How to Make Offers That (Nearly) Guarantee You Can’t Lose

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Wish you could make real estate offers that guaranteed you couldn’t lose?

One of the big challenges for real estate investors today is making good offers. There are lots of potential opportunities out there, but you don’t want to be making offers you’ll regret. You don’t want to miss good deals. You don’t want to overpay and lose money either. So how do you make winning offers?

I recently published a case study on my first experience buying investment property sight-unseen. It worked out for my partner and me. It wasn’t our plan, but it worked out because we made the right type of offer.

Know Your Market

The most important factor in making great offers is really knowing your market. That means knowing property values, knowing the rents, and knowing the costs to rehab a property in that specific area. This can help ensure you don’t offer too much. It can also make sure you don’t miss a good deal by offering too little. If you know the area better than the competition, you can sometimes offer more and land the winning bid. This may be because you know how much you can really rent it for, you may recognize if local trends are lifting up the neighborhood, and you might have a strong local contractor team that can get the job done for less than another investor.

know-submarkets

Related: How (and Why) I Offer on Properties BEFORE I Ever Step Foot in the House

One mistake that many new investors make is just firing off a lot of low-ball offers. They often do this just based on the asking price — or sometimes based on really unreliable online comp tools. That’s crazy. If a property is overpriced by $150,000 and you offer $100,000 less than asking price, you still aren’t getting a good deal. If your comp tools are poor, then you might also be losing out on a great deal that was already underpriced. Many also overlook the fact that they are burning a lot of connections by sending offers that just insult agents and sellers. You tie up their time and are not taken seriously. Then when there is a deal you really want, they might not even look at it.

Low But Educated Offers

We always make educated offers based on the numbers. That still often looks like a low-ball offer on paper, but it is an educated offer. We can back up our offers with the math. We can even accompany our offers with reasonable justification for why it is the best deal for the seller and their agent. This is completely different than just blanketing the market with blind low-ball offers.

Related: 8 Tips to Put Your Real Estate Offer in the Best Light — And Get it Accepted

Generally, we’ll come up with our number based on the worst case scenario. That “guarantees” we can’t lose. If we don’t encounter the worst case, then we make even more money than planned. That’s usually what happens. For example, if we are buying an auction property and can’t get it inspected, then we’ll assume it is a complete gut rehab job. We’ll price that into our offer. If we can get in, we’ll run the numbers thoroughly and do a detailed scope of work. Sometimes there will be things you can’t inspect for some reason. You may see signs of a leak but can’t rip open the drywall to check out if it is old or fresh, or you may be unable to access one unit in a triplex. Or there could be a situation with an existing occupant or tenant who is being evicted. Always price for the worst case scenario.

reputable-wholesaler

Protect Your Interests

Contract contingencies are another way to protect yourself, too. Depending on how the property is being sold and what market you are in, you might not be able to get in all of the contingencies you want, but they can still be great negotiating points. This may include the number of days you have to inspect, title reports, appraisal reports, and even financing contingencies. Find out what is typical in your area and draft your offer in way that makes it likely to be accepted, but still protects your interests.

Investors: How do you make solid offers that still guarantee you a good deal?

Let me know your methods with a comment!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

19 Comments

  1. James W.

    it wont work most of the times. reason is the banks are digging their heels.

    you see – you have 5% brokerage fee to sell your flip, 5% holding and transaction cost – since everything is based on %age in these markets. so 10% – thats straight as that.

    then comes your margin – lets say 10% of the ARV – which i personally feel is ridiculous – because its barely double your broker fee.

    that’s 20% below market already.

    deduct from this the repairs liberally – and you’re offering 30% or more below market.

    and bank wont take it. what happens is a guy with lower margin than 10% – like an end unit – or a broker himself who wont pay the commission – or a contractor who pays half the rehab cost – takes this unit.

    and thats been happening to me one after another in all these auctions.

  2. Dante Pirouz

    Great article!! What do you cost “a total gut job” at? If I have to redo everything from the studs I estimate that would run my crew about $90K for a 2-3 bedroom house but if the finishes have to be high end it would be +$110K but I’ve done a complete redo (without any real structural changes) for as low as $60K and a cosmetic refresh for less than $20K. I’m just not sure which one of the most sense to bank on with a property with lots of unknowns! What’s your take?

    • Sterling White

      This is a tricky question and depends on multiple variable location, type of rehab quality etc. My partner and I take a cookie cutter approach with renovating these properties to rental grade. Our worst case generally does not exceed 30k for a rental grade type rehab if the property needs everything(flooring, furnace, drywall, paint, electrical etc). We use that as a benchmark from experience.

      Hope that helps.

    • Katie Rogers

      In my market, a complete re-do with no high end finishes runs about $200K. I cannot figure out what accounts for the difference. It’s not wages. The city passed a law a couple years ago that any contractor who bids on a city project must agree to pay his crew at least $15 per hour. It’s not materials because I have priced them myself at home depot here and in other markets.

      • Donna Welschmeyer

        Hi Katie. I’m curious about your $200,000 number. Of course, square footage would make a difference and replacing a roof or large portions of concrete are both pricey, and but that seems extreme to me.

        We’ve done several flips in the Denver metro area. None of them were total gut jobs (down to the studs), but some of them were pretty extensive. We do a certain amount of the work ourselves, too, which also accounts for some pretty big savings. However, I’d say our numbers are closer to Sterling’s $30,000, and we go above rental grade on kitchen and bath finishes.

        • I wish I knew. It’s not local wages and it’s not materials and it’s not square footage. I just recently bid out a 1400 square foot 3/2. Yep, about $200K. The lowest bid was $125K and too low to be trusted.

      • David Todd

        Hi Sterling,

        The article was well put together. Like Ken McElroy mentions in the ABCs of real estate investing, you have to make the numbers work. Once they work for your investment purposes, you can use the numbers to show the seller. Like you said, it is an educated offer. A lowball or high offer is only relative to the seller. As long as your numbers are correct, what the seller thinks the property is worth is less important.

        What methods do you use to get comps in the area? For rents and resales?

        Take care,
        David Todd

  3. mario hernandez

    purchased a foreclosure two months ago with cash for $35k, estimated costs for repairs were $15k-$20k. My brothers did all the work themselves and came under budget at $10k, total all in at $45k. The plan was to sell the house for around $110k-$120k. Thinking of getting a loan against it for the 60% or 70% of ARV, letting the property pay the loan and in the process rebuild equity.

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