One thing I’ve learned is when it comes to actually making the offer on a property, you really want to keep it simple.
And what I mean by that is the more contingencies you put in, the more you have your attorney work on it to protect your interests, the more complicated it’s going to get.
And in the end you may not just get any deals because there’s too much going on in the contract.
Of course, you want to protect yourself as much as possible, but you want to balance those interests by not getting too complicated either. You certainly don’t want to buy anything that could be problematic with title issues or any other complications that could hinder your ability to sell the property later on.
Ideally, you want to present your offer in the least complicated manner as possible. But at the same time, you want it to be a strong offer.
And when you’re first starting, it’s a little more complicated – usually because you’re doing your first deal and you probably want to protect yourself as much as possible from downside risk. But at the same time you don’t want to over protect yourself where your offer gets pushed off to the side and in some cases, not even considered at all.
Keep. It. Simple. Stupid.
KISS. Great band…even better principle when putting in offers in real estate. (KISS = Keep It Simple Stupid)
Ideally, you want to present your offer as simply and as attractively as possible. In many cases, if you can present it as an all-cash offer, which will immediately be favored over someone that’s putting in an offer and they’re subject to financing.
And from a the bank’s perspective, especially if it’s an REO property, and you are offer number one and your offer comes even below other offers that are subject to financing, your offer is immediately more attractive to the bank.
Does it always happen this way? No, it doesn’t. But cash offers are very often times far more attractive, which is why learning how to raise private money is so vitally important to your success as a house flipper.
Submitting KISS Offers: Case Study
Let me give you an example of the KISS method for offers that may be a bit on the counterintuitive side.
About a year ago, I purchased a flip that started from an all-cash offer at $120,000. There were three offers higher than mine. Not only that, but they were other investors too.
I believe there was an offer for $145,000 from an end buyer, but it too was subject to financing. I’ve been following this one closely and the deal could fall apart on two occasions prior to my offer.
What I found out was that the other offers were most likely retail buyers or homeowners looking to get into this deal and they were subject to financing or subject to inspection. The property had a failed Title 5 and the bank was getting fed up with offers falling through and having the property on its books for such a long period of time. They had even toyed with the idea of putting it back out on the open market.
They had actually dropped the price way down to really where my price was actually higher than asking price. Not looking at the actual asking price I figured if I could offer $20,000 over asking price, I would not only make a great profit but I also have a far greater likelihood of the offer being accepted.
Don’t Get Greedy and Remember The All Important ARV
This underscores the importance of an investor understanding the numbers and most importantly ARV.
If I were to put an offer $100,000, the offer would likely not be accepted due to the fact that there was other competition. I knew there were other investors competing for it, so I offered over asking price.
Not only were their prices higher than mine but there were also some very lowball offers at $70,000, $80,000 and $90,000, all of which were not accepted.
In cases like this, it’s good to not get greedy, identify a good deal and make an offer that works for your numbers. When all that happens, there is a greater likelihood of the deal actually happening.
So I put in my best and highest offer after doing all my due diligence and I got it.
And believe it or not, I didn’t get it by much!
I later found out later that I was only $1,000 higher than the next cash bidder.
Use Contingencies and Time to Your Advantage
There were a few other aspects to this offer in addition to the fact that it was a cash offer. I also had waived my inspection to make the offer even more attractive.
The bank was in a difficult situation where they had lost money for five months and they were trying to get more money for the property, but at the same time they had lost more money by keeping it on the market for too long.
This is a difficult situation for many banks when they finally realize they need to open up the bidding to other investors. And for an investor who comes in with an all-cash, waived inspections clause, this kind of offer is very attractive to a bank.
In fact, they were very motivated to accept my offer over other higher offers because they had been burned with contingency clauses and financing issues in the past.
In some cases, I put in a time contingency, saying that I can close in seven days, knowing full well that the bank probably will not close in seven days. Sometimes, this makes my offer far more attractive versus some of the other cash bidders. An offer like that will be far more attractive to the bank than one with contingencies and if you do it, you may end up getting the deal just because they realize you are motivated to close fast.
We got it, closed in 14 days and ended up making $34,450 on it.
Which ain’t too shabby for keeping it simple, stupid….
And if you’ve made it this far, please leave a comment below! I’d love to hear from you about what you have done to get offers accepted.
And if you haven’t EVER put in an offer on a property, that’s cool too…leave a comment and ask for more info on how to do it!