Outbid, lost the REI property

15 Replies

Well, after going gang busters on BP podcasts, working the BP calculators, working thru and finally getting the financing worked out, finding a good property, making an offer then a counteroffer, we got outbid and the last counter was $5K above the owners original counter. That was not going to happen, it was too close to not cash flowing and maybe going into the negative. So consider this my open retrospective and any advice going forward I am very happy to entertain. I'll add some more detail below for perspective.

The SF home was in a good neighborhood which has rough patches but is basically improving. The owner did a decent job inside and was 95% ready to move in for rental purposes. We budgeted about $500 on a new bathroom door, some molding repair, some painting. We budgeted another $2K on a new fence and some sweat equity for landscaping.

Asking was $199K house was listed for >30 days, maybe 40 days at this point. My calculations were to make >$200 I had to get no higher than 185K so I offered $177,900 as the opening offer and asked for a single condition in the sale: please remove the hot tub.

Owner came back with 190, after thinking hard and talking with both the realtor and my wife we came back with a generous $186,900 offer and withdrew the hot request (I figured I could give it away). Another offer came in right around the same time and the seller came back with something like: "another offer came in but because your buyer is a strong buyer we will sell the home for $195K".

Did I just dodge an attempted bidding war tactic setup by the seller's realtor? 

My wife seems to think that I made a mistake. She's mentioned we made a mistake 2x and I told her I don't see what I could have done. In my mind I need to stick to the numbers and use the math. She says it was a perfect rental for us. I think we would have overpaid and it would have been a $50 month loser (or more at 195K).

I'm also wondering if I tipped my hand to the wrong person. I mentioned this on here but I can't see anyone REI minded making the deal work at 190-194K unless they're paying cash or has a <3.25% interest rate loan. My thoughts are that I lost to a homeowner that really wants to live there, which if so, I can't really feel bad about. I'd live three if I was 30 and single!

I'm also thinking about changing realtors. The one we're using is great but he/she is a good seller's realtor in my mind and wasn't really forthcoming in good ideas about the whole process, what a good rent might be (still a bit of a puzzle in my mind), etc. so I'm looking for a realtor that might be more BP minded and have experience with REI from my perspective and have good ideas and be willing to share them somewhat as a mentor.

Thanks for any advice. I plan to keep looking but the wind has definitely left the sails a little. Just trying to rally mentally on this setback.

@Jeffrey M. , I'd suggest getting on the buyers list for the local wholesalers. You wont find many, if any, deals on the MLS working with a retail Realtor. I don't know your numbers but would guess you're right about dodging a bullet and not getting the "perfect rental" and losing money each month. I would also venture a guess that 95% of Realtors don't know rent prices and what something will rent for when it is rehabbed. Very few Realtors also do Property Management and stay up-to-date on rents. You'd be much better off talking with a PM company about rents or doing a fair bit of research and tracking of rents via Zillow, FB Marketplace and other sites. Don't get too discouraged, you went through the steps of making offers and negotiating - that is half the battle.

I wouldn't get too worked up over this one deal.  This sort of thing happens all the time.  Move on.  Find another deal.  Don't fall in love with a property.

It will help you if you cast a wider net. You are probably just looking at the same MLS listings everyone else is seeing. Talk to lots of people about what you are looking for, including (but not limited to) many Realtors. If you have lots of properties coming across your desk, you don't feel like you "missed out" if you don't get one you wanted.

@Jeffrey, if your numbers didn't work at $195k, they didn't work. Don't get wrapped around it, stick to your criteria. Good job!

Thanks for the feedback everyone. Yeah, I should probably graduate from the MLS but I'm still a newbie and the wholesaler subject isn't something I fully grasp yet (at least how to find them) but working on it.

@Wayne, I was using ballpark numbers and I was using varying ranges for rental income which is why it probably seems confusing. All things being equal and if my rental estimate was correct it probably would have cash flowed in the positive but I didn't have confidence in that number and my estimate for rental income varied by +- 200 so that's why my numbers seem a little fuzzy above. I should have spelled that out in more detail but I didn't want to get into those weeds here. Suffice to say if I gave you print outs of all the calculators I ran which varied on rental income by +- 200 and the various selling prices, you'd see why I targeted the $185K number as "safe" top end. Heck if I could have gotten the top end of the rental income (i.e on the upper end such +$200 on the average rent in that area) I could have made $195K work but I didn't feel confident enough that I could and if it went the other way (e.g. -$100-200 under average) I was definitely losing money. Hope that helps.

@Jeffrey M. go to your local REI association meet up. You'll run into a bunch. Make sure you find an experienced and reputable wholesaler. Inexperienced wholesalers who cannot property analyze a deal can be detrimental to your career.

@Jeffrey M.

Mrs. M needs to adjust her thinking pattern. "The perfect rental for us" is indicative of a homebuyer's mindset instead of an investor's.

We look on and off mls, but the mls is often the long game of waiting for a home to fall off the market and reaching out to the owner directly and putting in lots of offers. Network as much as you can. Developing relationships with other investors, wholesalers, and lenders will be paramount to your success in the short and long term.

