Making an offer that is 70% lower than the asking price

17 Replies

I am searching for my first rental property to purchase. While searching on redfin, i spotted a rent ready 2 flat that has 3 beds, 1 bath in each, listed at $169,900. The problem is that it has been on the market for a little over 800 days... I continued to research and drove through the neighborhood and everything checks out. Given there is minor crime in the area, it is not enough to stop other sales in the area. I ran my numbers as conservative as possible and came to the conclusion that if i were to make an offer, it would be around 70% less than the asking price which is around 50,000, the same amount most of the other distressed properties in the area are selling for. As a new investor, is this a property worth pursuing? I figured that i would at least schedule visit to see if there is something wrong on the inside.    

Christopher M., Real Estate Agent in IL (#475163570)

    I think you're having the right approach - you've done your math and you've decided how much you can pay.

    Go and have a look and if it checks out on the inside, and you do all the due diligence (check their rent roll and ask for rent receipts, check on maintenance records, is there any major deferred maintenance, etc.), then make your offer.

    The other person can say no or they can make a counter offer. Its true you may offend them greatly with a low ball offer but since its not your best friend or your mother, that's ok. Also, they may not be willing to consider your offer now but if its a property you want you can always check in with them a few months down the road.

    Christopher M. sounds like you have a good plan, if it has been on market that long it would scream to me that there is a problem and try to find out what it is and $olve it!  In a similar situation, house went up for sale, short sale, then foreclosure, now about 3-4 years later trying to get the price to my $olution point!!!

    If you are buying it as a rental, then base your offer on how you are paying for it, as in how you are going to pay for holding it.  If you are paying cash, then how fast will you be getting your money back.  If you have good credit you should look into refinancing right after you buy it (at least ASAP) to recover all of (or most of) you cash so you can use it again on the next deal.  If you are financing it, then you need do consider your monthly payments and how that will change your cash flow.

    When analyzing deals, always analyze starting with your "exit strategy" and work backwards...reverse engineer it.

    Joe Villeneuve
    REcapsystem

    As the others have mentioned, you have to run your numbers and make sure they work for you (which it sounds like you already have done).  There's no harm in making an offer.  The fact it's been on the market for over 2 years tells me you don't have a motivated seller.  I will tell you this, it's good to get practice making offers that work for you so you can get over any trepidation of "offending" someone.

    Like Christina said,  "The fact it's been on the market for over 2 years tells me you don't have a motivated seller. I will tell you this, it's good to get practice making offers that work for you so you can get over any trepidation of "offending" someone."   Both statements are deadly accurate.

    There could be another reason why it's been on the market so long.  Nobody made an offer.  Everyone assumed the house "had a date", so nobody asked...and the answer to every question you don't ask is always "NO".

    Also, keep in mind, you can never make an offer too low...don't ever make an offer too high.

    Joe Villeneuve
    REcapsystem

    Thank you all for the great advise! 

    I considered all of the potential issues i could come across, and included all potential expenses would come across. Utilities, Maintenance 5% of gross income, PM 10% of gross income, lawn and snow removal service, etc. My calculated expenses are a bit higher than the 50% rule. This is why i am basing my purchase price off of my calculations, which still gives me the cash flow and return I am satisfied with. 

    I will be financing with 20% down, but i ran my numbers as if it was 100% financed. With the information you all have given me, i feel confident that if the inside checks out, it will be worth making an offer, even if I am told "NO". 

    Thank you

    Christopher M., Real Estate Agent in IL (#475163570)

      It is always a no, unless you ask. Only than can it become a yes ;) Personally you have nothing to lose! Plus if you are financing it, there is a good chance that it won't appraise. So your saving yourself a lot f headache by going in now with the question .

      Originally posted by @Elizabeth C.:

      It is always a no, unless you ask. Only than can it become a yes ;) Personally you have nothing to lose! Plus if you are financing it, there is a good chance that it won't appraise. So your saving yourself a lot f headache by going in now with the question .

       that's how i got my wife. she was tired of saying "no" and one day she accidentally said "yes".

      If it's on the MLS you will need an agent to present your offer. Good luck finding an agent to make an offer that far below asking; the agents will probably think it's a waste of time.

