How Does the Competition Price Their Offers to Sellers?
How to Make a Perfect Real Estate Offer Over the Competition
When you meet with a homeowner, and you will have to do this to get the best deals, you will find that the most motivated ones have contacted every “Cash for Houses” advertiser on the internet and from local bandit signs. This means that the homeowner may have already come in contact with “professional buyers” who have purchased houses many more times than you have, so you need an edge.
For you, the most important things you need to know about the property is how much can you afford to pay and still make a profit, and how much can you sell it for.
The first questions is ‘How much can you afford to pay?’ You have to make a profit but you have to have a reasonable offer to beat out the competition, so this seems like a dilemma. It’s not a problem if you can first accurately and quickly calculate the repair costs. You may be thinking “Why do I have to know repair costs when I am wholesaling?”
If you want to make 2 to 6 times the profit margins that the average wholesaler makes, you have to know what the property will really sell for and that you can accurately estimate the repair costs for the buyer. If the buyer is another wholesaler, should you have to bother?
A huge problem with wholesalers’ lists is when they estimate repairs at $5,000 to $15,000 and then proceed to tell you that the property needs a full rehab. They lose credibility and sales. Wouldn’t it be better to advertise a DIY and a Contractor’s bid that you generated in a few minutes! When newbie buyers see your ads and realize that you know what you are talking about, they will start to buy from you and become repeat buyers quickly. Your reputation is based on your word and your knowledge.
The “Deal or No Deal” Software was designed to eliminate the previously major issue of estimating repair costs. You can review what it does at www.ExcelRESoftware.com. By using this inexpensive software tool you can overcome the issue of repair costs.
Next you have to determine the offer to make the seller because your profit is based on what you can buy it for, how much are the repairs, and how much you can sell it for. Right?
Actually, this isn’t correct. The carrying and closing costs that aren’t figured in by your competition can be significant and these expenses are where many newbies fail dismally. Your pro-competition overlooks this obstacle by offering the seller 55% to 65% of ARV (After Repaired Value).
Your advantage is gained by learning what percentage they are offering and in flat-to-fair markets this percentage will be 60%. If the property is in good to great shape (move-in), the offer will be 65%. In a bad or declining market with diminishing sales, the offer will be 50% or lower if the property is in bad shape.
These pro-wholesalers generally offer less than the land value for a burned house. There is huge profit potential in burned-out houses because of additional sources of income they have that is not understood by most investors. Every community has a small group of contractors that specialize in rehabbing these properties. By finding them and having a ready made Buyers’ List, you can access the damage using the “Deal or No Deal” Software, and make an offer to the seller that beats everyone else (they will think you are crazy) and flip the property without ever going inside.
Another way to find out what they are offering is to ask the homeowner. They generally are so disgusted by the low-ball offer they will tell you. If they tell you something that sounds like more than you would pay, you say “That’s a great offer, take it!” Be very polite and insist they take the offer and then tell them to please call you if it doesn’t work out. About 30% of the time they will call back, and if they don’t, go on to the next deal because the buyer offered too much!
As a shameless plug, the “Deal or No Deal” Software takes care of calculating what price to offer for Cash and for Terms and gives you each offer’s profit expectation. The presentation you will make to the seller will be printed from the software, and with a little experience, you can take the seller’s info over the phone and take a repair estimate with you without seeing the property beforehand.
The final part of the equation that is critical is the ARV segment of market value of the property. This calculation was very simple two years ago, just get comparable sales or an appraisal and ask 5% – 10% more and the property sold in one weekend. Times have changed and I use a technique of determining “What Can I Sell it For?” that I turned into a separate part of the software bundle. This method of determining market value is only used by the most professional investors who know what they are doing.
Using what I have just disclosed to you, you can determine what your competition is offering, what you can afford to offer to make a profit either fixing or flipping the property, so all you need to do is take your printed presentation and close the sale.
To your limitless success,
Real Estate Mentor Program Founder