Think I outbid myself; thoughts on overpaying?

Rental Property Investor · Rochester, N.Y. · Member since 2018 · 20 posts · 25 votes

So I'm a newbie investor and I've been searching for SFHs to start my portfolio base. The market right now is a racket and extremely difficult to win bids or get deals (unless paying cash of course). What are your thoughts on offering a bit high to get a solid house with minor upgrades needed? This house is currently assessed at 82k, i offered asking at 106k with 2% concessions. It's a smaller but solid SFH (1000sqft) in Rochester, NY which could get 1200-1300/mo. Cashflowing 300-400/mo. So the numbers still make sense I think, but feel nervous that I outbid myself.

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Everyone who gets an offer accepted thinks they overbid. Then everyone who bids too low gets frustrated they cant get a property. The lesson, most are unhappy no matter the outcome.

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David London
Rental Property Investor · Queen, NYC · Member since 2018 · 63 posts · 22 votes
7y
Seem to me they did you a big favor...better someone else getting a bad deal...
In the crazy market I follow (managed to buy 1 SFH only so far) I see 2 interesting trends in the last few months:
1. Investor who bought in 2006-2008 finally manage to match the price they overpaid then and bail out with 0 appreciation.
2. Realtors using the 1% rule to price properties...practically Rent x 100 = Price.
The way I am going about my search is analyzing the houses I got over bid on with the final purchase price to see if they would have made sense and then comparing new properties to the few which pass this test.
Another thing to keep in mind is that as you hear a lot in the podcasts not all sellers are driven by price alone...the house I finally closed on was owned by Out of State owner who inherited the place and just wanted to get rid of it after a bad eviction...I made asking price offer 2 days after it arrived to market and she agreed immediately...if you follow your market all the time you know if the price s good.
Better luck next round!
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Todd Powell
Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
7y
@Mark S. Yeah, you understood me correctly. I used to have time and make a offer completely AS IS on fixer properties. Now, the last two listings on day 1 were already under contract and the ones you actually get to see have 5 or 6 offers. Sadly, this tactic has and is being used. If you cant beat them, join them. It has worked for me although its not a strategy I prefer.
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Account Closed
Rental Property Investor · Knightdale, NC · Member since 2014 · 15 posts · 5 votes
7y
@Ethan Mastrodonato
Thank you for posting this. I am involved in an almost identical deal. My realtor showed me the property before doing her full homework. After I woke up (I work nights so we're now talking 4pm after seeing the property that morning) to a message saying the property was in foreclosure auction and the auction ends at 11am. I made a panic bid but thankfully the reserve isn't met so I think I'll be okay. The good news is I've had zero experience with auctions in the past so this has been a learning experience.
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Wesley W.
Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
7y
Originally posted by @Account Closed:

@Matt Honeyford hey man thanks for the input, I understand that but every house I’ve seen not requiring cash-only has been well above assessed value. I used to shoot look for like 20% below assessed, but I’ve pretty much begun ignoring it. I’m looking outside of the the city at sfhs, so anything under 95k needs a ton of work. The market has just gotten extremely competitive so not sure what to do at this point and I’ve had like 5 deals fall through.
Many linear markets like mine and yours are currently overheated.
Be patient, stick to your numbers, and stockpile cash in the meantime. Buying opportunities will present themselves eventually.
You make your money in real estate based on how you buy. Resist the temptation to employ "eraser math" and make a marginal deal look good. There are always hidden, costly surprises. No skinny deals!
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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
7y
Probably some burnt out mom pop landlords in Rochester that will owner finance their portfolios check the reias.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
7y
Never pay too much
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Matt Honeyford
Investor · Rochester, NY · Member since 2017 · 206 posts · 175 votes
7y
@Ethan Mastrodonato
You’ll have plenty of deals fall through. These things are hard to find. But you can’t change what success looks like. I’d encourage you that if what your doing isn’t working to try a different tactic.
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Tenzin GyaltsenPro Member
Real Estate Agent · Denver, CO · Member since 2017 · 21 posts · 8 votes
7y
@Ethan Mastrodonato @Ethan Mastrodonato Regardless of whether you are self managing or doing a lot of work yourself, you should still have numbers in there for both as it may need to pay someone else to manage in the future and materials cost way more than you think! You change a water heater and you just lost more than a months worth of rent! Cap ex can kill you. I’d suggest continuing to search and don’t do a deal if it’s too thin. If this is a really great opportunity in an area you think is going to really turn around and you think a hold will pay off, I think you can chance a risk like that but speculative investing is dangerous in its own right. If you’re dumping all your money into it and it doesn’t do what you think, you could be shooting yourself in the foot. Like someone else said though.... over bidding leads to “buyers remorse” very quickly. You start to wonder why you won and if it was a bad idea to win. Your best bet is to know your numbers going in and stick to them no matter what. If you lose, onto the next. Or if you’re willing to over pay a little, understand that and overpay a little.
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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
7y
My biggest regrets in real estate are the properties I missed for $1000 or $2000 because I am cheap and want a "deal". Time can fix a lot of mistakes in real estate.
Sounds like a decent deal to me.
My only alert in your post is that you are looking at assessed value? Is that a good number in your parts? Here in my area it does not mean a thing other than a number used to calculate taxes. Could be way way over or way way under the market value. What does your realtor say? They ran comps for you right?
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Caleb Dryden
Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
7y
@Ethan Mastrodonato I think it depends on your strategy. But I agree, I would make sure you're figuring all your expenses in addition to PITI. Even though you'll be doing the work (good for you), you'll still have vacancy, cap x, any utilities not paid by the tenant, etc. It's already been said but you'll always need to budget more than you think. It's better to be on the safe side than be at break even or take a loss in monthly cash flow. Good luck!
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Jennifer T.Pro Member
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
7y
I realize this deal fell through anyway. But did want to add that, when you're financing, a bank/lender will require an appraisal and they won't loan above that. If they require a 20% down payment, then I don't think they'll loan above 80% of the appraisal either. That can be a last minute negotiating point with the seller if the purchase price is more than the appraisal. But, if the seller won't come all the way down to the appraisal value, you'll either need to back out or bring the difference (plus the 20% down payment) to closing.
At least that is my understanding of how it works, though I've never had that experience.
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Mitch Ferraro
Specialist · Kenosha, WI · Member since 2019 · 52 posts · 42 votes
7y
Here's what we account for in every rental:
Mortgage (which you may not have if purchased with cash)
Property Taxes
Insurance
Vacancies (1 month's rent for the year)
Repairs (1 month's rent for the year. This will be lower than some but almost all of our rentals are rehabbed properties)
Property Management (1 month's rent for the year)
Water, Sewer, Garbage (if a multi-unit)
After all of these are paid out we like to be cash flowing $200 - $400/month. @Account Closed there are also other ways to finance. You may want to try and find one of those properties that needs work and fix it up yourself, espeically if you are a handy person. If you can get a private lender to give you the funds to purchase & rehab the property you could then refinance the property (with a more traditional lender) which would pay back the private lender and if you bought the property correctly you could be going to the bank with very little to no money down at closing. This would be because you built all the equity into the property.
This is what's considered the BRRR (Buy, Renovate, Rent, Refinance) strategy and allows you to pick up rentals with very little money out of pocket. I hope that was useful. Let me know if you have any questions. :)
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Martin Grizzanti
Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes
7y
@Account Closed The tide is turning soon. I may be wrong (probably) but I think we will start to see a lot of properties for sale by people who over paid, and are in over their heads.
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