MLS Pricing too high, no room for profit.
Southeast Michigan · Member since 2023 · 23 posts · 13 votes
MLS Pricing too high, no room for profit.
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3yIve been hearing people with the same complaints for the entire 20 years Ive been in real estate. Year after year, decade by decade goes by and they keep not buying because they keep saying the numbers dont make sense....sellers want too much money...I cant cash flow enough.
I keep buying year in and year out regardless of market conditions. You said the property would rent for $2500...Id pay $500k in my market for a property that rents for that in my market happily.
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- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
this is very relative, have you figure out the PSF from comps ? what's the high , low and the actual trend of the comps ?
in cash-flow market with lot of supply and limited buyer demand, offering much less than asking could work. This is very market specific question.in our market, even just to met the asking price, seller would not accept it.
- Real Estate Agent · columbus, OH · Member since 2018 · 4 posts · 7 votes3y
@Michael Kotylo would you say the main factor is due to the higher interest rates, banks are getting higher return and affected cash flow.
- Investor · Providence, RI · Member since 2016 · 138 posts · 40 votes3y
@Michael Kotylo I agree. I've had an off market seller try and tell me "you don't make money at first, you wait for the market and rents to appreciate" lol, not doing that, k thanks.
- Member since 2019 · 38 posts · 45 votes3y
Quote from @Stephen Torti:
@Michael Kotylo I agree. I've had an off market seller try and tell me "you don't make money at first, you wait for the market and rents to appreciate" lol, not doing that, k thanks.
I did that in socal and it's working out quite nicely 4 years in. It's not for everyone but depending on the area and your objectives, it is absolutely worth it.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes3y
This is completely normal. I don't take asking price into consideration. I offer what makes sense for my numbers, which most of the time gets laughed at by the seller/sellers agent.
I honestly don't care.
2 weeks ago, I met with a seller at Panera bread and he literally started yelling when I presented an offer to him. The more he described how great his house was the louder his voice got.
Part of the business....
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
This is why you don’t make offers based off list price. Make offers based off numbers that work for you. Everything is negotiable in this market, and you’d be surprised how motivated sellers are right now.
- Chandler, AZ · Member since 2020 · 295 posts · 272 votes3y
If someone needs it to live, they pay what works for them regardless of the investment potential and numbers. Others are willing to bet on the appreciation. If all property was sold based on numbers, markets across the country would be turned upside down. My first investment property brought in -$200 a month rent not including maintenance and vacancy. Best investment? Certainly not, but now it's bringing in $1400 over mortgage and has doubled in value.
- Miami Beach, FL · Member since 2019 · 124 posts · 48 votes3y
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
I think that the sellers still stoke in the 2020 and 2021 markets that everything and anything was flying off the shelf over the asking price.
The market is correcting, wait a month and make an offer for $250k
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes3y
When someone list a property on the MLS , they run comps on similar sales . They dont run comps on what the house would rent for . They want the highest price , what the new buyer plans to do with it doesnt matter .
- Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes3y
@Michael Kotylo Not all buyers and sellers are investors. People actually buy houses to live in as well, and may pay $xxx for a home when that price doesn’t work for an investor. Can’t always think pricing is out of line because your numbers don’t work.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes3y
Sounds like you’re browsing Zillow looking for deals. For me the deals are from wholesalers, sheriff auctions, tax lien sales, networking etc. I.e. off market.
- Rental Property Investor · Member since 2021 · 335 posts · 193 votes3y
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
High interest rates coupled with slower demand. You will not cash flow like good ole days unless you explore certain areas. There are opportunities out there, but slim picking. I recently purchased another SFH to dollar cost average the market. Not cash flowing at all unless I refi when rates are back down to 3% or so... likely never. However, I'm a 10+ years RE holder, so fingers crossed I'll come out ahead eventually.
- Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes3y
I own a wholesaling network in Louisville. Four of the last five deals we bought were on the MLS...you have to know what to look for.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
Sounds about right. I think it is hilarious when people add "below market rents!", yes, thank you for selling your property at top dollar but making buyers do all the work! But it is the buyers fault because they still pay for it. Or when businesses post their commercial units and base price off pro forma or other strategies for renting (I am having experience with this currently if you can't tell, haha)
Sam McCormack Realtor - Southeast Michigan · Member since 2023 · 23 posts · 13 votes3y
Quote from @Chris B.:
If someone needs it to live, they pay what works for them regardless of the investment potential and numbers. Others are willing to bet on the appreciation. If all property was sold based on numbers, markets across the country would be turned upside down. My first investment property brought in -$200 a month rent not including maintenance and vacancy. Best investment? Certainly not, but now it's bringing in $1400 over mortgage and has doubled in value.
Thanks for sharing this. It's important for new investors to understand the long term strategy with all of the fairy tales on YouTube. Would you mind sharing the numbers of that first deal? How long did it take for it to cashflow $0/mo and just have all expenses paid by rent? What would/could you have done differently?
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes3y
Folks listing their properties with brokers / agents are usually looking for top dollar. So, MLS is often not a source to find "bargains". You may find some here and there, but not as a matter of course.
If a property's asking price is not supported by the property's condition, that needs to be expressed in your offer. Explain why your offer is below the asking price so the seller can decide if they want to negotiate.
Sellers are often not so different from investors: they have dollar signs in their eyes.
My $0.02 ...
- 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @Devin Scott:
Quote from @Stephen Torti:
@Michael Kotylo I agree. I've had an off market seller try and tell me "you don't make money at first, you wait for the market and rents to appreciate" lol, not doing that, k thanks.
I did that in socal and it's working out quite nicely 4 years in. It's not for everyone but depending on the area and your objectives, it is absolutely worth it.
It worked out in SoCal when people purchased in 2001 until 2008 happened and people panicked. Real estate is cyclical. If those same people who purchased in 2001 had a decent loan product and if they hung on through 2008, their property's value would have double or tripled by now.
- 3yJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
Hi Michael, I personally believe there are still many deals in the MLS but as investors, we have to look for value add opportunities. Without a doubt, MLS deals here are way more competitive - I personally love Columbus Ohio and as someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. Just a few weeks ago, I helped a client close on a deal getting them 20% cash on cash return. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!
Jimmy Lieu, Red 1 Realty4.9120 Reviews - Chandler, AZ · Member since 2020 · 295 posts · 272 votes3y
I've made plenty of mistakes so take my advice more of a learning opportunity rather than a "this is how you do it".
Appreciation:
My first investment was right after the 2008 crash. Not an ideal entry point. Prices had dropped something like $40k on a slightly more than $200k new home and we jumped in. Appreciation was great in general the prior few years... until we bought the house. Prices continued down and we lost a good portion of its value, eventually the market bottomed out, and then very slowly appreciated again for many years. So many people just walked away and gave the home to the bank. We kept ours. Then shortly before Covid hit, the appreciation went up significantly. There was a slight bump down, but its been going up more recently again. This was not a good entry point but I was inexperienced and have since learned. That's just what the market was like in this area at the time. I bet on appreciation and with my poor timing it wasn't the best. On the other hand, my last investment doubled in value in under 5 years.There are many factors to investing in a property, but appreciation and profit (from rent) are two big components. Appreciation is a bet. And it can pay off very nicely. Appreciation here toward the west coast is a bigger factor than in the Mid-West typically. It is very typical out here to have near zero initial profit from investing in a MLS listed property as a rental. Anything juicy is scooped up by insiders and door knockers and those never hit the market. My neighbor has a real-estate friend. The friend finds the deals and the neighbor manages the rehab and they flip the properties. These never see the MLS until the flip is done. Even in our current high priced market this is happening.
