Take the first offer??

Question

Hello BPers!

I've been following posts for about 6 months now but am just now seeking some assistance.

Last week my husband and I closed on a REO house we are planning on rehabbing and living in for 2 years. This morning I received a phone call from someone that we outbid asking if we would like to wholesale the property for 5-10k.  We  really are planning on living in this house and we really like it, however we have the investor mentality so we are going to take them up on their offer. However, we feel that we have a good deal on our hands and since he threw out 5-10k right off that bat if he might have a little more room in his budget. We are going to ask him for 12k, this allows us to pocket 10k after all closing costs and commissions.  We have moved our stuff into the garage and met with the contractor once.

What I'm wondering is, is this greedy on our part? Are we lucky to be getting this offer to begin with after doing relatively little? Or, since this is a hot market and we are planning on living in this house we have nothing to lose by asking for a little more?

Thanks all!

Chet Maxwell · Answer

I would weigh the tax ramifications vs other potential investments in the area.  I do like the idea of holding for 2 years for the complete tax deferral, but if you are not expecting much appreciation over the 2 year period I would take the short term money and move on.

And if you do negotiate, I would ask for 15K - give a little more wiggle room for some back and forth.

Dan Losh · Answer

If you were planning on living in the home, i would get get the biggest profit you can from the investor.

Chris Vail · Answer

@Stephanie Wells

If you take the 10k will you be able to go and find another project to put your capital to work?  If deals are not easy to come by do you run the risk of not finding a project right away to put your capital to work making more money?  If deals are relatively easy to come by and you can put your money to work quickly on another project that you could make the same amount of money on or close to this deal then I would say take the 10k and find another project.

But if you can't find a deal or don't think it will be at the same level as this project then I would think twice about taking the quick money since your capital will sit and won't be working for you while looking for that next deal.

Stephanie Wells · Answer

Thank you all for your quick responses!

Michael, negotiating is definitely a learned skill! I'm working on it but I have a tendency to people please and give a little more than I should sometimes.

We just sold our first two year flip, we are doing another quick fix and flip we bought in January and we are living with our in laws for 3 months while we did this quick renovation. They are fine to have us live there for longer or we could find a move in ready place and turn it into a rental when we find a more permanent place.

Here's some quick numbers on the deal:

We paid 150k, reno looks to be about 110k and that's with 20k extra for unexpected expenses. It should sell for 315k. Basically 45k in profits after fees and commissions and we feel these are conservative numbers.  Or walk away with 10k and none of the headaches of a huge renovation.

I feel like you're exactly right @Jeff Sadosky, we are in the driver's seat. I just looked online all morning and didn't find another house with as much potential on the MLS. He already got outbid once and felt it was worth another shot to give us a call. He is another investor but my husband's thoughts are a quick nickel is better than a slow dime, I'm kinda leaning towards that but we definitely don't want to just pawn it off quickly to the first person that puts the idea in our head.

John Thedford · Answer

Are you leaving a lot of money on the table asking for 12K? Do you have accurate comps, accurate renovation costs, and accurate ARV figures? Also, if you just flip it, where does this leave your plan of home ownership? Last, if you live in it for two years, as a married couple you can make up to 500K tax exempt (you could even rent it out up to 3 years after you lived there for two years and still meet IRS guidelines for a tax free sale). Don't feel asking for an extra 2K is greedy. Ask yourself what is your best move.

Michael Hayworth · Answer

This is really all about negotiating. Negotiating is an important skill to learn....not in the slick, wheeler-dealer sense, but in the sense that helps other people see your point of view and lets them know you're considering theirs. It's not a natural skill for me, but I've had to learn to do it well over thousands of business contracts and other sales negotiations.

I'd sit down with him and talk about each of your goals, and simply tell him that you'd like to live in the home, but understand he's making you a good offer. You would really need to walk away with $10K for it to be worthwhile, so if he'll do $12K total, it's his.

But understand that it may be simply a numbers game for him. Good investors can't afford to get personally attached to a property. So be prepared to know what you're going to do if he says $10K is his top end. Or maybe even what to do if he says he's thought about it and reallly isn't willing to go more than $6K.