Learn To Be Rich » making offers

About The Make Offer Checklist

James Orr — Tue, 19 Jan 2010 23:23:45 +0000

We use the Make Offer Checklist when we are presenting our offers to the seller.

Typically we would prepare a number of offers to make to the seller with the Structuring Offers Checklist to guide us in the process.

Once we have the offers structured, we would then schedule a time to meet the seller to present the offer. Face to face presentation is preferred, but when dealing with sellers that are not in your local market we have an additional Making Offers via the Telephone checklist that we will use to remind us of the best practices for presenting offers over the phone.

Of course part of presenting offers is being able to handle objections. The Real Estate Investor Wiki has some great additional resources for How to Handle Objections and specifically How to Handle Seller Objections.

The meat of this checklist though is the Making Offers Checklist which consists primarily of our 49 page Seller Presentation that we go through with each seller in person.

The Seller Presentation is critical to us presenting offers since we use it build trust, credibility and use it a sales tool for talking about the various ways that we buy properties before presenting the specific offers to the seller. A downloadable copy of our Seller Presentation is available for our Real Estate Investor Bronze Members.

Until my next post,

James

Importance Of Checklists When Making Offers

James Orr — Wed, 13 Jan 2010 17:42:38 +0000

I’ve been working on updating some of the checklists that we use for buying properties (the link is for exclusive resources for our Real Estate Investor Bronze Members). This process reminds me just why it is so important to use checklists when looking at and buying properties.

If I told you that committing know to using a checklist could save you, at a minimum, $10,000 would you do it? I hope so and it can save you at least that much and probably much more.

Think about it: don’t most of the life critical or extremely expensive processes you know of use checklists to make sure they are doing everything right, consistently every time? Think about your medical procedures or airplane systems. By following a well documented system and meticulously following the steps you significantly cut down on mistakes.

Plus, by taking the time to think through the entire process before hand (and improving it as you use it and make better distinctions) you can protect yourself from known dangers and cut out emotion in the buying process. Remember, you want to buy logically and sell with emotion and checklists allow you to do that.

Until my next post,

James

Ugly Houses – Making Your Offer To Buy An Ugly House

James Orr — Wed, 13 Jan 2010 05:35:16 +0000

So, you’ve put out some Bandit Signs that focus on finding motivated sellers with Ugly Houses (links are resources for our logged in Real Estate Investor Bronze Members). A seller has called and you’re at the point in your real estate investing buying system where you are structuring your offers that you will make the seller to buy the property.

So, how do you actually determine what you will offer as your all cash offer to buy this particular property? Well, that is where the Ugly House Maximum Allowable Offer Formula comes in.

This very simple formula allows you to take some very basic information about the property and determine, very quickly, what the absolute most you should be offering to purchase this house if you were paying all cash. In fact, if you plan to use a Hard Money Lender to lend you money on the property, this formula actually already takes that into account. Just make sure your formula includes the exact limits that your specific Hard Money Lender has given you for their lending requirements.

Also, the Ugly House Maximum Allowable Offer Formula can easily be used if you plan on putting the house under contract and then wholesaling it to another investor as well. Just be sure to add in your wholesale fee when you calculate the offer and put the house under contract.

So, check out the formula and use it whenever you make an offer to buy an ugly house.

Until my next post,

James

A Strategy For Making Subject To Offers

James Orr — Tue, 12 Jan 2010 21:32:26 +0000

In my last few articles, I discussed how buying a house subject to the existing financing is similar yet different from leasing a house with an option to buy. I talked about how one is not necessarily better than another, but that each has its advantages and disadvantages depending on what you are trying to accomplish.

Now, I will share with you a strategy for making an offer to buy a house subject to the existing financing where the similarities between “subject to” and “lease options” are used to make a stronger, more understandable offer to a seller.

First, you might suggest in a trail close something like this: “I’m not sure if I can buy your house for that price, but would it help you at all if you did not have to worry about making the payments any more?” Motivated sellers usually reply, “yes, that would really help.” If you don’t get that type of response you might not be dealing with a motivated seller.

If they ask you what you mean you might say, “well, I could make payments to you for the amount of your loan while I am selling the property if I decide to purchase the property from you. Might that work for you?”