      It's possible that there have been no other offers and that is why it's been for sale for so long. Or it's received lots of low offers that were declined. If the latter is the case, don't be surprised to get a "no" for an answer, or even no answer whatsoever. 

      Chris,  Don't worry about finding an agent that will make the low offer for you.  The one's that won't you don't want anyway since they are not interested in what you're interested in...investing.

      Join your local REI's (notice the plural), and you'll find plenty of RE Agents willing to make low offers.

      Joe Villeneuve
      REcapsystem
      A2REIC

      People in Illinois think their run down unit is worth a fool's ransom. i've seen it a billion times. Unfortunately, some people pay that and justify it sometimes. 

      Originally posted by @Christopher Malone:

        I ran my numbers as conservative as possible and came to the conclusion that if i were to make an offer, it would be around 70% less than the asking price which is around 50,000, the same amount most of the other distressed properties in the area are selling for. As a new investor, is this a property worth pursuing? 

      NO!  Why are you so attracted to a property that you think is overpriced by $120,000?  Why not just make an offer on one of the $50,000 properties?  

      1.  You are afraid to buy your first property so you feel safe chasing unattainable properties.

      2.  You REALLY think you are getting a DEAL if the seller sells to you AT market value of $50,000 because, hey, his asking was $120,000 more.

      800 days on the market?   I'd say the seller has set his trap and will eventually get a novice investor to buy for over market.   Why waste any MORE time on this?  Call the listing agent (possible the owner) and ask what comps they used to price the property.  If they have no comps, move on.

      @Bob Bowling Unfortunately other investors are buying the good 50,000 deals with all cash, leaving the tear downs for new investors like myself. I currently lack both the capital and the experience to purchase, rehab, and hold the majority of all the properties that are leftover. Not to mention they aren't in my target farm area.

      1. My strategy is based on finding properties that have been sitting on the market for over 180 days, that are priced between 100-175,000. For now, i would rather target motivated sellers, and buy at a discount, than chase the obvious deals that the investors with deep pockets are fighting over. As i mentioned earlier, based on the photos, the property looks rent ready. If its not, then i'll move on.

      2. That would be determined by the condition of the property. As i mentioned earlier, based on the photos this property seems rent ready. If i can purchase at distressed market value, with little to no repairs and create great positive cash flow within a few days, wouldn't you consider that a deal?    

      "If it's too good to be true, It normally is.." This phrase stays in the back on my mind. I am new to investing so of course my doubt is high. This is partially the reason i drove through the neighborhood twice and parked on the same street as the home to see what the neighborhood was like. When i couldn't find and obvious flaws, i immediately assumed the problem was inside. I do not think I am wasting time, as either way I will be learning something from this experience. Then again, if i give up and the seller decides in a month to drop the price to $50,000... 

      I also will try to contact the listing agent about comps, thank you for this advice.

      Christopher M., Real Estate Agent in IL (#475163570)

        Originally posted by @Christopher Malone:

        @Bob Bowling Unfortunately other investors are buying the good 50,000 deals with all cash, leaving the tear downs for new investors like myself. I currently lack both the capital and the experience to purchase, rehab, and hold the majority of all the properties that are leftover. Not to mention they aren't in my target farm area.

        1. My strategy is based on finding properties that have been sitting on the market for over 180 days, that are priced between 100-175,000. For now, i would rather target motivated sellers, and buy at a discount, than chase the obvious deals that the investors with deep pockets are fighting over. As i mentioned earlier, based on the photos, the property looks rent ready. If its not, then i'll move on.

        2. That would be determined by the condition of the property. As i mentioned earlier, based on the photos this property seems rent ready. If i can purchase at distressed market value, with little to no repairs and create great positive cash flow within a few days, wouldn't you consider that a deal?    

        "If it's too good to be true, It normally is.." This phrase stays in the back on my mind. I am new to investing so of course my doubt is high. This is partially the reason i drove through the neighborhood twice and parked on the same street as the home to see what the neighborhood was like. When i couldn't find and obvious flaws, i immediately assumed the problem was inside. I do not think I am wasting time, as either way I will be learning something from this experience. Then again, if i give up and the seller decides in a month to drop the price to $50,000... 