Rent profit out of the gate has historically been more of a factor in the mid-west. Its not my area so I don't know why, but people will pay $1400 a month to rent a $100k property. It doesn't make sense to me, but it seems to be the case. I can't really comment on this except in these areas, the numbers you are looking at usually make more sense.
People need a place to live and if they have a job, their income will dictate the amount they are willing to pay and that will partially dictate values of property. Property values and rent prices can become greatly disconnected here. In my area out in the desert with minimal greenery and dubious water sources, the area has become a mini tech center. Households bringing in over $200k now are common. These are also generally buyers (too live in it) and not renters. 10 years ago, prior to most of the tech arriving, I'll speculate the average household income in the area was under $75k. Houses that were $300k back then are now sometimes in excess of $650k. There are million dollar houses around here. If you buy one of these at this price, is there potential for immediate rent profit? For the most part its no, but 5 years ago I was looking at MLS properties that I could squeeze maybe $100 to $200 a month out of and were selling for $225k (with a substantial down payment also) I thought that was pretty good. Once again, the bet on appreciation is always present here. As tech keeps building, prices continue to rise.
Rent:
Back to my 1st investment and the poor timing, rent was stagnant for a good 10 years at the exact same rate. No joke. The area was on the outskirts of town and was expanding rapidly and then with the 2008 crash. It literally froze for a good 10 years. It really took a long time to recover. We had a decent enough income and no kids so we could afford the $200 a month deficit. About 6 years ago I was able to raise rent and it has been rapidly going up since then. It even has continued to go up over the past year. With a refinance to a good rate a few years back and the climbing rent, this buy and hold property now is performing well.My most recent investment from 5 years ago is also paying double the mortgage. Another buy and hold. Some of my properties I have bought as a primary residence and when I move on, I just hold them and convert them to rentals.
Long story short, not all buyers are assessing a property's value with your numbers. Most are not. Your numbers are valid for your goals, so I'm not telling you to change your formula. Just know you are competing with people who have different numbers and goals. Most home buyers just need a place to live and really aren't calculating in the numbers significantly. Mom and dad with 3 kids and a good paying job come to town having left their million plus dollar home in California probably won't hesitate slapping down 50k or more than you or I are willing to pay on a home if that's what they want to live in. As more and more come in, prices will naturally rise. High interest rates just make it even more difficult. Local renters may to some degree not be able to absorb higher rents ant if the market can't bear it, rents can become disconnected from property values.
- Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes3y
Quote from @Michael Kotylo:
I have no problem offering less than the list price, as long as the # is justified, not just because an investor wants 'a deal' or wants 70% ARV just because, etc. from what you described above, that offer makes sense.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
If you're buying in desirable areas it's only going to get worse. If you're buying in non-desirable areas you can negotiate harder. You can also wait till winter usually and try to be able to negotiate better/more, but it doesn't mean the prices haven't gone up since then so you'd be negotiating down to a mid 2023 price anyways.
This isn't really complicated. Good parcel in city + cost to build or current structure will really only increase. You'll see rents dip, maybe, and especially if we get 5-5.5% unemployment and your market gets hit hard(er).
If you're not an agent or deep in the thick of it, I wouldn't just go around tossing lowball offers left & right. You'll quickly get blackballed. But then again if you're looking for just strictly cash flow, irrespective of anything else go to those markets. Go to Toledo or some place like that.
- Southeast Michigan · Member since 2023 · 23 posts · 13 votes3y
Quote from @Chris B.:
I've made plenty of mistakes so take my advice more of a learning opportunity rather than a "this is how you do it".
