How much is to much?

Question

Im going to start by saying I’m new to real estate investing. I’ve been doing research and evaluating deals for about 6 months now. I found a property in a growing area with good appreciation. They are asking 142k. For the numbers to make sense for me, I would need to get a deal around 110-115k. Is it even worth making an offer? The house has been on the market almost a month. Any insight would be greatly appreciated.

Eliott Elias · Answer

Before making offers, you should always call the realtor and discuss it. Don’t waste your time on non-motivated sellers.

Brad S. · Answer

In the past I have told some people about a couple of really good deals I had bought and some people responded with the question, "How do you do that?" My answer always is, "I asked."

In other words, you decide what #'s work for you and then you ask for it. You are here to get YOUR needs met first, in a nice respectful way, and then you see if you can meet the buyers needs also. Unfortunately, that is not always possible, and you may have to move on to the next opportunity.

I look at it this way: Right now, that property is THEIR liability, so how much are YOU willing to pay to take on that liability, in the *hopes* of being able to turn it into an asset. Unless, of course, you want to run a charity.

You are not insulting them, you are stating that you know where your "value" is. Also, don't get too caught up in "losing this deal." I like the phrase that Dolf De Roos says, "The deal of a lifetime comes around every week."  Do your best to keep an abundance mentality.

Good luck!

Wilson Joiner · Answer

Thank you for the replies. This would be a single family rental property to clarify. It’s not a crazy cash flowing house but the area is highly sought after and tough to find anything that even comes close to making sense. I put in an offer so we will see. I guess next step is to continue making offers that work for me.

Brett Deas · Answer

The worst they can say is no

Randall Alan · Answer

@Wilson Joiner

Real estate is often a numbers game.  You won't 'win' every time you bid on a house... but you will win a percentage of the time.  It's obviously just dependent on what everyone else is willing to pay for the property.  If it is still on the market for a month, it is probably priced above market or someone would have snapped it up already.  Your ability to win at a lower price will depend on the seller's situation.  Can they wait to sell it and hold out for their asking price?  Most will eventually drop the price after a certain amount of time.  But maybe they are at the bottom of where they can sell it and get out of it.  In that case they may just take it back off the market.  In short - you never know the motivation of the seller, so if it really is a deal that works, there is absolutely no harm in putting in an offer.

To piggy back on what @Randy Rodenhouse said, know that your property taxes will not be the current property taxes on the property.  You can use the current property taxes as a reference... and the title company will presume those are the property taxes... but they are based on what your seller paid for the house, not what YOU paid for the house.  Those taxes will reset at the next tax year (typically November) and you will get a tax notice that says, "OH, we see you paid a lot more money for the house than the last guy... so YOUR taxes are now going to be MUCH higher... here is your new tax bill!"  You can look at the millage rate on your property appraiser's website typically and use your sales price to guesstimate your new taxes.  My county takes the sales price less 15% as an average way of determining their 'just value'.  There is more that goes into than that... but it is a quick measuring stick for you.

For a hold, I usually look for at least $300/month/door (so a duplex is 2 doors) for it to be a good buy for me.  This is after principle, interest, taxes, insurance, and a $100 maintenance reserve per door.  That is hard to find in today's high interest rate market.

If it looks like a good deal - put in an offer.  The worst they can do is say no!

Wish you all the best!

Randy

Randy Rodenhouse · Answer

First, the more offers you make the more opportunities you will have.  The offer amount will depend on many factors.  Are you going to rent the property, buy and sale quickly (flip), sell with owner financing, etc.  With the flip you will typically need the biggest discount.  If you rent you better know the rental rate, the property tax amount, insurance amount, vacancy, etc and calculate all that into your returns.