The Real Estate Dip: How Little Should I Be Offering Now?
Property prices and rents appear to be floating down. With many seasoned investors expecting a deeper dive on the horizon, how much should you be making offers for now?
Shopping For Discounts
In this new phase of the market everyone is looking for deals and discounts. They don’t want the risk of buying in at the top of the market. Then instantly losing as prices continue to come down.
With this in mind, savvy buyers are going to be offering even less than current market value to build in that cut.
You may have recently seen some veteran real estate wholesalers and fund managers remind us how they were buying properties and mortgage notes and reselling them for as little as 30-40 cents on the dollar back in 2008. Sometimes even less than that.
We may not be there yet. Though many investors are sticking to offers no more than 30% of recent comp values.
Don’t get hung up on rules of thumb. Especially as the market is always in flux, and changing. Though do make sure you are ahead of the graph.
Focus On…
Instead of focusing on rules of thumb for offering 90%, 50%, or 30%, of previous values, the two things it makes more sense to focus on are:
- How much you can sell it for
- How much you need to make
The first is about risk. Lowering your risk. You can do that by focusing on wholesaling real estate, and using transactional funding. Meaning you aren’t getting stuck holding any deadweight properties which may go down in value and put you underwater.
So, before buying, know how much your buyers list are going to pay for it.
If they are willing to pay 90% of market value, then you can offer a lot more to sellers than your competitors, and still make good money.
The second part of this is working based on how much you need to make.
This may either be a flat dollar amount per deal, or a desired percentage return. For example, you may want to be making at least $20,000, or 20% profit for it to make sense for you.
Decide on your number, and on your fees, taxes, and transaction costs so that you are netting what you need. Make your offers based on that.
Some sellers may still be resistant and in denial. Though it won’t be long before they are desperate to sell. You can always update your offer then to account for the changing market.
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