        I also will try to contact the listing agent about comps, thank you for this advice.

        @Christopher Malone  Thanks for the follow up. 

        1.  For only $5,000 you could out bid all those cash buyers by 10%.  Run the numbers.  You don't have to be the best investor ever starting out.  Top 50% might still be worth it.

        2.  Your strategy doesn't seem that focused.  You want to buy this property for $50,000 yet your target is $100-175,000 "asking price"?   You'll be way ahead of new investors by NEVER basing anything off asking price.  If you don't have a reasonable estimation of MARKET VALUE move on.  You also say the $50,000 properties are not in your farm area.  Then why do you think this property should sell for $50,000.  See how you are not being consistent?

        3.  A person that has a property on the market for 800 days is not motivated and as you say the property seems rent ready so where's the "distressed" aspect?  Don't fool yourself that this seller is going to suddenly drop his price $120,000 after 800 days on market.

        4.  Wasting your time or walking into a trap?  It is not uncommon for a seller of a property to offer you an outrageously overpriced property to lure you to another property that is less outrageously overpriced and sell you based on the comparison.  "But this property is just as nice at half the price!  Where's the contract?"   Marketing!  I go to time share presentations in Hawaii to get the $100 sea turtle coupons/Dukes food vouchers when approached.  I like to see what what the market is doing.  About 15 years ago I went to a presentation because they were selling "points".  New concept in that you were not buying "weeks" but points that could be used at various locations.  So to buy enough points for two weeks in SF it was about $40,000.  So they were selling a property that could be bought for about $600,000 for over $1,000,000 (26 increments by $40,000) AND charging each buyer about $1,000+ for the annual fee.  so they were getting $400,000 up front and $26,000 annually.  About 12 tables sitting there with there individual salesman and suddenly "pop!"  Champagne for a sale.  Wow, someone just dropped $40,000 er,,,or signed up to finance at 9%.   Another "pop",  Getting kinda exciting.  In 45 minutes there were about 6-7 "pops" and I'm thinking "what the heck?"  Of course I excuse myself saying I don't see the value but I'm still thinking how they made $200,000-300,000 in sales.  What was I missing?  Then I realized 3,4,5,tables could be "shills", time share sellers in training and if they are popping $3 champagne a table to only sell one table at $40,000 then not a bad business model. 

        Long story short, buyer beware.

        Christopher M. - From my experience understand what's not working for this property. If you are not able to find the problem, I would say move on to the next deal rather than guessing and speculating. There are lots of deals available in the market

        Many good points already made:

        - Only pay what you think it is worth, listing price be damned.

        - Being it has been on the market 800+ days they don't seem that motivated.

        (Unless they started way higher and have had regular price drops, but doubtful since I'd say they would have needed to have been near $300K to start for that to be the case)

        - Worst that can happen is they say no.

        - @Bob Bowling is right on the money as to not waste anymore time on this property.

        Now on that last point, no reason not to make an offer.  However don't waste time looking at the place, just make an offer.  You are looking to offer $120K under list, they are NOT going to take it.  If you are worried there may be some issues you didn't account for then offer $35-40K to have a cushion.  Just about as likely that they counter on that offer than your $50K offer (and a counter is all you can reasonably hope for).

        The proper way to handle these kinds of deals is to see a property that looks interesting to you online, spend a little time looking at the comps and running your numbers, see that it is listed WAY more than you would possibly pay, Figure out the most you could pay based on conservative numbers and take some percentage, say 80-90%, of that and submit that as an offer.  If you get a counter anywhere close to something that might work you then are allowed to leave your house. :)

        The thing with putting in ridiculously low offers is that is a numbers game.  If you put in like 200 offers like that maybe you get 3-8 counter offers and maybe land 1 deal.  That is a 0.5% success rate so you don't waste a ton of time researching each deal until you have reason to believe you have any shot at getting it.

        Shaun Reilly, Real Estate Agent in MA (#9517670)

        Thank you all for your replies thus far. I have definitely learned some key points that I will adopt into my strategy. 

        Christopher M., Real Estate Agent in IL (#475163570)

          Join the Largest Real Estate Investing Community

          Basic membership is free, forever.