what is a lowball offer in present market?

[spark1]

Hi all,

I am a beginner and seek advice of experienced RE investors. What do you mean by "lowball offer" in the present market. Particularly I am interested in Toronto. Let`s say I see a semi in North York for 420k, what would be a low ball. 10% off, 20% off? more?

Thank you very much,



igor

 

[Nir]

Your offered price should depend on your goal, not mainly the asking price. Is it a certain cash flow you expect? certain CAP? I start there and calculate an excellent price based on my goal regardless of the asking price. then look at the asking price and make a decision. OR: start from certain ratio/criteria that will save you tons of time by eliminating like 99% of the properties. effeciency is key. good luck, Neil.

 

[Dan_Eisenhauer]

When I first got into real estate sales, our office had a listing on the market for $95,000, as I recall. Within a month it was sold for $60,000. There was nothing wrong with the economy or the house. It sold because someone took a chance on writing a low ball offer and struck a home run by finding the seller very motivated.

There is no rule on what is a lowball offer. Do your number crunching, as Neil suggests. Then knock off an amount to see what kind of a response you get. Attaching your cover letter may help generate a counter if you have gone too low. If the seller does not counter, you can always write a new offer.

The most number of offers I have seen the same buyer write on the same house is NINE.

 

[invst4profit]

Good advice above.
My approach to any property is to calculate what I need to buy at to achieve the desired positive cash flow I need. This is where education comes into play. If you do not know the local rental market or due all of the required due diligence on a property to educate yourself on that property you have no idea what to offer. Asking price is irrelevant.
When buying a personal residence most people simply decide if they like the home and if they can afford the price and buy accordingly.
In this business the asking price simply determines if it is at all realistic based on similar home values not whether it is a good rental property price. Other than that you set the value in your offer and it can be any value you need to make money. 10%, 20%, 40% it does not matter how low but it must cash flow.

Get used to rejection and find a agent that understands the business. Most residential agents have no concept of the business and think positive cash flow is what is left after paying the mortgage.

 

[spark1]

Thank you very much all for your insights.

I did my math and the highest price which produces small cashflow is 350k. So, that is 70k off the listing price.

What is YOUR lowball offer could be in this situation?

Thank you!



QUOTE (invst4profit @ Jan 19 2009, 08:05 AM) Good advice above.
My approach to any property is to calculate what I need to buy at to achieve the desired positive cash flow I need. This is where education comes into play. If you do not know the local rental market or due all of the required due diligence on a property to educate yourself on that property you have no idea what to offer. Asking price is irrelevant.
When buying a personal residence most people simply decide if they like the home and if they can afford the price and buy accordingly.
In this business the asking price simply determines if it is at all realistic based on similar home values not whether it is a good rental property price. Other than that you set the value in your offer and it can be any value you need to make money. 10%, 20%, 40% it does not matter how low but it must cash flow.

Get used to rejection and find a agent that understands the business. Most residential agents have no concept of the business and think positive cash flow is what is left after paying the mortgage.

 

[invst4profit]

What are the details on the property. Show us your math. At $350 K your rent would need to be around $3500 per month
Your mortgage details, closing costs, taxes, insurance, rental income, required improvements etc.
Initially your numbers should include 45-50% of your rental income to expenses (everything except mortgage) including vacancies, legal, advertising, emergency repairs, upkeep, insurance, taxes, etc.

 

[DennisEpp]

QUOTE (spark1 @ Jan 18 2009, 08:10 PM) Hi all,

I am a beginner and seek advice of experienced RE investors. What do you mean by "lowball offer" in the present market. Particularly I am interested in Toronto. Let`s say I see a semi in North York for 420k, what would be a low ball. 10% off, 20% off? more?

Thank you very much,



igor


I beleive the most productive anwser from INVESTMARK. Writing low ball offers for property may and does on occassion put the seller on defencive, particularly if they are owner occupied. Owner occupied have a sort of pride in their home, as many have done some home improvemts and are proud of their work. A low ball may end up with no counter what soever or back to even list/asking price.

If you are not overly concerned about if you acquire the property and are prepared to move on to the next potential propety then writing low ball offers are best with No Conditions, with a letter of intent to accomodate any needs the seller may need, such as possession date etc. Even maybe say you will pay for all his legal fees also. (best done if you choose the Lawyer and confirm the lawyer will do both ends, usually results in a better price, just ask for a better price). Not a big amount of money on your end and the seller can see exactly what their net from the sale is.