So far, you could be talking about either a lease option or buying the house subject to in the example. How you actually structure it can be discussed on the paperwork. In a future article, I will be discussing some strategies on what to do if you present an offer to buy the house “subject to” and, after discussing it, they do not feel comfortable with it.

Until my next post,

James

P.S. Upgrade to our premiere Real Estate Investor Bronze Membership today and get access to a wealth of additional resources, training and consulting.

Using Earnest Money As A Negotiating Tool

James Orr — Sun, 03 Jan 2010 02:17:09 +0000

You’ve probably heard it before, but everything is negotiable. As someone who has dealt with literally hundreds of real estate agents in markets all across the country as well as thousands of real estate investors, I see and hear many strange things.

It amazes me what some investors think they can do and it amazes me even more what real estate agents and brokers don’t think can be done.

Let’s talk about Earnest Money as an example. I’ve talked to a handful of real estate agents that believe you can never put a house under contract with just $20 in earnest money. Not true.

I’ve done it. Dozens of people I personally know have done it. Can it be done via the Multiple Listing Service (MLS) when working with real estate agents? Not usually. However, earnest money is completely negotiable and can be used to show that you are either a weak or a strong buyer.

If you go to a real estate agent to write an offer to buy a house and you tell them that you want to put up $20 (or some other ridiculously low amount) as earnest money, I would not be surprised if they told you to work with someone else. If you were my client, I would not want you wasting my time–especially at $4 per gallon for gas–taking you to see properties only to have you show the seller you’re really not serious when making an offer to buy.

Putting up a fair amount in earnest money can show that you are a serious buyer. If you are presenting a similar offer to another buyer with a larger earnest money deposit, you have a better chance of getting your contract accepted and buying that property.

Does that mean that you need to put the money up when you write the contract? Not necessarily. Talk to your agent or broker and find out if you can write the offer and have the earnest money due within a few days of having the offer actually accepted.

If you are actively investing and making multiple offers, it really helps to conserve your cash and only pay earnest money after a contract is accepted. I recommend this to investors that write contracts with me in my market. This is especially true with short sales and bank owned (REO) properties because it can take weeks, or even months, to find out if a contract has been accepted.

So, while you may be able to put a house under contract with very little in earnest money, it is NOT the norm when buying through the MLS and shows that you are not serious about buying. Rely on the experience and knowledge of your local real estate agent to discuss the benefits and downsides associated with the amount and timing of earnest money in your particular market.

Until my next post,

James

P.S. For our Real Estate Investor Bronze Members where I teach strategies for buying properties outside the MLS by using marketing it is a very different situation and relatively low earnest money is the norm not the exception. Sign up for Real Estate Investor Bronze Membership to access our extensive training collection of over 100 topic specific real estate courses plus on-going training and consulting sessions.

How To Overcome the Fear of Making Your First Real Estate Offer for Investors

James Orr — Sat, 02 Jan 2010 17:13:09 +0000

Some time ago I met with a couple of clients of mine to write an offer on an investment property. This was their first investment property and they were a little nervous to write the offer, excited, but a little nervous.

There were dozens of questions running through their heads: Would the offer be accepted? Would the seller get mad at how low the offer was, compared to what they were asking? Would they counter? What would they counter for? Should we ask the seller to pay closing costs? How much earnest money should we use? These questions and more needed to be addressed.

It’s OK to be nervous when you write an offer, but don’t let that stop you from writing the offers. We found out the next morning that the seller could not accept their offer, but they submitted a counter offer. If the sellers had accepted the offer my clients wrote, my clients would have been very happy. They had done their homework on the deal. They knew what they could rent it for. They knew what repairs it needed and had gotten reasonable estimates to get those repairs done. They knew what they could sell it for and they knew about their financing situation. They were prepared, and even though this offer wasn’t accepted, it was a necessary first step. This was the first of many offers that they’ve written.

As they made more and more offers, I suspect they were less nervous since they’ve gone through it all before. With each offer they become even more comfortable. It gets progressively easier each time. I have a saying: “The first is the worst.” I usually use it when I am talking about why you should just do something to have it done and accomplished. I use it as a battle cry to destroy procrastination caused by wanting to have everything perfect, but it is appropriate here too. Writing your first deal is usually the most uncomfortable because much of the process and outcome is unknown to you. So, go out there and make an offer where the deal will work for you if it is accepted. Get over the fear earlier rather than later. I think you’ll be glad you did.

