How to Make an offer for good investment

Question

Hello all,

I am a new investor and i have only 130k in cash for investment, I would like to buy and hold for cash flow every month, I am from Houston tx, base on prices I see online its look like I am too far from my goal of at least 9% cash on cash ROI, and only if I make an offer of 20-30k less then asking price, then Is a chance to be close to my target.

So i would like to know what's the best way to make an offer like that to reach my goal?

I am very new on investment properties.

Thanks all.

Mike D'Arrigo · Answer

@Yakir Sheli I don't think that making offers well below asking price is your answer. If you can hit your numbers it could very well be that it's not the right market for you. CoC returns are notoriously low in Houston and TX for that matter due to the high property taxes and insurance rates there. Have you considered going out of state where the numbers work?

Nicholas Weckstein · Answer

well you left out some details, but if you are using financing then a 9% cash on cash sounds kind of low to me. you may need to adjust your market, your search criteria, or find off market deals that you can be creative with.

I think ultimately it comes down to what type of returns you WANT vs HOW you're going to get them.

if the numbers work but not at what you can afford to pay...then the numbers don't work. (in that area with that criteria). that's not to say you can't find a value add opportunity for a deep discount and put some sweat equity into it.

if the numbers work at 400k and not 500k well then you found out you can't pay 500k. how can you get it with 400k? can you? if you can't then you re adjust. most property owners who have the property listed on the MLS may not want to offer that huge discount.

are you looking for turn key? then your going to pay key money. Be creative, don't be scared to make offers. but remember, if it only works if you pay 30k less then asking. then you'll have to offer even less to hopefully land in that area.

Mark Sewell · Answer

Use some local lenders, and only contribute a portion of your cash to your deal.  You will require funds for renovations, holding costs, etc. so hang on to as much as you can.  Plus it is probably wise to have an experienced local lending partner to review your deals and make sure you aren't getting off track with your numbers.

Noah Gregory · Answer

@Charles Carillo is totally right! The metrics thrown around here and other places should guide you but aren't hard rules. For example here in Denver, CO, my cash-on-cash will be lower than lots of places around the country but if I can cash flow positive around $100-200 per door per month, that's killing it! Also it sounds like if you have $130k to invest, you could use that spread over a few down payments to obtain more than one property. Please respond back so we can be more helpful to your current situation.

Charles Carillo · Answer

@Yakir Sheli

Are you planning on incorporating debt into your investing strategy? This will increase your returns if used correctly but, I would not base my whole investment strategy around a minimum cash-on-cash return. Of course this is important but there are several other factors to be aware of. You don't want to push for the 9% return so much that the eligible properties are in poor areas. I would rather purchase in better areas with better tenants (better chance of appreciation) then dealing with D class properties.

I am not sure if this is a single family property but it is very difficult to consistently cash flow with SF or small MF. One tenant moves out, one HVAC system needs to be replaced etc. I own small MF and they do consistently cash flow because we purchased multiple similar properties over the years (near each other) but for the first-time investor that is buying one small property, it is an unreal expectation that you will be cash flowing every month. Just something to keep in mind.