How low is too low for an initial offer?

Multi-Family and Apartment Investing
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How low is too low for an initial offer?

Taylor Walber
Member since 2018 · 2 posts · 1 vote
I’ve just been approved for up to 200k fha and have found a 2 unit home that I plan to househack. The listing is for 185k and has everything I’m looking for In terms of location and amenities. This is my very first deal and I want to get it at the best price I can. What are your strategies for an initial offer, that I could apply to my situation? Any other tips for a first timer are certainly welcomed and appreciated!!
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y

Well if the value of the property is $250k, and there are 10 offers, then even $240k might be too low. If the properties value is $150k and there are no offers, Id start at $125k. 

The list price might or might not have any correspondence to the properties value.

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  • Brandon Reed
    Rental Property Investor · Clermont, FL · Member since 2016 · 266 posts · 81 votes
    8y

    Hey @Taylor Walber - Way to go on finding your first potential deal!

    Have you been able to calculate your MAO yet? Do you know how to do that?

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  • Taylor Walber
    OP
    Member since 2018 · 2 posts · 1 vote
    8y
    @Brandon Reed , I have to say I don’t have much experience calculating MOA. I don’t believe there will be a ton of rehab cost, but I will be stepping foot inside the place tomorrow and can look for potential big ticket items before getting an inspector in there. I would be eager to learn more about MOA and all the variables considered in that evaluation! Is there anything you would recommend to read up on? Thanks so much for the advice!
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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    Well if the value of the property is $250k, and there are 10 offers, then even $240k might be too low. If the properties value is $150k and there are no offers, Id start at $125k. 

    The list price might or might not have any correspondence to the properties value.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    3Reply
  • Brandon Reed
    Rental Property Investor · Clermont, FL · Member since 2016 · 266 posts · 81 votes
    8y

    Yeah you definitely want to know your MAO going into any negotiation with the seller. If you find that your MAO is actually above the asking price, ask the asking price (unless of course you have a reason to believe that the seller would take less). If your MAO is below the asking price...go ahead and make a decision right now to not offer above your calculation. Stretching above your MAO for any reason is generally a really bad idea barring extenuating circumstances.

    You are of course going to need to know your ARV in order to calculate your MAO. So definitely take note of the "big 4" while you are looking at the property (Roof, A/C *indoor and outdoor*, Plumbing, Electrical), plus anything else you can see. Also ask about overdue maintenance if the person showing you the home has that knowledge.

    Once you know the ARV (make sure this is as solid as possible), you can calculate MAO as:

    ARV x [65% or 70% (depending on several factors)] - Repair Costs = MOA

    Dig around BP for blog posts on the topic. It's not an incredibly complex idea but it's important that you know all that goes into it.

    2Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Taylor Walber if this is an investment, the price you pay should be based on its income. What is the market rent for the side you aren't living in? What will the total income be if you move out and rent both sides? What are the expenses? Even though you plan on living there now, if you move in a few years, you want to make sure it is a solid investment.
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  • Stephen Brown
    Rental Property Investor · Member since 2018 · 40 posts · 46 votes
    8y

    Hey @Taylor Walber, consider this. Can I live for free? The MAO that @Brandon Reed spoke of is an excellent example for an investor buying an investor property. I use it all the time. And the info the @jason DiClemente gave is great to, because when it comes to rentals, the income from the property is very key.

    If you are going to live there, what mortgage can the rent from one side support (PITI)? If it can pay the mortgage payment, then the cost to live there for you will be repairs and vacancy reserve.

    This is not a purist way to look at it, but it is one way. My sons first house was a 4 bedroom, where he rented out the other 3 bedrooms. He paid retail (why listen to Dad) and their rent paid the mortgage. He got married, moved out, costs have gone up, and he made a few adjustments, rented out the 4th bedroom and continues to hold it. It may not be a spectacular investment, since he bought it 'wrong'. But he was happy with it then and now.

    Just my two cents.

    3Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    8y

    @Taylor Walber the MAO formula mentioned above does not apply to rentals it is for flips.

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