Making your offer count

12 Replies

Hi guys. I’m browsing around properties in my area looking to make my first deal. I’m using the bigger pockets calculator and trying to figure out if it’s a good deal with the numbers and trying to hit that 12 percent ROI with some positive cash flow. Do we just assume that the offer price is a starting point and we’re going to need to offer much lower than that? Because Rarely with the houses I’m finding under 200 and with the rent am I getting the numbers right at list price. Do we just send in low offers and hope something hits?

@Brian N.

Not all markets can generate positive cash flow. A and B areas are harder to generate cash flow because more people own rather than rent. It's easier in C and D areas because a larger portion need to rent, which pushes up rent rates.

12 percent cash on cash return is not very realistic when you're starting out. It's usually just hoping to break even to maybe $200 to $300 positive cash flow each month.

Rentals do not take low ball offers. Why should they when they are generating cash?

You can put in a low offer on a distressed property to flip because the owner is in a financially distressed situation.

So, where do you find deals in an expensive market? Sometimes you can't and you have to look elsewhere.

The other option is to catch a rental property that has a lot of deferred maintenance because the owner has let it go and doesn't have the cash to upgrade it and raise the rents. You can take if off their hands cheap, finally give it the refresh that it needs, and the bring it back to market rents.

The other option is to find a distressed owner occupant property, buy it low, upgrade it and then rent it out.

Another option is that many big investors redo their portfolio every so often when they no longer get the depreciation benefit on a property. So, they'll unload it to move the money into something else.

You're looking at this backwards.  You don't make offers based on what it would take to get the property.  You make offers based on what it takes to get the deal.  Huge difference.  The offer you make is based on your numbers...regardless of what the asking price is.

I agree with @Joe Villeneuve , remember you are making an investment not in the hopes of your defined and desired return but your demanded return. It's an investment. You are not trying to load yourself up with properties. If I could find a deal that would pay me 120% I would only make that one deal why work so hard to have to make 10 deals. 

You should be working smarter not harder. Why get into 100 properties if your average return is going to be only 3%. You would do better and have to work much less if you simply invested in bonds. 

Never lose track of the fact that you are a real estate investor not a real estate collector. 

No deal is better than making a bad deal. 

It is not enough to simply be an investor. You should do everything you can to act like and be a smart investor. I would recommend you review all of Joe Villeneuve's posts. He is level headed, focused, and smart as a whip. He knows how to go about real estate investing the smart way. Learn from him. If we all emulated Joe Villeneuve we would all be smart investors, now that would be an achievement wouldn't it? For all you newbees, if you want to succeed in real estate investing with deep understanding then do like Joe, simple as that. I vote for Joe Villeneuve for President:)

Originally posted by @Gilbert Dominguez :

I agree with @Joe Villeneuve, remember you are making an investment not in the hopes of your defined and desired return but your demanded return. It's an investment. You are not trying to load yourself up with properties. If I could find a deal that would pay me 120% I would only make that one deal why work so hard to have to make 10 deals. 

You should be working smarter not harder. Why get into 100 properties if your average return is going to be only 3%. You would do better and have to work much less if you simply invested in bonds. 

Never lose track of the fact that you are a real estate investor not a real estate collector. 

No deal is better than making a bad deal. 

It is not enough to simply be an investor. You should do everything you can to act like and be a smart investor. I would recommend you review all of Joe Villeneuve's posts. He is level headed, focused, and smart as a whip. He knows how to go about real estate investing the smart way. Learn from him. If we all emulated Joe Villeneuve we would all be smart investors, now that would be an achievement wouldn't it? For all you newbees, if you want to succeed in real estate investing with deep understanding then do like Joe, simple as that. I vote for Joe Villeneuve for President:)

 LOL.  First, thank you...however I'm not running for office.

Second, this post is a very good summary of the importance between a "property" and a "deal".

Third, my summary would be - "Sometimes the best deals you make are the ones you don't.  The numbers don't lie...so don't argue with them...you'll lose every time".

