The biggest challenge facing most real estate investors is making acceptable offers, especially when buying properties is the basic foundation of real estate investing.
Unless you buy properties, you cannot make any money.
Here is how to make offers that get accepted.
The offer you make depends on the type of property you are buying.
1) Buying from motivated sellers
If you buy houses from motivated sellers, it is necessary to have the following pieces of information:
a) Market Value
Do your due diligence to find out conservatively how much the house would be worth in perfect condition. You must have this information before you can make any offer.
b) Mortgage balance
You must get this information before you can make an offer. A seller who is not willing to disclose this information is not motivated enough. Move on to a motivated seller.
The mortgage balance must allow you to buy the house and still leave you with a profit. It must allow you to make a profit and own it free and clear.
c) Repairs needed
It is possible to estimate repair costs with the information provided by the seller.
You must know how much you need to fix up the house before you can make an offer. Of course, I like to see the house and do my own repair estimates.
d) Asking price
If the owner is asking for too much money given the above 3 pieces of information, the deal might never happen.
A good asking price must take into account the market value, mortgage balance and repairs. You can then make an offer based on the asking price. Make an offer if the mortgage balance allows you to make a profit.
Even though it is necessary to consider the seller's needs, no offer can be too low. If they are facing foreclosure, then they probably need some money to move, or their asking price might be just enough to get away from the property.
If the mortgage balance is too high compared to the value of the house, it does not make sense to make an offer. Move on to the next deal.
There is no bad offer, except the one you have not made. Always make the offers that make sense to you. You'll be surprised how many get accepted.
2) Buying foreclosed properties
The asking price and repairs are the only important considerations to make in this case. Banks selling these properties are willing to negotiate.
Most REOs are listed below market value. Depending on your exit strategy, if the numbers are close to making sense, by all means make an offer.
Lastly, remember to make your offer lower than the asking price.
by: Simon Macharia