Until my next post,

James

P.S. One of the biggest advantages of having a consultant or coach is that they help push you to do more for yourself than you might otherwise do on your own. By signing up for our Real Estate Investor Bronze Membership you not only get access to what I believe is the absolute best training materials available anywhere on investing in real estate but you also get on-going live training, consulting and support in your own real estate investing business. If by having consulting it helps you do just one more wholesale deal for an extra $10,000 wouldn’t it be worth it? Sign up today for Real Estate Investor Bronze Membership and let’s work on getting your real estate investing business to the next level.

Making Down Payments to Improve Cash Flow in Real Estate Investing

James Orr — Fri, 01 Jan 2010 17:32:51 +0000

With traditional 100% mortgages virtually non-existent due to the sub-prime loan crisis, those who can still qualify for a loan and can afford a down payment should take solace in the fact that buying long-term investment properties this way is more likely to make them cash flow.

When I analyze houses in my local market to determine if they will be a good investment, it is rare to come across a property that will provide positive cash flow without a down payment. In my market, this appears to be true even for discounted houses. However, I realize that other markets may be more investor friendly than mine is and I do own rental properties in other markets where cash flow is much easier to achieve.

But, for those of us in the more expensive markets…

If you can still get 100% financing from somewhere (like the owner carrying back with traditional payments), then you should consider whether you are able to handle the negative cash flow. I like to think of negative cash flow as a deferred down payment. Often, you can pick up properties with equity that would be nice for your long-term portfolio, but they just don’t cash flow unless you are willing to put something down.

If you can support a property like this, and are willing to make your “down payment” over time with the negative cash flow, then, by all means, consider these deals. But always be careful, because, while a little negative cash flow doesn’t seem too bad at first, when you factor in vacancies, repairs and market fluctuations, you can face some pretty lean times keeping your property fed. It’s critical to make sure that you have long-term holding power so that you don’t lose your properties.

If you do have the money to put down and are more comfortable staying out of the red most months of the year, then you should consider buying by putting money down. However, if you like to be more highly leveraged by getting in with nothing down, be prepared to pay the cost for this over time. Alternatively, you can buy houses with equity and turn them around quickly to increase your investment capital to put into long-term rental properties. Meanwhile… keep looking for those creative deals, because bank money is getting harder for all of us to acquire.

Remember, every market and every deal is different. Always do a full analysis of any investment property that you plan to buy and seek the advice of your local professionals.

Until my next post,

James

P.S. As an aside, there is still 100% financing available–not traditional 100% financing though–and we teach those strategies to our Real Estate Investor Bronze Members through our training materials and consulting sessions. We also discuss strategies for getting properties–even those with 100% financing–to cash flow with a variety of strategies.

Quantity of Offers Leads to Quality of Real Estate Investments Owned

James Orr — Fri, 01 Jan 2010 16:44:55 +0000

As I spend some time evaluating the new version of the real estate investing simulation game and I am reminded that the quantity of the offers you make to purchase property really does determine the quality of the real estate investments that you will eventually own.

In previous versions of our game I would often employ one strategy to acquire a large amount of real estate in order to resell the ones with significant equity immediately to make large chunks of cash. In this way, I built up my capital while also keeping the occasional property as a long-term rental.

I began by making an offer or two that would allow me to make a nice profit. I did this by factoring in the cost to purchase and my cost to sell, as well as my holding costs while I was trying to sell it.

If you do some very quick, big picture math, you can see that there are about 3% in costs when you buy, about 5% in holding costs while you are trying to sell and about 10% in sales costs when you do sell. So, in order to get profitable deals, I made offers of about 25% below current fair market value.

What often occurred to me as I made many offers in the game was how few of them were actually accepted. I needed to make more offers. I started to make offers on every property that became available, because every property, at a certain price, could be a deal.

Ultimately, I ended up making about lots of offers every month in the game and ended up with a good number of properties that I was flipping for nice little chunks of cash. It got easier and easier to keep doing this. Money was coming in. I had properties that I was buying. I had properties that I was selling. I had most of my offers declined, but I would get the occasional deal or two accepted and that kept the whole machine rolling.

