Low Ball Offers: How Low Have you Gone?

45 Replies

Hello Everyone,

I was looking at some properties and the numbers (based on the price and current rent) don't work for a decent ROI greater than 8%.
If the property was $20,000-$30,000 cheaper the numbers would work (8% ROI). Is that too low?
Have you offered a lot lower than the asking price? How much lower have you purchased a property for?

This will be my first property, would you suggest getting a property that has a decent ROI or would you recommend just getting a property that cash flows (say 4-5%ROI) so that I gain experience? I've watched Brandon Turner's videos and he wants a minimum of $100 per door, is that a minimum you go for as well?

Thanks

Some houses don't work as rentals plain and simple. Unless a house is overpriced and has been sitting on the market for months, it is unlikely that an owner will take an offer 8% below market value.

As for price per door, that is subjective.  You can get $100 per door by putting more money down, but that really isn't $100 per door.  It also depends on what you are renting it for-$100 on a place that rents for $500 vs $2000/month is very different return.  I don't focus on price per door, but on the house, expenses and rent I can get.  I'm in it for the long term.

@Theresa Harris

Thanks Theresa for the advice. Where I'm looking (in Ontario, Canada), you can legally only increase the rent by 1-2% per year. I'm guessing that the tenants have been there for awhile and the landlord was unable to raise the rent more. I might just wait a few months and see if it's still on the market

Originally posted by @Drew Bursey :

@Theresa Harris

Thanks Theresa for the advice. Where I'm looking (in Ontario, Canada), you can legally only increase the rent by 1-2% per year. I'm guessing that the tenants have been there for awhile and the landlord was unable to raise the rent more. I might just wait a few months and see if it's still on the market

 Sounds about right. I have places in BC and it is the same thing. When you get turnover, you can increase the rents more.  Not sure where you are looking in Ontario, but try cities other than Toronto.  Also if you are not Canadian (it says you are in Australia) look at the non-resident speculation tax.  It applies in parts of Ontario and is 15% of the purchase price.

The lowest I have bought was 50% below list - I paid $50k for a house listed at $100k. Cash deal from an estate. 

There are lowball offers as a perception by the seller, meaning they are priced too high and it is not a lowball offer at all, but is low compared to their high list price and those are fine. It's how you eventually win. Then there are lowball offers that make no sense. Like ones in a hot market or ones when a property hits the market on the first day. A low offer is best made after a property has sat around for a while and when you can document all the issues with the property as a reason for your perceived low offer. Spamming low offers as a strategy is not a good one right now, most markets are hot so it's just a waste of time.

Originally posted by @Drew Bursey :

@Theresa Harris

Thanks Theresa for the advice. Where I'm looking (in Ontario, Canada), you can legally only increase the rent by 1-2% per year. I'm guessing that the tenants have been there for awhile and the landlord was unable to raise the rent more. I might just wait a few months and see if it's still on the market

Why Ontario?  Are you living there or still in Australia? 

 Ontario has one of the worst purchase price to rent ratio in North America

You miss 100% of the shots you dont take. I'd write the offer, especially if it was for my first property. It wouldn't hurt to start a dialogue with the seller/agent if it's been listed for a while to see if maybe they would be interested in something creative to make a deal.

Originally posted by @Drew Bursey :

@Hai Loc

I'm looking at smaller towns south of Ottawa Cornwall, kemptville etc.

Right now I can't purchase a house in Australia. You have to be a permanent resident to buy a house.

 Look at other provinces that don't have non-resident speculation taxes.  That adds 15% to the purchase price.  Southern Alberta (Lethbridge), Saskatchewan and other areas have a lower entry point and good markets.  They may not all appreciate as much as ON, but they are good.

