property. Now if he does sell that is awesome, I just got a very very good deal, if he doesn't whatever. Is this the strategy I should typically use when buying houses? I would never ever offer someone the actual price they want on a house, I would always low ball around 20-25,000. In order to do well in real estate we need to get very very good deals on the houses we buy. If I tell the person I will buy there house instantly for 225,000 and its worth 250,000 maybe 7/10 people wouldn't do the deal, but theres lots of people who aren't patient and would accept the deal.
What is your opinion on low balling every house offer, until you find a deal you like. Do most of you lowball? im curious to know.

As for the property I am looking at its going for 250,000. It has 2 bedrooms upstairs and a suite downstairs with 2 bedrooms, I asked if the suite in the basement is legal too btw. So I could charge 1,300 dollars for the upstairs and 1,300 for the the basement. That leaves me with 2,600 gross income a month. Lets assume 400 dollars in total bills, 200 dollars for property tax, and 100 for house insurance.

That's 700 dollars in expenses, now lets assume I paid 250,000 instead of 225,000. My mortgage would cost me:

250,000 x 20% downpayment= 200,000 mortgage a month= 980 dollars

now lets assume I got it with 225,000 x 20%= 180,000 mortage= 880 dollars a month

Total expenses now would be: 880 dollars a month, + 400 dollars, 200 dollars, and 100 dollars= 1580 dollars. plus 225 dollars for property manager= 1,805 dollars for my total expenses.

So I would make 800 dollars a month net.

What do you guys think of my idea to constantly low ball on prices?

Russell Brazil · Answer

I buy all my properties at fair market value, and I do just fine doing that. Sometimes I even pay more than fair market value if I really like the property and the seller is unwilling to sell at FMV.  If I am going to own the property for 10 or more years, over paying by $5k or $10k isnt that big of a barrier if it is a property I really want.

James Wise · Answer

What are the comps saying?

If a house is listed at 250k but comps are selling at 225-250k I think 225k is a very logical offer. At the very least a good starting point. If comps are selling at 280k and you offer 225k then probably illogical.

Are you working with a buyers agent or perhaps are a buyers agent? If you become a buyers agent and shoot low ball offers all around town one may actually stick and you will get a great deal. If you are working with a buyers agent and only shoot low ball offers around town there is a good chance the agent may stop working with you as they feel their time is being wasted.

Robert Blanchard · Answer

Many RE investors will not pay more than 70% of Full Market Value for a house.  If the house is ready to rent, and you do not have to do much other than fresh paint and carpet, you might be able to offer more.

Since you are in a larger city, you should be able to find a Landlord or someone else that needs out of a property and is willing to discount it to do so.

How did you choose the RE Broker that you are dealing with?  Are they willing to be on the lookout for a discounted property for you?  Are you willing to spend money and time on a property rehabbing it to make it ready to rent?

Have you attended a Real Estate Investment Club meeting?  In doing so, you might be able to find a property that is not on the market yet and purchase it at a better discount than one that is listed.

You can never lower your offer but can raise it if the seller says no or gives you a counter offer.

If the seller accepts your offer without a counter, it is usually too high.

Good luck on finding a rental.

Jeff Rabinowitz · Answer

I offer what the property is worth to me. Often, that is lower than what the seller is asking but not always. I make offers to buy properties not just for the exercise.

Christopher Brainard · Answer

@Dylan Something

Asking for a 10% discount (If the house is priced at FMV) is hardly low-balling and limits your exit options on the house. I'd be sending (more) lower offers and try to identify motivated sellers that are willing to accept less to increase your margins. There was a topic somewhere where people were posting what their offer acceptance rates were. If you're seeing a 30% acceptance rate, you're probably offering too much.

Additionally, in this particular example above, you also need to account for repairs, vacancy, CapEx, utilities, etc, in your costs, so your take home is going to be less than you are expecting. Landlord expenses always run more than you think, when you're first starting out.

-Christopher

Walter Williams · Answer

@Dylan NA

You should consider the market and what numbers work best for you. If the market says the house is worth $250k, you offer $225k, and the seller accepts that's great for you. Its better to make decisions based on data vs. emotion.

Dylan NA · Answer

Very true, in the example above the seller got back to me and he said he would accept 230,000, so im sure i could close at 225,000. Now i asked about the suite being legal and it is not. The seller was renting the house to a family for 1,500 dollars plus utilities. Which isnt that bad, but then the renter was renting the illegal suite to other people and charging 750 dollars, im like thats sooooo illegal lolol. Thats y i always use property manager, because 90% of landlords are asking to be sued because they dont know about the legal side of being a landlord. 1,500 plus they pay utilities might be tough for me to make cashflow. I would need 800 in mortgage, 200 in tax, 100 in insurance. Thats 1,100 right there, thats 400 in monthly cash flow, minus 50% because stuff is always more than what it seems, i would basically be breaking even, stupid

Is it Bad to LowBall on Houses?

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