Real Estate Radio Episode 193: How To Make An Offer For Maximum Profit
We have been getting lots of emails from both Investors and Agents as to how we structure our offers on Short Sales. So we decided to use today’s show to discuss how we do it.
Maybe after watching the video you’ll understand how it is that we say you make your money when you buy. Realtors are going to hopefully understand that there is no such thing as a lowball offer but rather we proffer some detailed explanation as to how an offer price WELL below the listing price is actually substantiated.
In the video we take you on a gritty tour of a foreclosure and we show you what we look at and you get a rare glimpse into the mind of an Investor. You’ll see how we calculate the actual offer based upon our knowledge of the market and some other very important variables.
If you’re a Realtor, you may be surprised to learn how an Investor values a property and if you listen you may actually learn the difference between a low-ball offer and a valid offer with data that you can support and present with confidence.
If you’re a homeowner, now you can see how to truly value your property and how you need to instruct your agent to price the home so it moves. You don’t have a lot of time if you’re in foreclosure and as such, pricing a Short Sale should not be a cat and mouse game.
Lastly, if you’re an investor, or contemplating becoming an Investor, learn how to price your offers for maximum profitability.
*** Depending upon the speed of your Internet connection it may take a few minutes to load..maybe 7 seconds or so at the most on a really slow connection. This video was designed to play on fast connections. If you are on dial-up or on a slow connection it may not play for you. The running time on it is about 25 minutes…and no…NOTHING is sold or pitched. It’s all free content ***
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8 Responses to “Real Estate Radio Episode 193: How To Make An Offer For Maximum Profit”
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Hello guys, awesome video! However and correct me please!
The buying formula is: Comps – Repairs – Desired profit = offer.
Wholesale price formula is: offer + desired profit = sale price.
Now the investor buys the home, makes the repairs and ends up at comp value. What is in it for the investor? If he flips and tries to sell the property to an end user will not the property appraise for the value of the comps? Where is the investor’s potential profits and/or inducement to buy this property.
Thanks
Hi Gus,
Thanks for the comment and for stopping by.
Too many people try to come up with some magical formula and make it hard fast and end up losing deals. We take every deal as it comes and analyze it both on the numbers and what the exit strategy is. That being said, on the property in question we made it pretty easy because the deal is pretty much straight forward.
This isn’t a complicated business whatsoever. Many people complicate it but the business isn’t. Generally the biggest thing is to get VERY accurate comparables. Most agents don’t know how to do this. It’s where the money is in the deal.
Once you obtain a CURRENT value for the property..which is based upon FMV less repairs to get it to FMV or ARV then it becomes easy making your numbers work. Don’t get too tight on a formula but rather spend your focus on making sure you get two numbers.
1. The CURRENT value of the property as it sits, and
2. The ARV..the value based upon comps after it’s fixed up
Once you have those two numbers, then yes, back out your desired profit, your closing / holding costs and of course your repairs. It doesn’t matter if you are wholesaling it or not, the numbers still must work.
So now you may be wondering, well why would the bank accept or rather approve such an offer. Well if you have done your homework and your numbers are not outright lies then you can substantiate your values and offers. Which leaves them no room to challenge you. In the next couple of episodes we’re going to get into some terms that I would venture 99% of agents have no idea about. Those terms being the Net, Value and variables of offer that allow your offer to meet certain Tier requirements. Once you understand Tier requirements then getting offers approved by the bank is child’s play.
As for the second part of your question, the Investor we would be selling it to more than likely is going to fix it up just enough to get a renter into it. You see OUR costs of repair may not be HIS costs of repair nor the level of repair he will need. I don’t concern myself with what the other Investor’s objectives are. They simply tell us what they want and we deliver. I mean it’s not like an ACORN video where they tell me that they are pimpin out the joint but trust me, I don’t ask what they are going to do. They say find me a property with X bedroom and baths and it needs to be at this price and need no more than $$ of work.
What you are asking about is a double flip…which we have been involved in as well. Bottom line it’s really not my concern what they are doing. For all I know they may be moving in Aunt Marge. As long as my numbers work and it works for them…it’s not my concern…and really shouldn’t be yours.
Get your deals, find out who the players are in your area and what they want, provide it for them and then rinse and repeat for more and more profits. I’ll help anyway that I can!
I’m not sure if you took into account a couple of items. You used the $39K selling price of the top comp to start your calculations. However, you did not assess the condition of that house when it sold. It may have needed the same amount of work as the subject property, which means the flat ARV would have been $55k for that property.
Also, your comps were all 2/1 configurations but you did not add any value for the extra 1/1 ‘apartment’ that is part of the subject property.
What makes the bank to accept the “investors offer” (Realtors call it a low ball offer), or a short sale offer for a lower than listing price? Is it enough to do a cash offer and a quick closing, or is there anything else?
Hey Dale..great points indeed. We drove by the higher comp but did not have the camera running …BJ asked me to include it but I didn’t. When we looked at it, it was a good comp. As for the comps being 2/1…that’s the number we are looking at because that’s what it is. The extra efficiency was not permitted and in fact the house was a 3/2 that the former owner re-configured. There’s NO WAY I’m going to value it as a 3/2 for our PURCHASE criteria.
If the bank thinks it’s a 2/1 and the agent thinks it’s a 2/1 then it’s a 2/1 as far as I am concerned. I think you heard us say in the video that it’s a home run…you obviously picked up on why it is…but certainly you are not saying that we should call the agent or tell the bank that somebody dropped the ball and we’d like to up our offer to 60k because someone missed on THEIR observation of the property? This is a goldmine and part of being a good, and profitable investor, is taking the gifts when they come wrapped in a bow for you.
Thanks for your comment and thanks for stopping by.
Hi Gabriela …thanks for stopping by and thank you for your comment…let’s see if I can answer your question.
Making a low ball offer for the sake of making a low ball offer is a waste of your time, the Realtor’s time and the bank’s time. I don’t advocate such offers. However, the big difference in what we do and what successful investors do is not to just shotgun BS lowball offers. We submit offers based upon hard and fast numbers that we can substantiate. As you saw in the video, we take video, we make an itemized list of repairs, AND we make sure we have accurate comparables. That’s the key. In my mind and opinion there is no such thing as a low ball offer. Every offer we submit is completely validated and can not be challenged unless real data is simply ignored.
NEVER base anything on the list price. I advise you to completely ignore any list price on any property. It means absolutely nothing. What matters is the price YOU are willing to pay. Do your home work, crunch da numbas, and make your offer accordingly. If they don’t like it..too bad, move on to the next one but never change your numbers based upon the list price. And yes..cash is most assuredly king as many homes in foreclosure will not qualify for financing.
Thank you, great video.
Hi Missy,
Thanks for the comment and for stopping by. We do things a bit more agressively than most but nonetheless one of the biggest problems we have run into is agents not knowing how to price homes. It’s a problem of epidemic proportions…at least down here anyways…please visit again soon!