How to Make Lucrative Offers on Investment Property | I still remember his comments: "You will annoy the homeowners and you are risking loosing this property! They will refuse to negotiate with you if you insist on making this offer". My real estate agent was reluctant to make the offer on an investment property I liked. He felt the owners would be offended because the offer was way below the listing price. Against my agent's advice, I still asked him to offer $69,000 on a property that was listed at $89,900. After three long weeks, they came back with counter offer of $80,000. When my agent notified me of their counter offer, he was very satisfied. He made it known that I should accept their counter offer.
However, I still felt I could do better based on the analysis that I had done on the property. In my opinion, it is very important to focus on the following items in order to negotiate a great deal. First, It is vital that you understand what motivates the seller. Second, you will need to perform a thorough analysis of the property data.
Let's review these factors in detail:
• What is the assessed tax value of the property?
• How much did the current owners pay for the property?
• How long has the property been on the market?
• What is the average sales price on similar properties in the area?
• How old is the property?
• Does the property need any repairs?
• Are you dealing with a motivated owner?
You are at the point where you can make thousands of dollars by making the correct offer. However, you will need to review all these factors in detail:
Assessed tax value: your aim is to obtain the investment property from 10 - 20 percent below the tax value. To validate you number, you will also need to review the current tax value of other similar properties in the neighborhood.
Last sales price: This is public information and your real estate agent should be able to obtain it for you. If you are already investing in real estate, you know that this information is also available in the internet from several sources. This data will give you another bench mark where to place your offer. If your potential property is owned by an institution that does not manage real estate, they might be more inclined to accept your lower offer.
How long has the property been on the market: If the property got listed recently, you know that the owner will not deal with you until they have tested the waters. If the property has been listed from six months to a year, the owner will be more willing to entertain an offer from an investor. A word of caution is needed at this time. It is very important that you determine why the property has not been sold yet. You will need to determine the factor that is preventing the sale. It could be that this property has been overlooked by other investors. However, in most of the cases, you will find that there is a specific reason: It could be that your property needs some repairs, or it does not have a clear title, etc. Once you determine the reason, it can be used a a bargaining chip in your negotiations.
What is the average sales price in the area? As you gain experience with this method, you will be making offers a bit lower than the average sales price. Remember when your offer is presented, there must be reason for the lower offer.
How old is the property? The age of the property is just another bargaining chip. Older properties have more maintenance problems. Does the property need any repairs?. We already started discussing this situation. If your property is in need of repairs, you will need to have a licensed general contractor advise you on the repairs before you buy. Do not skip this step. Your profits will evaporate very soon if you do not estimate the correct repairs. Are you dealing with a motivated owner?.
The biggest mistake you can make is to negotiate with someone who is not motivated to sell. Find out what motivates the seller, In some instances, you can let the seller make the first offer. "Mr. owner, what is the very best deal you can offer me on this property?" This question will put the pressure on the seller. Whatever he offers, you can ask him to do better.
After you have screened several properties, it is time to make the offer. Using this information, you should be able to make a profitable offer. If you do not buy it right, meaning below market value, there is little change of making a profit. One last tip. Always, always leave yourself a way out. Make sure that any contract you sign has several contingency clauses. One clause should let you off the deal if it does not pass inspection. The second clause should state that the purchase is contingent on you obtaining a reasonable mortgage in a certain period of time.
Making offers on investment properties does not have to be complicated. In fact, it can be quite easy if you follow the outline presented in this article.
Jake Borjas is an established Commercial and Residential General Contractor in North Carolina who has been building Custom homes and providing House Remodeling Services for over 5 years through Jamar Properties Inc. If you would like to read additional real estate investing articles.
By Jake Borjas
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