Meet with seller first or letter of intent?

Question

What have you guys found is the most efficient way of making offers?

Is it better to set an appointment to meet with a seller and negotiate the price down and try to fill out the contract right then and there?

Is it better to just tell them you are going to send them a letter of intent and make a lowball offer that way?

Is it better to negotiate the price over the phone?

What is the exact method that you have refined and turns out works the best?

Michael Rossi · Answer

Hi Charles,

I'm holding all my deals as rentals, so I use both a cash flow analysis AND the 70% rule (I'm currently using 50% due to the downside risk in the market) to determine the price I can pay if the house is in good condition.  If I see the house and it's not in good condition, then I simply tell the seller that the house isn't in good condition and $XX,XXX is the most I can pay.  This is NOT a negotiating tactic.  I will pay the original amount IF the house is in good shape.

The whole thing boils down to KNOWING your market.

Mike

Jeff Fairchild · Answer

Im in Vancouver, WA, just north of Portland, OR.  It's a buyers market but homes are still appreciating 3% per year here.  So I'm guessing that it would be a little harder to find homes than in some areas of the country where they aren't going up, maybe even down.

It almost seems as if some of you guys are saying that you do a lot of your negotiating on the phone before you even visit the sellers in person.  Now that I think about it, its probably because you have 10 different lead sources sending you tons of leads and you can't waste any time.  But for me, I haven't even started yet and don't have any money for advertising.  So I'm thinking of calling sellers out of the classified ads and using realtors as my two main strategies at this point for my first deal.  I've been told to find some 3 month old newspapers or something and look for sellers there.  Where would I find newspapers that old?  Is this a good thing to do?

I also read about a strategy of having your real estate agent make a bunch of lowball offers for you.  What about that one?

Thanks,
Jeff

Michael Rossi · Answer

Jeff,

If you find a great deal, by the time you put your letter in the mail, an experienced investor will already have bought it.  When people call me to offer their houses, I simply ask what they want for it.  I KNOW my market so I know what the price needs to be.  If they quote a higher price, I say "the most I could pay for your house in good condition is $XX,XXX."  If they don't want to sell at that price, I simply say "call me if you change your mind".  Many times they do change their mind and I buy their property.

If they agree to my price (which is at a BIG discount), then I immediately drop what I'm doing to go look at it.  I spend about 15 minutes walking through it and then I buy it on the spot if the numbers are right.

That is why you can't afford to send out letters.  You'll miss almost all the good deals by doing it that way.

Mike

Tom McGiveron · Answer

jeff,

where are you located?

this has alot to do with the ability to do what Mike mentioned.  notice the "$XX,XXX"...i think mike is located in Ohio.

you might be able to make an $XX,XXX offer - but if  you're located in say, Long Island NY - you're offer will have to be $XXX,XXX for starters...

also - if you're in a place where the market was very good, sellers (about 95% of them) will be expecting A LOT  more than what you'll be willing to buy it for.

talking to the owners in person is definitely a good way - like mike said - once you've established the ballpark price you'll pay - otherwise, letters and driving to houses is a waste of your time, gas and ultimately - money - cuz it all breaks down to money either way.

in my experience - letters of intent are a waste of time, especially if you're sending them to real estate agents.  forget it.  lowball offers like that won't see the light of day (in a semi-decent market).

in depressed markets - do whatever you think will ultimately get you in the door, to contract and to closing.  it's all stages.

find the RIGHT properties
make appointments or send offers (consult attorney).
negotiate (consult attorney).
sign contract (")
review closing documents (")
constant follow ups - stay on top of things
close (")

then implement investment exit strategy.