How much above asking price would you go?

Question

Asking price is 520k for 4 family unit. Did the whole check up and only small cosmetics work need to be done. But it's a hot property 20 min from Boston.  Average comps for this location is 450-500 but I want to close it and buy it. Should I offer 540k and get or just wait it out.

Joe Villeneuve · Answer

None of the above.  If the property comps out at $500k max, and you are thinking about offering $540k, and you follow this up by saying, "...but I want to close it and buy it", you are making two big mistakes:

1 - You're getting emotional about a property2 - You're focus is on getting the property, and not where it should be...on the deal.

You don't want properties...you want deals.REI is a simple math problem.  Emotions should never be part of the equation.

Sometimes the best deals you make, are the ones you don't.

Bryan Devitt · Answer

This isn't a magic question and answer, it is math. With rents at market rate, adding the cost of work needed to get them to market rate and with the % of ROI you want to make on the deal, how much should you spend. No one can tell you what you should spend if they don't know anything about the math of the property

Bill Plymouth · Answer

@Klaycon Santos I agree with @Joe Villeneuve.  You’re thinking more about getting a property than you are getting a deal.  If you continue buying this way, you’ll be screwed when a correction comes.

Also, keep in mind, there is a difference between “asking price” and “value”.  Sellers want the most money for their property.  Some ask for unreasonable prices.  It doesn’t mean the property is worth that price.  It doesn’t even mean it will sell for that price.. Stick to the data the comps display, and DONOT overpay.  Investors look for deals.  Not properties.

Joe Villeneuve · Answer

Don't be so anxious to buy...without being prepared.  You wouldn't think of jumping into the ocean in order to get to an island with a party on it...if you couldn't swim, would you?

Get prepared first.  Learn:

1 - Market analysis2 - How money works3 - How to design, and stick to, a REI Plan

...and understand that all three of the above MUST work together to be successful.

Joe Villeneuve · Answer

Take word for word what Bill wrote here, put it in a frame, hang it on your office wall...and read it every day to remind yourself of its wisdom.

Jaron Walling · Answer

After reading this thread it reminded me of my friend who just purchased his first house. He DIDN'T FOLLOW any of these rules, got emotional, and paid $5k over asking. His agent convinced him it would sell quick with multiple offers.

Some people just want a house. They don't care about deals. They invest in time, a 30 year fixed rate, and hope for appreciation.

Timothy M. · Answer

I disagree with some things Joe says, but he's spot-on right here, Lien, and respectfully I think your math needs some work.

If you pay an extra 10k-40k for the property, you:

1) have to put down an extra 2.5k-10k;

2) and you have to pay interest on an extra 7.5-30k.

Thus, your cash flow ABSOLUTELY changes. The equation is quite simple, no? Cash returned via rents / cash invested = simple cash-on-cash calculation. Your suggestion would make the numerator lower while increasing the denominator.

In every world this is a mathematically inferior situation to paying less for the property, unless you are willing to gamble that the 10-40k is a drop in the bucket because the place is going to explode upwards in value...? Even then, your cashflow is demonstrably affected.

Peter Roehrich · Answer

@Klaycon Santos I would start with your end point and work backward. How much do you need to get out of it? How much will you need to put in to it? Will $540k work with those numbers? If yes, then that may be the route you want to take? Question though: $540k is $40k over the high end of the comps - what about the property makes it worth so much more?

Theresa Harris · Answer

@Klaycon Santos  If the comps are $40K below, what makes this house special?  In real estate, you make your money when you buy it.  Buy it so the numbers work, don't make the numbers work.  At $540K, do the numbers work as a rental and thinking of resale later on?

Account Closed · Answer

real estate investing is a business. Congrats on finding the property. Run the numbers and they will tell you the price. It might be a rip off, it might be a steal, it might be just right... FOR YOU. For another investor the numbers will be different for them. Good luck.

How much above asking price would you go?

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