Whether you’re looking for your first piece of real estate or are a seasoned investor, the thrill of the hunt never goes away. I always get excited when I find that hidden gem of a property and know you will too, which is why I wanted to offer some tips to making an offer on an investment property that you can use time after time.
I talk more about my strategies in the video below, but essentially the best way to create a successful strategy for investing in real estate comes down to this: do your research, get to the property early, and show you’re serious. The more you’re able to show to the seller that you’re a serious investor who knows their business, the easier it will be for you to close deals quickly and efficiently. But let’s break it down a little more so that you know exactly how to get started (and what not to do).
Tips to Making an Offer on an Investment Property
Here are few tips to making an offer on an investment property!
- Look for off-market properties – When looking for a new investment property, it’s best to get creative with your searches. Homes posted on the MLS will not often be the best deals because they have so much attention and are prone to invite more competition into the offer, whereas properties that haven’t yet made it to the MLS can be snatched up for a better deal. Try “driving for dollars” and look around your area for homes that have fallen into disrepair and might have a motivated seller behind it and reach out to see if they’re interested in selling. “Zombie houses” or abandoned homes that haven’t been put up for sale are also great potential deals, especially if they’ve been held by a bank for a while. 99/100 times you might hit a wall, but consistently reaching out in this way can unlock some incredible opportunities.
- Show you have the money and are a serious investor – Wary sellers may worry that investors who are cold-calling them to buy their home aren’t actually prepared to buy, so show them that you’re not wasting their time by bringing proof. Bank statements, pre-approved offers, or any other financial document you have that can show you’re a serious investor with the liquidity to make a deal happen quickly can help alleviate their concerns about keeping this property off the market while you negotiate and close the deal.
- Sweeten the pot by paying closing costs – Sellers can often shy away from closing a deal once they find hidden costs that lower their take-home sale price, so if you want a deal to close quickly, offer to cover any closing costs or commissions that would normally be covered by the buyer. Check with your accountant, but often these can be written off on taxes or recouped easily on a property that’s in an up-and-coming neighborhood.
- Offer earnest money to secure the deal – Once you’ve settled on a price, offer a deposit (often referred to as “earnest money”) to begin the closing process. It can be as little as $50 – $100 but if you’re feeling that your seller might back out, offering a more significant deposit may save you time and effort in the long run. You can give it to the seller directly or send it to the title company if that’s more to your comfort level. I usually opt for sending it directly to the title company.
- Don’t negotiate against yourself – One of the most important tip (tips to making an offer on an investment property) of them all. Remember that the goal is to get the best deal possible so don’t feel bad about pushing towards a lower price. I often use the method of asking “Is that the best you can do?” and then staying silent so that the seller will negotiate against themselves rather than me. Staying silent is absolutely key, so don’t be afraid of long pauses because the first person who breaks that silence is the one with the power. I talk more about this below but work your way up to doing this 3x and get comfortable making it clear that you can walk away if the price isn’t right for you.
During this process, new investors often feel like they’re being pushy or rude, so it’s important that you learn how to separate the emotion from the business transaction. I don’t mean that you have to be a jerk or overly rude and condescending, but it’s important that you keep the perspective that it’s not the seller doing you a favor by selling. You’re doing a favor for them by solving the problem of what to do with this potential money pit of a house. A good deal should always be a win/win.
Selling a House is a Solution for the Seller, Not the Buyer
They could spend a ton of money fixing it up and then putting it on the market, but how long will that take and how much can they really afford to spend? By having an earnest buyer in their hands who’s offering up cold hard cash right now, you’re helping them out by eliminating so many factors that could blow up in their face along the way. As that buyer, it’s your job to help them realize that and take this opportunity for quick cash while they have it.
The most successful investors know that selling isn’t about the transaction, but it’s about solving problems. Don’t be afraid to point out the factors that you’re taking on for them by buying this property to help secure a good price at the close. While looking around the property with the seller, express your thoughts out loud about things you notice that need to be repaired, replaced, or completely overhauled. While doing this, gauge whether or not they’ve noticed (or considered) that factor to see how much of a consideration they’ve put into what it’s going to cost them to sell this house. Not only will this help you when it comes time to negotiate a price, but it also gives you a full picture of the amount of work and money you’ll need to put in to flip the property for a profit.
Remember the Power of Three
If you read any of this, I hope you read and take away this one tip: Repeating “Is that the best you can do?” three times during negotiations has been the most successful strategy I’ve used. You shouldn’t act robotic when doing it so don’t feel weird repeating yourself. I like to show a pained emotion like I want to help but it’s really not a price I’m capable of accepting. By doing this 3x I get the buyer to negotiate against themselves and can reiterate that I have the ability to walk away from this deal altogether, so is it really worth that extra $5,000 for them to start all over again or should they just eat that five grand and close with me today?
Don’t Forget There’s More Out There
Finally, don’t push yourself into an investment property if it’s just not feeling right. Trust your gut and don’t let yourself fall in love with the potential if the data shows the profit just isn’t there. Walking away from a bad property might cost you the earnest money, or the time already spent on the negotiations or walkthroughs, but use those as lessons learned rather than anchors to a sinking ship and move on. Believe me, there will always be new opportunities for a great real estate deal!