 

[RedlineBrett]

In Calgary, the *average* sale price to list price ratio for December 2008 was 96.2%.

Offers coming in at 10% below list are common, but get negotiated up near the average. 20% below are very rare. The problem with lowball offers is that if you are past the `tipping point` with your offer sellers often would prefer to just reduce the asking price to see what happens rather than give the property away.

If you just pick a number out of the air and wing it out there on any random property hoping to get big $$ off you might as well buy a lottery ticket. You are basically taking a blind chance that you have found a seller willing to give their home away.

To have the best chances for success with low offers you have to do your homework. Get some history about the listing (what prices have they tried to sell at, how long did they wait for reductions, how big were the reductions when they made them, how much do they owe on the property etc). Also what language is in the listing, what does the listing agent have to say, is it owner or tenant occupied, is it cashflowing for them... all these things are pieces of the puzzle when it comes to getting success with your offer.

QUOTE (DennisEpp @ Jan 19 2009, 11:43 AM) I beleive the most productive anwser from INVESTMARK. Writing low ball offers for property may and does on occassion put the seller on defencive, particularly if they are owner occupied. Owner occupied have a sort of pride in their home, as many have done some home improvemts and are proud of their work. A low ball may end up with no counter what soever or back to even list/asking price.

If you are not overly concerned about if you acquire the property and are prepared to move on to the next potential propety then writing low ball offers are best with No Conditions, with a letter of intent to accomodate any needs the seller may need, such as possession date etc. Even maybe say you will pay for all his legal fees also. (best done if you choose the Lawyer and confirm the lawyer will do both ends, usually results in a better price, just ask for a better price). Not a big amount of money on your end and the seller can see exactly what their net from the sale is.

 

[terri]

QUOTE Get some history about the listing (what prices have they tried to sell at, how long did they wait for reductions, how big were the reductions when they made them, how much do they owe on the property etc). Also what language is in the listing, what does the listing agent have to say, is it owner or tenant occupied, is it cashflowing for them... all these things are pieces of the puzzle when it comes to getting success with your offer.

Brett`s advice is very good, find out what the seller`s motivation. Also check comparable solds in the area in the last 30-60 days and see what those properties sold for. It`s not just about % below asking, how accurately priced the property is in the first place will have a lot to do with how much a seller may be willing to come down.

Terri

 

[Thomas Beyer]

QUOTE (spark1 @ Jan 18 2009, 08:10 PM) I am a beginner and seek advice of experienced RE investors. What do you mean by "lowball offer" in the present market. Particularly I am interested in Toronto. Let`s say I see a semi in North York for 420k, what would be a low ball. 10% off, 20% off? more?

Depends on market, seller motivation and supply/demand !

Try 20-25% below .. perhaps even 40% below for a unique/weird situation .. and be prepared to go up .. or walk !

also: write MANY MANY offers ... on 10+ properties .. if you do not write at least 10 offers for every one house you buy you have not written enough ..

houses are like the public transport system; there is another one in 10 minutes !!

Don`t fall in love with your real estate .. just make money in it !

You can also write multiple offers on the same property .. one low with a VTB .. and one even lower cash .. (i.e. cash to seller, for you: cash + mortgage)

 

[spark1]

Thank you very much everybody, especially Thomas!

QUOTE (thomasbeyer2000 @ Jan 19 2009, 04:46 PM) Depends on market, seller motivation and supply/demand !

Try 20-25% below .. perhaps even 40% below for a unique/weird situation .. and be prepared to go up .. or walk !

also: write MANY MANY offers ... on 10+ properties .. if you do not write at least 10 offers for every one house you buy you have not written enough ..

houses are like the public transport system; there is another one in 10 minutes !!

Don`t fall in love with your real estate .. just make money in it !

You can also write multiple offers on the same property .. one low with a VTB .. and one even lower cash .. (i.e. acsh to seller, for you: cash + mortgage)

 

[invst4profit]

You can also write multiple offers on the same property .. one low with a VTB .. and one even lower cash .. (i.e. cash to seller, for you: cash + mortgage)


This is excellent advice (multiple offers) which I have followed and found to be very successful.