Real Estate Investing: How Much Should I Be Offering Sellers Now?
With the fast changing real estate market many investors are wondering if they need to be changing up their offer strategies, and how much they are offering sellers. So, what should your offer formula be now?
The Changing Real Estate Market
The economy, finances and real estate market keep on changing at a face pace. There have been plenty of twists and turns, with more to come this year.
The housing market has continued to beat expectations. Multifamily is very strong too.
Tens of billions of dollars are chasing deals in this space right now. Which is also leading many investors to question their offer strategies. Especially as they find it more challenging to secure deals with often overly optimistic sellers.
The big question is how much to offer to still ink profitable deals, and keep up deal flow? You’ll starve without doing deals, but don’t want to be losing money by overpaying either.
Be Wary Of Rules Of Thumb
There are many books, articles, and speakers out there plugging their rules of thumb for making offers on properties to flip. Much of this is outdated and out of touch.
You cannot just stick to one rule of thumb and offer formula. Market dynamics are changing all the time. Some investors are used to making offers in the 60-70% range. Others have driven hard bargains at 40 cents on the dollar during crisis times. In other phases of the market a lot of money has been made offering 90% of the retail value for homes.
In the past some appraisers and lenders have gone up to 125% of the value knowing the market is growing so fast.
Be Wary About Overpaying
Overpaying will catch up to you eventually. Even these big funds blatantly paying 50% over value for properties will eventually find they pay for it.
At the same time, you may need to be more aggressive, and be willing to pay more for property than you thought it was worth over the past couple of years. Remember, it is about what the market is willing to pay for it.
Still, with prices expected to rise, at least one guru has been advising his followers to make offers based on pending sales, not closed comps. That is extremely dangerous.
Pending sales often don't close. They are not used for lenders and appraisals. It can mean big trouble flipping, and being restricted to only cash buyers willing to over pay.
Stay Flexible
Be aggressive enough to land the deals. Yet, conservative enough to not lose money and get stuck with dead weight you can’t sell.
Sellers won’t hold out forever. If you hold firm, the sooner they will fold. There is a lot of distress building. Especially with inflation in gas, insurance, and medical bills. As well as declining consumer debt performance.
Ideally you already have end buyers lined up in advance. You know their numbers, and can base your offers on that. Then with transactional funding your risk is incredibly low, deals are presold, and you are in and out, and paid.
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