Appreciation:
My first investment was right after the 2008 crash. Not an ideal entry point. Prices had dropped something like $40k on a slightly more than $200k new home and we jumped in. Appreciation was great in general the prior few years... until we bought the house. Prices continued down and we lost a good portion of its value, eventually the market bottomed out, and then very slowly appreciated again for many years. So many people just walked away and gave the home to the bank. We kept ours. Then shortly before Covid hit, the appreciation went up significantly. There was a slight bump down, but its been going up more recently again. This was not a good entry point but I was inexperienced and have since learned. That's just what the market was like in this area at the time. I bet on appreciation and with my poor timing it wasn't the best. On the other hand, my last investment doubled in value in under 5 years.There are many factors to investing in a property, but appreciation and profit (from rent) are two big components. Appreciation is a bet. And it can pay off very nicely. Appreciation here toward the west coast is a bigger factor than in the Mid-West typically. It is very typical out here to have near zero initial profit from investing in a MLS listed property as a rental. Anything juicy is scooped up by insiders and door knockers and those never hit the market. My neighbor has a real-estate friend. The friend finds the deals and the neighbor manages the rehab and they flip the properties. These never see the MLS until the flip is done. Even in our current high priced market this is happening.
Rent profit out of the gate has historically been more of a factor in the mid-west. Its not my area so I don't know why, but people will pay $1400 a month to rent a $100k property. It doesn't make sense to me, but it seems to be the case. I can't really comment on this except in these areas, the numbers you are looking at usually make more sense.
People need a place to live and if they have a job, their income will dictate the amount they are willing to pay and that will partially dictate values of property. Property values and rent prices can become greatly disconnected here. In my area out in the desert with minimal greenery and dubious water sources, the area has become a mini tech center. Households bringing in over $200k now are common. These are also generally buyers (too live in it) and not renters. 10 years ago, prior to most of the tech arriving, I'll speculate the average household income in the area was under $75k. Houses that were $300k back then are now sometimes in excess of $650k. There are million dollar houses around here. If you buy one of these at this price, is there potential for immediate rent profit? For the most part its no, but 5 years ago I was looking at MLS properties that I could squeeze maybe $100 to $200 a month out of and were selling for $225k (with a substantial down payment also) I thought that was pretty good. Once again, the bet on appreciation is always present here. As tech keeps building, prices continue to rise.
Rent:
Back to my 1st investment and the poor timing, rent was stagnant for a good 10 years at the exact same rate. No joke. The area was on the outskirts of town and was expanding rapidly and then with the 2008 crash. It literally froze for a good 10 years. It really took a long time to recover. We had a decent enough income and no kids so we could afford the $200 a month deficit. About 6 years ago I was able to raise rent and it has been rapidly going up since then. It even has continued to go up over the past year. With a refinance to a good rate a few years back and the climbing rent, this buy and hold property now is performing well.My most recent investment from 5 years ago is also paying double the mortgage. Another buy and hold. Some of my properties I have bought as a primary residence and when I move on, I just hold them and convert them to rentals.
Long story short, not all buyers are assessing a property's value with your numbers. Most are not. Your numbers are valid for your goals, so I'm not telling you to change your formula. Just know you are competing with people who have different numbers and goals. Most home buyers just need a place to live and really aren't calculating in the numbers significantly. Mom and dad with 3 kids and a good paying job come to town having left their million plus dollar home in California probably won't hesitate slapping down 50k or more than you or I are willing to pay on a home if that's what they want to live in. As more and more come in, prices will naturally rise. High interest rates just make it even more difficult. Local renters may to some degree not be able to absorb higher rents ant if the market can't bear it, rents can become disconnected from property values.
Sounds like you're doing great with your investment properties. Kudos for having the vision to see what others failed to realize and holding that property. There is so much value in your comment. Thank you for sharing your experience and insight, I'm sure a lot of people will benefit from this!
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes3y
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit. Listed for 320k, with rental comps around $2500/mo, which would cashflow negatively ~$500/mo, no thanks! ARV was 400k on this and it was a 1972 time capsule. I offered $280k and everyone acted like I was stealing out of the collection plate at church. I didn't care, I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
I somewhat get what you're saying, but in this market you won't be buying much.
You really have to project forward a little. This specific deal is probably still a pass, maybe not. Would rental comps be higher if you renovated the units? Was that projection based on as is condition?