@Brian N. , buying is often a numbers game. When I trained investors I used to tell them to make 100 offers a week. Expect 10 of those to counter back and out of that 10 you would buy 1.

There are so many reasons why people are selling sometimes you have to keep digging till you find the seller for whom price is not the main issue.

And it;s great practise!

Originally posted by @Dean Letfus :

@Brian N. , buying is often a numbers game. When I trained investors I used to tell them to make 100 offers a week. Expect 10 of those to counter back and out of that 10 you would buy 1.

There are so many reasons why people are selling sometimes you have to keep digging till you find the seller for whom price is not the main issue.

And it;s great practise!

 That 100/10/1 plan has always bothered me.  It's totally impractical for a new investor, and unlikely for an experienced one too. Time wise, how does an investor analyze 100 individual properties a week?  There is a way you can do it though,....thoroughly.  

Let's say it took 30 minutes on average to analyze each property.  That's 3000 minutes a week, or 50 hours a week.  Most new investors have full time jobs, so add 40 hours a week there plus drive time to and from work...conservatively 2 hours a day = 10 more hours.  We're now up to 100 hours a week.

Now they have to make 10 offers, at 2 hours per offer (calculating the offer, communicating with the agent, negotiating, countering, inspecting the property, etc...)...that's 20 more hours.  New total = 120 hours per week.  Closing on the one offer = 1 hour.  New total = 121 hours a week.

There is a total of 168 hours a week (including the weekend).  This leaves 47 hours to eat, sleep, etc...or, less than 7 hours a day.

Like I said above, I can do it, but that's because I analyze markets instead of just properties.  By analyzing Markets, you are analyzing every property in that market at the same time.  This means I can analyze 1000's of properties in the time it takes to analyze 3-4 individual properties.

@Joe Villeneuve , it's really the principle that is valid in terms of needing to make offers to ever buy anything. However I don't analyse deals before I make offers. Once I get a counter back then I analyse those 10 only. As the OP is trying to get low ball offers accepted basically my strategy is to be trying to buy 100 houses for 50K in a 90K street/suburb and see if anybody bites. So in that sense, like you, I am analysing a market and trying to buy well under current market values.  And of course one can make 10 offers a week and on average one will counter. The principle is sound in my experience.  I have had many periods where I was making more than 100 offers a week. 

Originally posted by @Dean Letfus :

@Joe Villeneuve, it's really the principle that is valid in terms of needing to make offers to ever buy anything. However I don't analyse deals before I make offers. Once I get a counter back then I analyse those 10 only. As the OP is trying to get low ball offers accepted basically my strategy is to be trying to buy 100 houses for 50K in a 90K street/suburb and see if anybody bites. So in that sense, like you, I am analysing a market and trying to buy well under current market values.  And of course one can make 10 offers a week and on average one will counter. The principle is sound in my experience.  I have had many periods where I was making more than 100 offers a week. 

 I agree 100% with your application of it, but that comes from experience of how to do it.  We both have our own ways of executing the 100/10/1 plan.  It can be done, but not without a practical plan of how to execute it.

I remember one of the early seminars I went to, where I heard this idea for the unteenth time.  Someone raised their hand and asked, "how much time do you think we have?".  That got me to thinking (there's my first mistake), and I ran the numbers applied to time, and came to the conclusion I better put a plan together to make it happen.  As you said, "the principle is sound".

@Joe Villeneuve , the other thing I think is critical is to decide if investing is a hobby or a business. If it's a hobby I suggest one takes up guitar or line dancing instead, but if it's a business then opportunity usually comes dressed in overalls cleverly disguised as hard work.

Originally posted by @Dean Letfus :

@Joe Villeneuve, the other thing I think is critical is to decide if investing is a hobby or a business. If it's a hobby I suggest one takes up guitar or line dancing instead, but if it's a business then opportunity usually comes dressed in overalls cleverly disguised as hard work.

 Love it.