What was interesting to see was that even the deals that I decided to keep as long term rentals were only good because I had originally bought them at a discount with the intention of selling them quickly. The ones I kept had exceptionally good rental income, but I never would have gotten them had I not made a lot of below market offers. This was something I already knew and teach in to our Real Estate Investor Bronze Members but it was really striking to see how brilliantly it worked in the game over an afternoon instead of having to wait months or years to see it play out in real life.

So, a gentle reminder that the more offers you make, the better the real estate deals you will get. Part of what our Real Estate Investor Bronze Members is on-going support, strategies for improvement and motivation from consulting and coaching sessions to keep making offers when it seems like you might not be getting traction (which can happen).

Until my next post,

James

P.S. As of this post, I am offering a limited number of financial aid for our Real Estate Investor Bronze Membership packages for folks. To apply just download the financial aid application and submit it.

What is “Asking Price”? – A Real Estate Investor’s Approach

James Orr — Fri, 01 Jan 2010 06:23:32 +0000

As real estate investors, it is important to remember that the “asking price” of a house is not the same as the sales price on a piece of merchandise in a retail store. While there are those among us who will negotiate with anyone, anywhere – most of us just don’t feel comfortable haggling with every salesperson that we meet (especially those not paid commissions). The majority of us realize that unless there is something wrong with the item, then an hourly employee just isn’t in the position to offer us a discount, even if we are a world-class negotiator.

This simply is not the case when it comes to the asking price for a house. It really is just what the seller is “asking” for. As buyers, and especially as investors, we may reasonably ask the seller to accept a lower price, because he does have the power to say, “Ok, I’ll give it to you for that much.”

You can think of asking price in this way: when a house first comes on the market, the seller prices it at the high end of what they expect the market will pay. Over time, if their price isn’t compelling enough to force a sale, then they will lower it. Sometimes a house is reduced in price many times before it finally sells. Wouldn’t you be doing the seller a favor by making your lower offer in the beginning and giving them a chance to sell their house right away rather than after months of letting their house languish on the market unsold? Of course, many sellers will say no, but you needn’t fell shy about asking.

My big picture advice when it comes to asking price: it is not some fixed magical number. It is an educated guess of what the seller (and his/her real estate agent) thinks the market will pay. There are many factors that can cause this number to change. So don’t be afraid to ask for the price you want!

Until my next post,

James

P.S. For our Real Estate Investor Bronze Members we teach a variety of powerful negotiating tactics and strategies that can be used to buy, sell and rent properties better. Sign up now and download a variety of real estate investor training courses, access our systems, checklists, forms plus receive on-going training and consulting plus much more.

Making Offers To Buy Investment Real Estate – Buying Equity Or Buying Income

James Orr — Mon, 21 Dec 2009 20:11:09 +0000

When considering making an investment in real estate, many new investors struggle with what to offer. Part of the challenge for them is deciding what their exit strategy will be. In other words, will they be purchasing the property and then immediately reselling it? Will they sell the contract before they even close? Will they be buying it to rent and hold long term?

Not knowing what you ultimately want to do with the property makes it extremely difficult to structure an offer to purchase.

This is actually a challenge we had when modeling the how to make purchases of real estate in our Learn To Be Rich investment game. Here’s how I handled it.

To simplify the process, we divided purchasing real estate into two major categories: buying for equity or buying for income.

Buying for equity is purchasing the property at a discount from the current fair market value. This is usually when you are buying a house to fix up and resell.

Buying for income is purchasing the property based on the payments and expenses you will incur when you hold the property as a rental. It also includes assessing the income that the property will produce. This analysis is typically used when you will be holding the property as a long-term investment.

By simplifying the process, investors can now decide whether they are buying for income or equity. It makes it much easier to recognize a good deal with this clear-cut criteria.

For example, if an investor is buying based on equity and he wants to make $10,000 on the deal, he can easily calculate what he can afford to pay for the house in order to net that amount in profit.

On the other hand, if an investor is buying based on income and he wants to make $100 per month, it is just as easy to calculate what his payments and expenses will be. By getting an accurate estimate of what the rental income will be, you can then reverse calculate the price you can afford to pay by using current interest rates in order to have the desired monthly payment amount that makes the property cash flow.

For our consulting and mentoring clients, we teach both strategies in our courses on how to analyze deals.

Until my next post,

James

P.S. One of the free course downloads we are currently giving away is on deal analysis and is available for anyone who joins our mailing list.