Offer on a multifamily well below asking price

14 Replies

I am interested in putting an offer in on a property. The current rents can support 2800 gross per month for all 4 units. C class unit with some deferred maintenance that will have to be addressed on a ten year time line. Asking price is 335k which is high by about 35k at least in my opinion. My question becomes, do you place an offer that is much lower than the asking price and just see what happens? Or do you talk to the agent first to see if it is even worth it? I don't want to make any enemies as this is a small market but the prices i am seeing are just way over the 1% rule and honestly don't make any sense as i run the expenses on some of these properties. As a general strategy, is it poor form to throw in a low ball offer or place an offer with the intention of finding something wrong that will allow you to retrade the deal (i know this is questionable)? Really tired of just passing up deals because the numbers just don't make sense and want to start getting in the game. Thanks in advance for the help, all.

Hi Kyle, I would speak with the agent first to be respectful of everyone's time. I would also explain why you think the property is $35k to high. In my experience a reasonable explanation builds you're credibility and lowers the chance of the other party being angry.

Go ahead and put in that low ball offer, you never know what the seller is ready to accept. They might be fed up they might know they overpriced it, most sellers expect some negotiation. Plus you shouldn't be getting every offer you put in accepted, hell I would say if your getting over 10 percent of your offers accepted you are definitely offering too high! You are not in this game to make people feel great about there asking price your goal is to make money offer accordingly!

It depends on how motivated the seller is to unload this property. If they’re tax delinquent, preforclosed on, trying to make a quick sale for a 1031 exchange, or any other scenario that would make them highly motivated, then your lowball might be enough to make a deal.

Originally posted by @David Worker :

It depends on how motivated the seller is to unload this property. If they’re tax delinquent, preforclosed on, trying to make a quick sale for a 1031 exchange, or any other scenario that would make them highly motivated, then your lowball might be enough to make a deal.

Unsure of the sellers motivations but this is a good angle to look at the deal from. Is the landscape tough for everyone? I am in the middle of Wisconsin and prices seem crazy here even.  

The MLS in Springfield, IL isn’t that thrilling to me. When I’m ready for another property, I will probably direct mail some properties that are distressed. I would like to find lists of pre-foreclosures, tax delinquent properties, probate sales, code violations, and inheritances and contact them too.

Originally posted by @David Worker :

The MLS in Springfield, IL isn't that thrilling to me. When I'm ready for another property, I will probably direct mail some properties that are distressed. I would like to find lists of pre-foreclosures, tax delinquent properties, probate sales, code violations, and inheritances and contact them too.

 Do you reach out to your local county court for the pre foreclosure and delinquency information? How would you find the other types of distressed properties you highlighted? 

Distressed properties- I drive around and look for properties with overgrown grass, overstuffed mailboxes and other signs of neglect
Code violations- municipality
Tax delinquent- county
Inheritance list- usleadlist.com
Probate sale- county

I got these list ideas from episode 176 of BiggerPockets Podcast with Tom Krol. He goes through the 9 lists he uses for direct mail. It’s a great episode!

Originally posted by @Ron Fletcher :

Is this deal even gonna cash flow anyway?

 If I bought it for 300k I would have positive cash flow. It would be below my 10% yield I am shooting for though. I have no idea about the condition of the property though so that will have to come out in the inspection. I’m worried about cap ex killing my cash return throug year ten, butnwont know specifics until I get the inspection done. 

Originally posted by @David Worker :

Distressed properties- I drive around and look for properties with overgrown grass, overstuffed mailboxes and other signs of neglect
Code violations- municipality
Tax delinquent- county
Inheritance list- usleadlist.com
Probate sale- county

I got these list ideas from episode 176 of BiggerPockets Podcast with Tom Krol. He goes through the 9 lists he uses for direct mail. It’s a great episode!

 Awesome info, thanks!

@Kyle Garro I usually call the other agent (listing agent) to get a feel for the level of motivation and what terms are important to the seller. This get's often overlooked. I just got a deal accepted on a residence where the current owner is moving into assisted living on July 15th. Their future home is not going to be available until then, they would be sleeping in a hotel, so the closing time frame was incredibly important to them. So my questions always is: other than price, what else is important to your client? And then shut up and wait. Some agents will tell me more than you would believe. Then you can structure the offer accordingly and know that you have a high probability of closing the deal. Sometimes it's better to wait. However, be aware - even if the numbers are not quite good enough for YOUR expectations, the question is, are they going to work for someone else? Because then they will buy it before the seller's motivation has increased enough. That's the issue with buying rental properties in 2018, you can't look at deals through a 2017 (or a 2012) lens on pricing. While we are advancing in the market cycle and are now certainly in the second phase of the seller's market I don't quite see the turning point on the horizon. The supply demand equation is just shifted too far to the demand side and it will take years to re balance that. The only segment I believe we are close to supply meeting demand is the 5 star luxury department market in downtown Milwaukee. And even there I might be too conservative depending on the impact that Foxconn might have on the Milwaukee metro market.

Agree with everyone i do verbal offers first to save time 

@Kyle Garro I would talk with the agent about your reasoning and find out the seller's motivation. $35k off on that price is not all that much. Even in this market, I am often 10%+ off on the asking price. I typically don't get the offer accepted, but some do stick. I would also suggest telling the listing agent that you would some in $45-50k off the list price, so you have some room for negotiation. 

@Kyle Garro I agree with most of the people on the forum, find out the motivation and ask the agent straight up if there is wiggle room on the price. As @Marcus Auerbach said, you'll be surprised what the agent will tell you, after all they want to sell the property as well. There's always room for negotiation especially when you're not in a multiple bid situation. Also many times there are other terms that are more important to a seller than just the price, I have an example of a deal where the seller was set on not having a financing contingency, and was willing to give me a 25% discount on the deal (she had another offer on the deal at full list price with a financing contingency). 

Long story short we did the deal, saved the money, got the financing done any way because they gave us 90 days to close. If you've done a few deals, have good credit worthiness, and a good relationship with lenders you know you'll be able to get financed.

Last but not least you mentioned that you want to stop passing on deals just because the numbers don't work and "just want to get a deal done." I understand your frustration, I was the same way, BUT numbers are EVERYTHING. Some big real estate investment firms underwrite 1000 deals per MONTH and will only close on 7 or 8  in an entire YEAR. So be patient, look at a ton of stuff, and pick the right deal! Sounds like you're already on track. Good Luck!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here