How much to offer?

Question

Found one REO property that looks interesting, 3br/2ba SFR, listed for $112k, hourses in that area sell for 130k to 150k, rent per month around $1200, house need about $2000 repair

I found two schools of thoughts on BP in term of making offers to banks:

1. Start with 50% of asking price and go from there
2. Start with best and final offer

Also, it is suggested to pay no more than 60 times of monthly rent. For this case, it is 1200x60=$72k

My strategy is buy and hold for cash flow.

How much shall I offer? $70k?

Thanks

Casey

KC Zhang · Answer

These are really good points. I really appreciated. 
I'm not sure how fast these properties sell. Looks like I need to do more home work on this.

Thanks again!

Casey

Luis A. · Answer

Generalizations like this are exactly that...generalizations that might or might not apply to your market or situation. I can tell you that in my market that 50% rule you mention would get me nowhere with many REO's. Since many are selling for list price or above so they would not even consider a 50% offer.

I would suggest you look at the numbers you have in front of you. Not knowing your taxes and insurance and assuming you are buying this on a 30 year fixed at 5% then your monthly payments are around $800-900 leaving you with a potential $300-400 monthly cash flow.

Is this good enough for you? Does this meet your goals?

Of course you got to factor maintenance, vacancies, etc.

IMHO opinion when purchasing rental property my main concerns are cashflow, ROI and rentability not purchase price. Of course I want to buy for as low as I can but just saying that 50% of purchase price makes it a good deal is not the only factor.

Thomas Handy · Answer

Just make the offer.  You'll never know until its presented.  If you wait too long someone else will come in and put in an offer and may get the home.

I made a low ball offer on a 3bd / 2 bath home and Fannie Mae didn't even respond.  I sent in another offer and am waiting for feedback.

I'm starting to think Fannie Mae is getting greedy especially since the home has been on the market for 4 months.

Mike Jakobczak · Answer

How fast are the properties selling at 130-150 k?  Also much work is needed to get them to this price?

A low ball offer might not even peak the banks interest.  But you can make your offer look nicer by giving clean terms.

Jorge Inzunza · Answer

It depends of how deeply discounted you wanna get it for..I would say, Get a middle figure out of those comps ($140k) and start with 50% of that value. That'll give you exactly the 70k you are thinking to offer, then if u get a counter from listing agent, you can negotiate up to perhaps 60-65% of comps, tops. You can go as higher as you want if you're thinking in keeping.