Hey BP community,

I am getting outbid on on-market properties in the Pierce County, WA area, particularly in Tacoma and Spanaway. 

Is it too much to ask what buy formula buyers are using to put in their offers? I currently am taking 70% of ARV minus the estimated rehab cost to get my MAO and it tends to be way lower than other buyers/investors making bids.

How are other investors coming up with their offers?

What factors do you include in determining your buy formula? 

Thanks!

@Simon Y Kim What is your goal with this purchase? What kind of property are you looking for?

I'm new to the area and recently bought a duplex in Spanaway. Finding cash-flowing on-market properties in the area was tough so I conceded my goal to find something that would break even (in year 1) just so I could get started with REI and start learning. I had to bid pretty high. It looks like the right formula, but it will probably be tough to find unless you go off-market.

There are some more experienced investors out there, though, so I'd be curious to read what they think.

@Jack Carda Thanks for your response. Good to know someone else is going thru something similar. Rental is a great way to start! 

The goal is to fix and flip for a profit and I am partnered with a seasoned investor in AZ who wants to make a 15% minimum on profit to even take on a project. I am sure I can get an off-market lead using that formula. I’m just wondering if buyers are taking a cut on profit to make higher bids. I made a lot of offers in the past two weeks on on-market deals but lost to a higher bid and a waiving of inspections. Pretty tough out here, I’m not gonna lie. 

I’m also waiting on what other investors with skin in the game think about this too. 

Waive your inspection, and if you don’t feel comfortable waiving your inspection spend more time with rehabs until you do. 

On market deals are hard enough as it is, and if you come in with full contingencies you can write offers at 70% ARV until your hand falls off and not one of them will be accepted.

You should play to your strengths in every offer- sounds like your partnering with an experienced investor- is he/she the money partner and mentor, or something else? If they’re the money partner, does that allow you to offer cash or waive the financing contingency (aka “as good as cash”). What are the skills and work that you’re bringing to the table? 

@Michael Haas  thanks for the input. I don’t even have a full flip project under my belt yet. I don’t feel confident enough to do quick walk-thrus and waive inspection. 

My partner is a mentor/money partner. He is looking for deals that’ll profit 15% and he will help me navigate through the process of fixing and flipping a property. If I get a deal meeting his criteria, he will be funding the whole project and I will be directly learning and working with him on the project.

And yes my offers are always ALL-CASH allowing me to waive financing contingencies, inspection contingency of 10days or less, buy AS-IS, close 30days or less, and even directly have the listing agents write up my offers if they so choose to. 
The only skill I’m bringing to the table would be my enthusiasm to put in the work and learn the game. 

You seemed like a seasoned investor. Do you have any suggestions? 

Originally posted by @Simon Y Kim :

Hey BP community,

I am getting outbid on on-market properties in the Pierce County, WA area, particularly in Tacoma and Spanaway. 

Is it too much to ask what buy formula buyers are using to put in their offers? I currently am taking 70% of ARV minus the estimated rehab cost to get my MAO and it tends to be way lower than other buyers/investors making bids.

How are other investors coming up with their offers?

What factors do you include in determining your buy formula? 

Thanks!

There’s no “one strategy fits all” buying formula.  What you offer and what you want to close for should be determined by your specific / unique strategy and investment goals.

For example, if your goal is to generate $400 in cash flow per month, you create an investment analysis in excel (using APOD; Annual Property Operating Data template; CCIM) and know exactly (or verify close) to the max you can pay.

Because every investor will have differing goals and strategies, they’ll be willing to pay different amounts for a given deal.

No other investors matter when acquiring a deal.  Developer your own goal, strategy to achieve it, and make sure every actual you take furthers accomplishing that goal.

If you don’t find deals meeting your criteria, look elsewhere or keep making offers until you find one.  Never be desperate to close a deal.  If it doesn’t meet your criteria offer what you can to meet your criteria and be willing to walk if it doesn’t or seller won’t agree your price.  Real estate markets are cyclical. In this way you’ll buy more in recessions and when market prices are low than high.

Lots of experienced investors are doing less deals in the current markets as most nationally recently passed market peaks.  Post December 31st, things markets should get more interesting. Be willing to be patient.

@Simon Y Kim You're welcome! Buying in cash definitely makes your offers more competitive - keep in mind that the financed offers that you're competing with are getting bank money at 3% right now, and that will help explain why some of them are willing to pay an amount that doesn't make sense to you.

As a flipper you will loose deals to owner occupants and rental property investors often - both of those groups typically have lower profit requirements than you do, due to not having to pay state excise tax on the second sale and having a more favorable federal tax position than flippers (among other things). This part of the process is totally normal.

My recommendation is always to play to your strengths - since you have cash, most of the offers you're submitting should be on properties that the bank CANNOT finance, due to property condition or other factors. There's still competition for these properties but you're far more likely to get a deal if the financed offers aren't allowed to compete, especially given how low bank financing rates are today.

Best of luck - and heads up, since your partner is from AZ you're going to want to start building those contractor relationships now if you don't have them lined up already. Folks around here are very busy and finding a good contractor in Tacoma is a little easier than Seattle, but not much easier. 

@Simon Y Kim like you're hearing above, on-market deals will be tough. One of my clients made an all-cash offer (no inspection cont) on a property in Issaquah listed for $700k, it had 22 offers well over asking. This has been the norm just about everywhere for MLS listed fixers. You are competing with very experienced investors/general contractors that don't have contingencies. Your chances are very slim to win a battle with a 10-day inspection contingency. If you can't accept the risk by waiving inspection, you should at the very least request permission for a pre-inspection. BTW, why have a 30-day close if you're paying all cash? Tighten up your closing to 2-3 weeks.

I suggest you start getting on distribution lists for local wholesalers. Deals will still have a lot of competition but they're not in the MLS for the entire world to bid on. Best wishes on your journey!

@Brandon Vukelich thanks for the input. As a fix and flipper, my offers tend to be much lower than the list price. I am assuming that other flippers are taking a cut on their profits to make higher bids. I’m taking it that it’s the nature of the bid war as someone looking to fix and flip. Competing with buy and hold investors and other flippers making higher bids

I’m going to ask around to hire a contractor to do a pre-inspection walk-thru to waive inspection on my offers so hopefully that can help my offers. I’ll also try tightening up my closing date.

Down here an offer of 70% of ARV less up to 50% of rehab costs might have a chance of being accepted if the property were not financeable due to its condition. Even then, it's a crapshoot with no contingencies and a 15 day close. For example, our last two properties were purchased at 60% of ARV and 65% of ARV and these were considered magnificent deals. The latter will be a rental. It's just a fact of life that formulas you read about in books designed around an investment strategy that worked in Scranton Pennsylvania in 1980 will often require significant adjustment today in the hot west coast markets.

@Simon Y Kim , buying something that follows the 70% ARV minus rehab cost is not easy at all in here. Most of the sellers here in the Greater Seattle area already know that their houses will be sold above the asking price, and there would be bidding wars on many of them.

The good thing about your situation is that your offer is pretty much a "Cash offer" which gives you an advantage since you do not need the financing contingency and you can close faster.

As a realtor, sometimes I get a call from the listing agent and they ask for another form that states that if the appraised value is less than the purchase price, my buyers will be covering the difference (Banks most probably will not finance more than the appraised value).

Feel free to reach out if you got questions and I can share more with you.

Thanks!