I made a verbal offer today $130k below ask and was promptly hung up on :). We have been steadily buying 3 to 4 properties a month in Phoenix at 6% or better cap rates for our clients all year and this property was being offered around a 4.5 cap. This particular property has been sitting for 2 months. In our market that means the price is too high. I attempted to give the agent some context into our number calculations and how I arrived at my offer but he didn't want to hear any of it. He's been in multifamily real estate for 20 years and knows everything so what can I say? I agree with @Stephen VanMeter - you miss every shot you don't take. I've been staring at this property on the MLS for two months wondering what the deal was. Now I know. Pick up the phone and call people. Buyers want to buy and sellers want to sell. At least most sellers.

Don't make a lowball offer. Look at the deal, see what it would take to make the investment work, and then make that offer. If the seller or agent questions it, then you have your reasoning to back up the offer. 

If they laugh it off or hang up on you - let it go... Move on to the next one, and follow up with them in a month if the house hasn't sold. I agree with @Jonathan Greene - if the property has just hit the market, they aren't going to accept much below listing price. But time changes everything...

@Drew Bursey

There was a duplex listed for 275. Price dropped to 225. I offered 180. It was accepted. Then down to 162 after inspection. Also accepted. It appraised for 215. But that usually doesn’t happen :).

@Drew Bursey

Yeah it is a numbers game with very low odds. That deal was about three years ago! You just have to find the right motivated seller. Usually it will be a distressed property that turns off most retail buyers, and probably one that has been sitting on the market for a while. Good luck!

@Drew Bursey

The way I look at it. When you put in an offer no matter how low, the response you get will either be

A yes (nice)

A no (find another)

A counter (moving in the right direction)

After I run numbers on a property and get an estimated mortgage/insurance/expense and compare that to what I can get for rents I get a number which is the most I would pay for a property and start my offer lower than this to leave room for negotiation.

My 2 deals

1st was a triplex original listed price 395k, it was listed improperly as a single family for 6 months. The day they changed to multifamily they dropped price to 330k I came out and asked if they were flexible on the price and they told me to send an offer. The numbers worked at 310k but were much better at 285k. 285k was the max I was ready to go. I offered 268k and we settled at 275k with 5k sellers assist.

60k under asking.

2nd was a duplex original listed price 240k my numbers worked at 215k. It was on the market for 2 months. I was not going to exceed 210k. My first offer was 180k we settled at 205k with 10k sellers assist.

45k under asking.

Not an expert but my advice is to not fall in love with any properties, set your price based on what works for your numbers and dont exceed that price. The worse thing that happens is they say no. A house is only worth what it sells for not what they are asking.

One of my favorite books that helped frame my mindset in this art of negotiation. Is Never Split the Difference By Chris Voss

Hope this helps good luck!

@Drew Bursey

I don’t see anything wrong with lowballing. My last two primary homes i lowballed and won.

$116k, offered $80k, got it

$214,900, offered $150k, got it at $187,500 and they paid $10k of my closing costs.

@Drew Bursey

If you can form some rapport with the seller through door knocking or cold calling then you can figure out what they need to walk away. Perhaps if they’ll retirement age they’ll even owner finance so they can get $800/month for 15 years instead of $144,000 now.

@Drew Bursey I think the context in every deal is important. 

The days on market is probably the most important factor in how low I will go. If it's been listed for sale for 9 months in a hot market then it's obviously vastly overpriced. I offered 750k for 4 office buildings listed for 1.25MM last year and didn't feel bad at all about my offer. I ended up paying 800k as they had been listed for sale for over year.

The signs of potential motivation are there on every property. Look for those and adjust your offer accordingly. 

After building rapport with an owner I found that just got the house back through forfeiture (failed seller financing) I offered and purchased at lot value  ($23,471) after being given permission to insult him. I put financing on it a year later with no work of $106k long before brrr was a term or BP was invented.  

Same with an owner that just went through an eviction. Find someone that's had it and get permission to insult them.

Firing off low-ball offers with lots or zeroes randomly on the MLS will hurt more than help you IMO unless the DOM is ridiculous.