If You’re Not Embarrassed by Your Offer, it’s Too High: Here’s Why

by | BiggerPockets.com

Although it seems like yesterday, it was September 1995 when I attempted to purchase my first real estate deal with none of my own money. I had just completed a real estate investing course as credits towards my broker’s license, where my instructor had taught us about using OPM (Other People’s Money) to buy real estate deals.

At the time, we were using credit card advance checks, and this was before the banks had figured things out and increased all the cash advance fees like they do today. Now that I knew how to buy a house with no money, it was time to pull the trigger.

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Know Your Exit on the Way in

They say you should know your planned exit before you enter any investment, and I couldn’t agree more. So, my plan was to use a credit card advance check to deposit into my checking account, and I was going to purchase my next property for all cash. (Today, I’d probably just use private money.)

Related: Negotiating 101: Yes, You SHOULD Make the First Offer. Here’s Why.

Since I was handy and in construction, I was going to fix the property up with a couple of friends, and I was going to put all the materials on another credit card. Then, I was going to rent it out before going to a local bank for a home equity loan.

So, prior to purchasing the property, I paid a visit to the bank in order to understand the terms and loan-to-value I could expect, as well as to discuss my options for paying down the credit cards. They agreed to make the credit card debt part of the settlement, and so my intent was to pay off my credit cards at closing and hopefully still cash flow.

At that time the FSBO (For Sale by Owner) ads were in the paper. Today, those ads may be in several places, including online sources like Craigslist. But I’ll never forget, there was a two-bedroom row home listed in an area that was right on the brink of change. The ad said, “As Is,” and they were asking just $19,900, so I decided to go take a look. I know what you’re thinking; $19,900 seems so low. And to be quite honest, that was still a pretty low number even for way back then.

My Embarrassing Offer

If you’re like me you’re thinking, how low can they go… right?

The irony was when I went to look at the house, it was occupied by relatives of the health inspector for the borough, but the place was in horrible condition. There was no real kitchen, the roof leaked, and there was junk all over. I looked at the place and told the guy that I couldn’t give him $19,900.

He said, “Well, what can you give me?” I told him $8,000.

Then the older gentleman literally went ballistic for about 10 or 15 minutes. I thought he was going to have a heart attack.

I let him vent, and once he finished, I explained that his numbers didn’t work for me and started mentioning what I would need to fix. Then, we proceeded to settle for $12,000.

(I later found out they paid $2,500 for the property back in 1945.)

Know Your Numbers Make Sense

Here’s how it shook out.

The house was only worth approximately $35K to $40K fixed up. I was all-in at $18,000 with a used kitchen, paint, and rugs, and I rented it out for $650 a month, initially.

My payment was only around $450/mo. on a $26,000, twenty-year home equity loan (which was 80% loan-to-value). I was able to still cash flow and walked away with approximately $8,000 tax-free (since it was a loan) on my first property with no money out of pocket.

Related: Avoiding Rookie Mistakes When Making Offers on Real Estate

I was then able to use the capital towards the down payment on my next deal.

Over the next several years, I continued to make low offers, especially with letters of intent, but on this particular deal, I was pretty lucky. Not only did I purchase the deal with none of my own money, I walked away with some tax-free cash and continued to cash flow a couple of hundred dollars a month for the next nine years, until I sold the property for $58,000. Although the numbers weren’t large, it was a solid deal.

So the moral of my story is go find a deal, know your numbers, have a plan, know your exit, and by all means make an offer that’s embarrassing.

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. – an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for over 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.


    • Dave Van Horn

      Hi Jon,
      Thanks for your question.
      I’m not about ripping anyone off; the numbers just need to make sense. If I start too low, I can always come up, but if I start out too high, I can’t come down.
      Also, I would rather run the risk of upsetting the seller than to overpay for the property and lose money. Most often, I’ve found that if you know your numbers and you clearly explain them to the seller, they usually understand and settle with you on a reasonable number that still allows you to make money, as was the case with the property mentioned in this article.
      I hope this helps!

  1. Great story! I’ve never actually made an offer on a house, I have a real estate agent who deals with everything for me. I just coordinate the rehab. I’m not sure if I could lowball so much with a straight face, maybe I have to work on that.

    • Marjorie D.


      The key to making a really lowball offer with a straight face is to detach from the outcome. In other words, you have to be prepared to walk away if the lowest number the seller will accept is unacceptable to you and never look back. Remember it’s not personal – it’s business. Assuming of course that your offer makes sense financially and is not so ridiculous as to not be taken seriously. On another note, if you find yourself feeling guilty, like a bad guy etc.., then you need to figure out WHY you’re feeling that way and work on shifting your perception of yourself as this will hold you back from moving forward on future deals.

      Just my .02

  2. Eva Salas

    Would have liked to be there to hear him vent…and then come to when he heard why your offer was so much lower. Thanks for sharing your experience and your courage by taking those first steps with CC money, but you didn’t do it willy nilly!!

    • Dave Van Horn

      Hi Eva,
      Thanks for your comment!
      I agree that it’s wise not to borrow willy nilly, and I’m a strong believer that one shouldn’t borrow unless they have a plan for paying it back. Although, utilizing credit cards isn’t as risky as most people think. The worst that could happen if someone couldn’t pay it back is that their card would be canceled; they wouldn’t necessarily lose the house. Also, even though you’re borrowing on a credit card, you’re purchasing an asset instead of gambling in Vegas. It’s all about discipline.

  3. Virginia Schroeder

    Enjoyed your story. And I need that encouragement to make those offers! You have to be confident to endure that rant. But you’re right you can’t harm yourself by paying more than you should for a property. I have learned that the hard way.

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