It's great to say I offered what it was worth as it stands now, but a lot of the time you're going to be passing on opportunities that would be a great deal in 5/10 years with that mentality. IMO too many people listen to podcasts/read articles that focus way too much on the numbers at purchase. Real estate is still a get rich really slowly game. Usually also don't factor in the wealth creation parts of it too when they use most calculators. For instance, debt paydown (by the tenant) increases your equity. In 5/10 years you pull out that equity with a tax free refinance. People say appreciation is speculation, and value appreciation can be, but rent appreciation? Values cycle, swing, etc. Rents generally, just go up. Sometimes slowly, sometimes not at all, but they hardly ever go down. Over the past 100 years there's very few examples of rent values falling drastically. https://www.in2013dollars.com/...
In a market like this it becomes how can I add value to make this property work and then what can I pay given that I am going to be adding value. You don't find a good deal you make a good deal.
Some of the places I bought 5 years ago I know for a fact 80% of the people on these forums would balk at when I bought them. Now they cash flow pretty well and offer a good alternative to my stock holdings. Not to mention I've refinanced all of my initially invested cash out at this point.
I saw some comments that said that they laugh at "below market rents" because the seller is going with a list price for a building with at market rents. That's just not factual, they are being listed based on comparative sales. Similar condition, unit count, etc. It's residential real estate when it comes to 2-4 units. The more units you have the more you can do an income approach, but no matter what you are going to be paying for "potential" in a sellers market. Same goes even for commercial real estate which is usually valued more on the income method.
A lot of the places I bought in the past had way below market rents and I still paid what they wanted. Because I knew that it really wasn't that hard to get the building to market rents. Within a year and easily within 2 you can have a building at market rents and ready to go for the long term. They aren't listing it at a price for a property with market rents, they are charging a price based on a comparative sales analysis. I still pass on a lot of deals too, it's fine to pass, but you also need to consider what you're going to turn it into just as much as what it is currently.
- Real Estate Broker · Atlanta, GA · Member since 2023 · 38 posts · 37 votes3y
Quote from @Michael Kotylo:
Listed for 320k, with rental comps around $2500/mo
How long has the property been on the market? What is the opportunity cost for the seller if they choose to sell to an investor? For a deal to make sense, the metrics must align. In an efficient market where the seller has access to reliable data and professional guidance, the property should be selling close to its real value. With rates pushing margins close to zero, the decision often hinges on an equity play over time. If the property is in a livable condition, it might be worth the acquisition to rent for a few years before rehabbing to flip.
The limited inventory is likely to continue pushing values up despite rising rates over the next few years. I would recommend focusing your attention on off-market homes. Approach owners with empathy and the intention to help, rather than fixating on the numbers. If the value is there, everything else will fall into place for you.
- Member since 2018 · 1k+ posts · 1k+ votes3y
Quote from @Michael Kotylo:
I made an offer this weekend on a property that was priced too high to make a profit.
. . .
I'm not trying to please the world, I'm making a financial decision that will either reward or hinder me.
My offer would have negatively cashflowed -$1/mo, however the appreciation and equity would have made up for no cashflow so I was comfortable at my offer price. I don't see how anyone was going to make money on this one, so it must have been owner occupants making emotional decisions.
Is anyone experiencing something similar?
Lemme get this straight: You want to belly-ache that an owner wasn't stupid enough to leave money on the table for you to pick up. The owner is the same as you -- he wants to "make a profit" and is "making a financial decision that will either reward or hinder [him]."
So if the owner is "making emotional decisions," then you're doing the same thing, amIright?
The owner wants to capture the appreciation and equity just as much as you do (you to overcome your negative cash flow, him to fully realize a return on his investment) but he can only do it in the sale price.
The market is the market. Everyone in it is irrelevant, including you, me, owners, sellers, renters. The world -- and the market -- doesn't care. Once I learned that, life got a lot easier to live.
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