How can I make sure my offer is attractive?

Question

I am putting in my first offer on a house rehab.  The asking price is $250k and the ARV is $520k.  Total repairs of around $150k.  Holding costs at $20k.  There is a lot of competition on this house.  I am sure someone is going to make a cash offer that is attractive.  Unfortunately I am not in the position to offer cash.  I am going to put in an offer around $300k with no concessions but it will have an inspection clause and 7 day due diligence.  Any advice?  I'm very new to this so if I'm missing something major please let me know.  Thanks

Brian Pulaski · Answer

Maybe I am reading your numbers wrong? I assume this is a flip that you will resell, correct?

$520,000 ARV

- closing on the sale end is probably $35,000.

- closing on the buy end end, maybe $5000.

- your offer of $300,000.

- your holding costs of $20,000.

- your rehab costs of $150,000.

Unless I am missing other reasons you won't have these costs, I see you barely making any profit ($10,000). After taxes, maybe $6000. Is this house worth a tiny to zero profit? That would concern me more than how to make your $300k offer stick.

Shawn Ward · Answer

@Andrew Pearson if this is your first time out offering, do not worry about the competition at all. Put in an offer that works for you.

You will need to put in MANY offers on MANY properties until you get one accepted.

Look at this as great practice and experience.

Always work with terms that fit what you can do and earn cash.

Once you are capable of doing deals all cash with no contingencies, you'll have a better chance, but let that happen when it does.

Hold the line, and keep offering on properties. Its a numbers game.

All the best!

sjw

Kuba F. · Answer

Generally you make your offer attractive by making an over asking cash offer with no contingencies and short closings.  Those are the realities in my seller's market, and likely in yours.  An experienced local investor friendly realtor should know what works or is appropriate in your market.

But that doesn't mean you need to get yourself into deals that don't make money.  In that case the most attractive offer is no offer.

And if it's your first rehab, then I question the wisdom of getting into a $150K rehab.

Panayot (P.T.) Tomov · Answer

When you have a seller that looks at 10 offers, the only real value that stands out in an offer is WHO is presenting it. You will have a few offers without contingency, a few over asking, and/or both. Make sure the person are 'partnering with' as far as a broker 1. knows the market 2. knows the other brokers 3. can put his rep on the line for you 4. flip your house and make a profit for you. People always go with the first person that brings them a flip and then suffer loses. Be cautious and careful in regards to that. That's just my thought, I could be wrong!

Andrew P. · Answer

Hi all, thanks for the helpful advice.  I'm definitely unemotional about it.  I put in an offer today but it was much lower than originally planned and had a few contingencies.  If they accept great, if not then on to the next one.  Thanks

Matthew Paul · Answer

Turn the emotions OFF .   Look at the numbers .  Way too tight . One major problem and you lose , a couple minor problems and you also lose .

If this is your first rodeo , and you dont have estimating experience , you have a high probability of getting an expensive education on this deal

Joe Splitrock · Answer

@Andrew Pearson there is only so much you can do. The best offer is cash with no inspection clause. If you are contingent on financing and inspection then your offer needs to be higher, which is your plan. I would make sure to include a letter from your bank with the offer.

As @Brian Pulaski pointed out, the margin is thin at your offer price. My concern would be if you are new to flipping that you may under estimate expenses and that thin margin could turn into a loss.

I would worry less about the competition and offer a price and terms that makes sense for you. You may lose the deal, but you may also win. A cash buyer may come in with a much lower offer. It is impossible to know, so just put the up the best number that you can make a good profit.

How can I make sure my offer is attractive?

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