How to Make Offers That (Nearly) Guarantee You Can’t Lose
Wish you could make real estate offers that guaranteed you couldn’t lose?
One of the big challenges for real estate investors today is making good offers. There are lots of potential opportunities out there, but you don’t want to be making offers you’ll regret. You don’t want to miss good deals. You don’t want to overpay and lose money either. So how do you make winning offers?
I recently published a case study on my first experience buying investment property sight-unseen. It worked out for my partner and me. It wasn’t our plan, but it worked out because we made the right type of offer.
Know Your Market
The most important factor in making great offers is really knowing your market. That means knowing property values, knowing the rents, and knowing the costs to rehab a property in that specific area. This can help ensure you don’t offer too much. It can also make sure you don’t miss a good deal by offering too little. If you know the area better than the competition, you can sometimes offer more and land the winning bid. This may be because you know how much you can really rent it for, you may recognize if local trends are lifting up the neighborhood, and you might have a strong local contractor team that can get the job done for less than another investor.
One mistake that many new investors make is just firing off a lot of low-ball offers. They often do this just based on the asking price — or sometimes based on really unreliable online comp tools. That’s crazy. If a property is overpriced by $150,000 and you offer $100,000 less than asking price, you still aren’t getting a good deal. If your comp tools are poor, then you might also be losing out on a great deal that was already underpriced. Many also overlook the fact that they are burning a lot of connections by sending offers that just insult agents and sellers. You tie up their time and are not taken seriously. Then when there is a deal you really want, they might not even look at it.
Low But Educated Offers
We always make educated offers based on the numbers. That still often looks like a low-ball offer on paper, but it is an educated offer. We can back up our offers with the math. We can even accompany our offers with reasonable justification for why it is the best deal for the seller and their agent. This is completely different than just blanketing the market with blind low-ball offers.
Generally, we’ll come up with our number based on the worst case scenario. That “guarantees” we can’t lose. If we don’t encounter the worst case, then we make even more money than planned. That’s usually what happens. For example, if we are buying an auction property and can’t get it inspected, then we’ll assume it is a complete gut rehab job. We’ll price that into our offer. If we can get in, we’ll run the numbers thoroughly and do a detailed scope of work. Sometimes there will be things you can’t inspect for some reason. You may see signs of a leak but can’t rip open the drywall to check out if it is old or fresh, or you may be unable to access one unit in a triplex. Or there could be a situation with an existing occupant or tenant who is being evicted. Always price for the worst case scenario.
Protect Your Interests
Contract contingencies are another way to protect yourself, too. Depending on how the property is being sold and what market you are in, you might not be able to get in all of the contingencies you want, but they can still be great negotiating points. This may include the number of days you have to inspect, title reports, appraisal reports, and even financing contingencies. Find out what is typical in your area and draft your offer in way that makes it likely to be accepted, but still protects your interests.