My first offer letter - deal analysis

6 Replies

Just made my second off-market offer, first offer letter. The first time I went over to the seller's house with a bunch of spreadsheets and walked them through it for about 30 minutes..this time I'm using a letter and sending via email. Context is, they've already had an appraisal that put the home value at $88k, it was the grandfather's who left it to his three elderly children, who picked one granddaughter as the executor. She told me a realtor had suggested she start at $88k, but she was okay negotiation on it as long as she sold it for 'market value.' Please let me know what you think..Thanks!

Dear Ms. XXXXs,

Thank you for letting me make an off-market offer on your family's home. My offer for XXX Massie St in Lexington VA is $66,000. I plan to renovate the home and rent it out through a local property management company and this offer is contingent on obtaining financing through Cornerstone Bank, which will take from 30-45 days.

While this offer is probably lower than what you would ask for if you were to list XXX Massie, selling it to me off-market provides the following benefits:

No agent commission - You will save anywhere from $4,000 to $5,000 on agent commissions.
No contingencies besides financing - I am buying the home as-is. Even if you list the home in as-is condition, many buyers will still try to negotiate home inspection/repair contingencies into the contract, wasting your time and holding up the sale..I am offering a pure as-is purchase.

Relatively quick financing - due to COVID and the massive numbers of small businesses seeking loans in response, many lenders are overwhelmed and delaying lending actions. I’ve been pre-approved by Cornerstone for this amount. The 30-45 day timeline is what they require to go through the actual lending mechanics.

Security - there is significant upheaval in the real estate community due to the market uncertainty caused by COVID. The expectation is that late fall will be the earliest that we expect to see some stability and more predictability, with the possibility that these conditions extend well beyond. By selling to me now, you are offloading that risk to me and you don't need to worry about future market drops and their effect on your ability to sell the home.

My requirements for a property include two primary factors, it must return over $100 a month in net profit, and that net profit must represent at least an 8% return on any personal cash that I’ve invested. I came up with the offer price through the following analysis:

Purchase $66,000

Renovation +$60,100

Closing/holding costs +$8,300

Total costs $134,400

After-renovation financed -$116,000 ($145,000 home value * 80%)

Personal cash expenses $18,400


Anticipated rent $1,250

Monthly mortgage -$678 ($116,000 at commercial terms - 5% and 25 yr)

Monthly operating costs - $448 (management, insurance, taxes, maintenance, etc)

Monthly cash flow $124

                        x12 months

Annual income $1,488

÷$18,400 (personal cash invested)

8.1% return on investment


Thank you so much for your consideration and allowing me to look at, and make an offer on your home. Regardless of you and your family’s decision, it was a pleasure to meet you and your mother and I wish you both the best!

Respectfully,

Ryan Braman.

I think it sounds great, everything flows nicely and it comes off as very genuine. However I would be interested to hear what others think about the deal analyst portion, I feel like that may be to much info for the seller. I wish you the best of luck and I hope this deal works out!

Thank you @Cody Barna I had a couple great conversations with the granddaughter and her mom that helped make everything in that letter authentic. I've really wrestled with trying to make offers that fill my need to provide for my family, but that also fulfill the needs for the people who have to let go of family homes and all the emotions and memories that entails. This has not been easy for me, I'm finding that I don't have nearly the detached perspective needed to do this on a large scale..conversations with the owners and building a relationship seems to be my stronger suit.

I agree on not adding in the additional calculations and maybe even not including what your personal goals are with your investing.

Obviously it needs a lot of work with that rehab budget. I'd further customize the response highlighting some of those repair areas as having added risk once you get behind walls, etc.

All retail buyers will want inspections and I'd explain to the seller that properties like this can tend to sit with greater days on market and if a quick sale is appealing, you can guarantee it. Good luck!

No worries Ryan, that's definitely a valuable trait to have in order to build rapport with potential sellers. Sounds like you just need to find the right partner that will mesh well with your personality.

Hi,

I am new to offer letters but I was wondering why you put your requirement of needing at least an 8% return on any personal cash you've invested. Because you only have a financing contingency, what is the purpose of stating the numbers and your ROI?

Just a bit confused! Thanks.

Good question @Jimmy Lieu , they had an appraisal that was less than 6 months old and didn't seem to be in a big hurry to unload the property..so they weren't really motivated sellers. I felt like I needed to put extra attention into walking them through how much it would cost to get the house to either resale or rent condition, so they understood why my offer was so much lower than the appraisal and so they would understand the cost involved if they decided they wanted to go that route themselves. I spent a good bit of time on BP looking for tactics on how to approach sellers who aren't motivated...this seemed to be a common approach. I probably wouldn't do the same thing if they were motivated.