Beat Your Competition

Are you sick and tired of hearing “There are no good deals out there right now”?

I know that I am.

Yes there are a lot of factors that exist today to slow down the flow of foreclosures that are available to us as investors.  From Fannie Mae’s First Look Program to HUD’s “exclusive” to homeowners only it is tougher to snag a property than it was even 2 short years ago.  Then how is it that as the title of this article states I’ve made 2 offers in the last 30 days and had 1 accepted?  That’s a 50% success rate!

There are 3 techniques that allow me to  have success when making offers while a lot of others dont.

1.  All CASH* offers
2. HUGE earnest money deposits
3. Expert knowledge of area/ability to make snap decisions/remodel-construction budgeting

1. Cash Offers  This is very simple.  If you’re offers are not all cash you will lose your battle against the banks.  No it’s not a 100% given that you can’t get an offer accepted if it’s not cash, but you will almost always be beaten by a cash buyer, and if you do beat out cash buyers with a finance offer I guarantee you’re paying too much.  Switch roles for a second.  Imagine you’re the seller and you receive 2 offers.  The first one is for $50,000 contingent on the buyer getting financing through a bank for the purchase. There’s a million and one things that can go wrong in that scenario; not qualifying, appraisal, lack of down payment, or the property being un-mortgagable.  The second offer comes in at $45,000 all cash with a $10,000 deposit.  Sure there are things that can go wrong, but you’re holding a 10k check that the buyer has handed over.  You have a lot more control as the seller.  This is a very brief overview of the bank’s psychology but I’m sure you get the gist.

2. EMD  This can give you a huge leg up on your competition.  Again step into the seller’s shoes.  You receive 2 identical offers on a property.  The first one has a $1,000 deposit check attached to it.  The second has a $10,000 deposit check attached to it.  Which one gets your attention?  The last property that my offer was accepted on was with a $10,000 EMD (deposit) attached.  Was this the only reason my offer was accepted, no.  However it’s and integral piece of the puzzle that helps me buy more houses and beat out my competition.  How much is on the EMD check that you’re sending out with your offers?

3.  Expert knowledge of area, tight rehab/ability to make snap decisions/remodel-construction budgeting  This a 3 part answer that’s not quite as black and white as numbers 2 & 3.  Let’s start with the knowledge.  Being an expert in the area that you’re making offers, area meaning neighborhood, first and foremost means knowing sold comps.  If you want to make money in Michigan real estate investing whether rehabbing or wholesaling, you must know what houses are selling for right now.  You need to know what condition, how long they’re on the market for, and who the buyers are; homeowners or other investors.

This leads us into being able to make a snap decision.  There are times where you will be forced too jump in head first or walk away and you may need to decide within hours.  A real life current example for this is the last property that I had an offer accepted on my initial offer was $20,000 less that I could actually pay for the property and still make my minimum profit margin required.  Less than 2 hours after my “lowball” offer the listing agent actually called me and told me “I’d have to come up like 20k” if I wanted to be in the running.  So I immediately adjusted my offer up exactly $20,000 plus I upped my deposit to $10,000.  Less than 2 hours later I had the house under contract, and was very happy about the purchase price.  The reason I could make that snap decision so quickly is because I knew within $1,000 how much work the house needed to be marketable to a retail buyer.

You must know your remodel-construction budgeting.  Lastly, I obsess over knowing my numbers.  That means exactly how much money and work a property needs to be perfect for the buyer I have in mind.  Sometimes it’s less than $1,000.  It could be a quick paint job and yard cleanup on a house I’m going to wholesale or quick flip to another investor.  That’s not too hard.  Now when it comes to a full rehab leading to a maximum list price with hopes of a maximum appraisal then sale price…that’s a whole different animal.

Using the same example property as above-when I first pulled in the driveway I knew that there was something very special about the house I was about to scout.  Remember I’ve been in hundreds if not thousands of houses looking for diamonds in the rough, so when I get that tingle of Spidey-Sense I’m usually not wrong.  As I was saying, the exterior was absolutely exquisite.  What that normally means is the interior is DESTROYED.  Well on this house it wasn’t the case.  I’ll keep this part short, but it’s hard for me because this is waht I really love about real estate.  The interior was an A- as far as foreclosures go.  New kitchen cabinets, 2 full baths (one in the master), new windows, new roof, beautiful hardwood floors (after a refinish), new furnace/water heater/air conditioner, huge fireplace, and an amazing view. In less than 5 minutes I knew it would take $20,000 to make this house 100% perfect and get the absolute maximum appraisal and sale price for the neighborhood.

This is my personal formula for making successful offers.  There’s hundreds of other tips that other investors may have that work  for them.  I urge you to leave a comment below and tell all of us in the REIA of Macomb community what you’re doing or have done to get more offer accepted in this market.

Back to my offers,
Dylan Tanaka-Founder