Back to Making Offers

September 30, 2008 · 1 comment

With things so busy the past few weeks, and with being so caught up in the rehab part of the business, I’ve been slacking on the acquisition side of things. Now that I have my brother working for me full-time (wow, he’s awesome), I can start to focus some more time on finding new properties, which really is the key to making this business successful. Along those lines, I spent much of last week combing my preferred neighborhoods for good REO deals, and actually found a number of properties that I really liked; unfortunately, they were all priced a little higher than I would have liked (of course), but that didn’t stop me from putting in offers.

In total, I made five offers last week, two of which were rejected quickly because the properties had just gone under contract, and three of which were submitted to the listing agent. Here is a brief overview of those three offers:

1. The first was in a more upscale neighborhood just outside of where I typically invest. While the deal is a probably a good one, it’s about a 30 minute drive to the property from my home, and I don’t know the area very well. Additionally, it’s not a property that I think I would enjoy rehabbing — there are a few things that I think will ultimately end up as frustrating issues to resolve. That said, I made an offer about $20K below list price, and when I was asked for my best offer (which is generally the case when there are multiple bids), I decided not to raise my offer. I’m still waiting to hear back on this one, but I’d be very surprised if I got the house (which is fine with me). This one would be a decent sized rehab, probably on the order of $30K.

2. The second was a house right down the street from The Second Chance House, and is a cute little 3/2 on a nice corner lot. There is a good bit for sale in the neighborhood, but I put an offer on this one because of the curb appeal. The house needs some very basic renovations — kitchen and bathrooms — and there’s some room to make some minor layout changes that would likely add some value. My offer on this one started about $17K below list, and again, I was asked for my best offer (multiple bids); I raised my offer to about $13K below list price, which is about as high as I’m comfortable going on this one. Not sure that will be enough to get me the property, but if I get it at that price, I’ll be pretty happy about it. I should know more in a day or two.

3. The third house is a 3/2 traditional with an unfinished basement, also right down the street from The Second Chance House. The house is in almost perfect condition for a rental (not renovated, but everything is clean and move-in ready), and while it’s priced about $40-45K below market value in this neighborhood, it only needs about $15-20K worth of work to make it a fantastic house. The list price was $84K, and my original offer was $72K last week. Today, without any response from the seller, I noticed the price had dropped to $65K! I immediately called my agent, and asked her to drop my offer to $66K, still above list price. I was hopefully that I’d get the property without competition, but as I should have expected, a number of people looked at the property today, and we got into a multiple bid situation on this one as well. Not only was I told that they wanted my best offer, but also that the drop in price had been a mistake, and the list price was still $84K. Based on the work required and the likely selling price, I determined that I could go as high as $74K on this one, so I made that my offer. If I were a little more confident of the area comps (my agent certainly is), I might have gone higher, but I just didn’t have the time to do the research that I would have liked to have done on this one. I’m hoping to get this one, as it would likely be an easy rehab and sale, with decent upside potential. Worst case, it would make a great first rental property.

I’ll hopefully have updates on these three properties in the next couple days, and I imagine I’ll be making some more offers this week as well. Now that The Bulge House is almost sold, The Corn House is almost done, and The Second Chance House is underway, I’m itching to pick up a couple more…

One response to “Back to Making Offers”

  1. Rm89004 says:

    Easy! I know that there are a lot of attractive deals out there. But, I think that you should take it SLOW. As it stands now, you have a lot of expenses and no income. I think it is time to institute some rules about selling a certain number of properties before purchasing others. Maybe you should consider the following property ratios:

    Sold: 1

    Ready (Selling/On the Market): 2

    In Progress (Rehabbing): 1

    Prospects (Buying/Offers): 3

    I think it is best to slow down until you have proven that you can move these properties in this market. I have seen the numbers on the individual properties and it has been well thought out and detailed. Also, I have seen the results of your work. I think you have done and excellent job with the rehabs. Now, I think the focus should be on moving the product (selling).

    What is needed in my opinion is an overall snapshot of the portfolio of properties in there varies stages and carrying cost associated with each property. What I am trying to gather is what is the optimal or reasonable about of properties that you should carry in this market? I am certain that you can carry several more properties on the books. But, the question is should you take the risk until you have sold a couple and have proven that you are in the right market with the right conditions (buyers who are willing, ready, and able — can get financing in this market)?

    JScott, I am not trying to tell you how to run your business. In fact, I admire your courage to start a real estate business in this market. What I am trying to do is voice some concerns about the ability to sell the properties, the speed at which the properties can be sold, and the outgoing expenses with carry to many properties at once.

    I have seen investors crash and burn from carry to many properties on the books at once.

    Good luck!

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