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Updated about 4 years ago on . Most recent reply

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Frankie B.
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Don't worry about the purchase price of a buy and hold?

Frankie B.
Posted

I've seen this comment floated around a few times, especially when I was in the market to purchase my first investment property.  I've seen it thereafter and I'm curious what is the logic behind it?  In my mind, if I want to pay $200K for a property, but it's listed for $225K then it's in my best interest to negotiate the price down to the price that I'm willing to pay, correct......because if I don't, then I will need a larger down payment, pay higher closing costs, it will reduce my cash flow and it will take longer to pay off the loan.  Is there something else that I'm not considering where paying a higher cost may be in my best interest?

  • Frankie B.
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    Bill B.#3 1031 Exchanges Contributor
    • Investor
    • Las Vegas, NV
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    Bill B.#3 1031 Exchanges Contributor
    • Investor
    • Las Vegas, NV
    Replied

    Your story is:

    They want $225k I negotiate them down to $200k and save cash, downpayment, closing costs, etc....

    Let me tell you the other side of that story. 

    Between 2008 and 2010 I bought about a dozen properties in vegas between $107 and $150k. On those properties I pretty much paid asking. I DIDN’T buy about another dozen properties because the seller was asking $5-$20k more than identical properties I had purchased within the last few months. I guess you could say I saved by not over paying $120k for those 12 properties. Or you could say they are all worth over $300k a piece and I lost $2.5 million by not overpaying. 

    My point is, what if while haggling for that $225k property @ $200k someone else buys it. You try a few more times and now with an average appreciation of 8-10% per year similar properties are asking $250k. Now are you going to try to haggle them down to the $225k you could paid last year? Because you’re definitely not going to get them down to $200k. Does your pride prevent you from paying $250k until 2023 when they’re asking $275k?

    We don’t even talk about the $20k/year In rent you miss out on. 

    With all my mistakes I bring in a little over $200k in rent and keep about $140k in profit. But the appreciation is closer to $250k/year. While I didn’t count that as I don’t plan to sell, at least not more than 1 every few years as I move in to them to save taxes. I certainly think about the houses I didn’t buy almost as much as the success I’ve had. All to save $10k here or $20k there. 

    After 5-10 years you don’t even remember what you paid for the properties, because it just doesn’t matter. Honestly I like to think I “paid” my downpayment. Since the rest of the money came from the tenant. 

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