I also keep a spreadsheet where I track the specifics of the listing, our offer, and subsequent sales price to help us know how much we are winning or losing by. You should lose several bids before you get a house if you are being disciplined and trying to carve out enough of a margin for yourself. If you priced your initial offer based on sweat equity, you are already approaching a danger zone.

How many houses are you going to buy a year and how long have you been searching for one? That's a leading question because you are probably only thinking about #1, and subsequently you should not be in a rush. A bad first move is worse than not making one at all. Stay patient and disciplined.

thanks for the update ....good to ear you have  your loan ducks in line ....a technique  you might try to help  bridge a 2-5K gap  might be to   1)  ask  agent for a credit   to help  make up some of the gap   2) consider a  slightly higher  note rate  and ask lender for a  lender  credit  ...

Originally posted by @Matt Gilroy :

@Jeffrey M. , I'd suggest getting on the buyers list for the local wholesalers. You wont find many, if any, deals on the MLS working with a retail Realtor. I don't know your numbers but would guess you're right about dodging a bullet and not getting the "perfect rental" and losing money each month. I would also venture a guess that 95% of Realtors don't know rent prices and what something will rent for when it is rehabbed. Very few Realtors also do Property Management and stay up-to-date on rents. You'd be much better off talking with a PM company about rents or doing a fair bit of research and tracking of rents via Zillow, FB Marketplace and other sites. Don't get too discouraged, you went through the steps of making offers and negotiating - that is half the battle.

we are on deal 9 or 10 in Spokane for the year.. and pert near all off of MLS working with our broker there.. now we do something different than just buy hold.. so we have 5 homes going up.. but those are by products of buying the houses as well.. then we flip the house.

what we are finding is the market is very strong sub 250k with owner buyers.. never going to beat them out.. or very seldom.. but our stuff is perfect when we put it back on the market.  and well new construction is just that brand new house.

 

If it's a competitive market, realistically you have to be willing to compromise on price, location, or condition. 

Hindsight is always 20/20. This isn't a critique, just my personal takeaway. 

Worrying about $3k ($750 out of pocket and $12.08/mo) and a hot tub let someone else come in and swoop it. That was a VERY minor compromise on price and condition, the sort of little picture stuff first time homebuyers lose houses over all the time. For you as an investor, there's no scenario (assuming ego is not involved) where it works at $187k and doesn't work at $190k, that should be within the margin of error, statistical noise. 

The big swings ($200k v $170k) are where the action is, these are the "deal or no deal" things. The little $3k here and a nickel there and a dime here and a hot tub over there, you cave, you let the other side have their little emotional victory (maybe even be a little huffy and puffy, like "ugh, FINE, you got me..." so they feel extra good), and proceed to the closing table. 

So the lesson learned is that next time the seller comes back basically where you are (who cares about $3k), sign on the line which is dotted to lock that property up and get things moving forward. A bird in the hand is worth 2 in the bush, etc.

Every round of back and forth is an opportunity for someone to swoop! You had 'em @ $190k, should have taken it.

@Chris Mason

>> Every round of back and forth is an opportunity for someone to swoop! You had 'em @ $190k, should have taken it.

Yep, you're right. The counters were quick, within 12 hours but that still gave another buyer a shot.

Ironically I was doing numbers on this house for over a week and at the same time figuring out the financing angles. I had a lot of plates spinning at once.

I truly try to think of these things transactionally. I have no emotional attachments to the houses. My wife on the other hand, is another story... I have to manage that :)

thank you for the feedback.


@Jeffrey M.  I agree, don't get discouraged about the possible missed opportunity.  Sticking with the numbers is your best bet.  We have been looking at many deals in Spokane, and we haven't had the numbers work out on any of them.  Best to stick with your numbers and not get 'attached' to the property.   We have also changed realtors multiple times.  There are definitely ones that are more-buyer / seller focused.  We've been lucky enough to find one that works with investors and does have that frame of mind.  As far as rental costs go, we have some ideas going into an area of town at possible rents and we like to bounce it off of a website called Rentometer.  It's a decent hip-check and can help with a little insight into other rentals in the area/neighborhood you're looking into.  Sure, there are property management companies in town that can support you, but there's always a charge and if you are looking to manage them yourselves, you don't necessary want to incur that extra expense.  We are still learning, so if feel like each opportunity - missed or otherwise - is just a learning opportunity.  Our market is pretty inflated currently, and that has made it more difficult to find a decent deal.  Instead, we are using this as a good time to do our research, run numbers on different homes and get to really understand our numbers.  IF there is a good opportunity, we'll jump, but for now... we're good in just learning and saving, saving, saving for when we're ready to pull the trigger.  Good Luck!!  -Tanya 

You're right on, Jeffrey M. If the numbers don't add up then you walk away. If you go all in because you can't pass up a specific deal then you are in a position to lose money. If you walk away you lost nothing. REI success comes from the head, not the heart.

Don't be discouraged! You just dodged a bullet and that's something to be happy about. On to the next deal, there are still lots of properties that can potentially be yours. My wife and I always say, "there will always be another sale."