Making Intelligent Offers On Houses
Download The Offer Excel Sheet
This simple PDF will help you make better offers and close more deals!
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Hey, and thanks for coming back to the real estate marketing podcast. I’m Austin Glanzair and I am going to be talking about today how you can make offers on properties.
I’ve been asking a lot of people questions about how they make offers and then getting questions myself through Tik-Tok and Instagram about how people should be making offers, how do you know you’re making a strong offer, how do you know you’re not low balling so you sound like an idiot or you’re not going to lose money on a property? So that’s what this episode is all about.
But before I jump into that, I do want to just say thanks for coming to this podcast, thanks for giving us a chance and listening here. And if you would not mind just dropping a five-star review on this and also leaving a comment. It is super encouraging for me to see those. And we’re starting to get a few more, getting traction.
I think we’re over 600 listeners now and it has been really fun for me to work on these podcasts to get content out, make phone calls with my friends that are interested in real estate investing. It’s been just really cool for me to do that. So anyways, if you would do that, that would be awesome for this.
How to Make Offers on Houses
Now here is what today is all about – how do you make offers? Now I have a couple steps here that I’ve put together that I’m going to go over here, very quickly. I try to make all of these episodes short and very pithy, so they are full of good content.
So here’s what you’re going to do, let’s say you found a property that is not on the market, that is an off-market property, maybe it’s a little rundown. You want to wholesale it, you want to hold tail it or flip it yourself. What do you do? Or maybe you even want to bear it, maybe you want to buy it and rent it out. How do you make an offer that is a strong offer, that you know you will not lose money on?
Here’s what you’re going to do – you’re going to first look at the ARV of the property. The ARV means after rehab value. How do you determine what the after rehab value of a house is? This means the house is completely fixed up, it’s all nice and that is how much it will sell for at the top market dollar. So you’re going to figure this out by looking at three houses within a couple miles or a couple blocks, depending on if it’s a city or a town, that have sold at after rehab value. So sold at the highest it will possibly sell. So they are flipped homes in the area, you’re going to want to make sure that they have the same amount of bedrooms and the same amount of bathrooms in that house, and their amount that they are about the same amount of square footage.
Find Comparable Houses
So look at three houses that have sold within a few blocks or a few miles depending on the town or a city. The same amount of beds, the same amount of baths. And if they’ve been flipped nice with the same amount of square footage. You’re going to average what those three houses have sold for. That will give you a good ARV of the property you are looking at.
Now what you’re going to do when you look at this property, let’s say you are looking at a house that it’s a neighbor or you’ve gotten connected with somebody who needs to sell quickly, you are going to find out how much work needs to be done on this house. So what you’re going to do is you’re going to look at the big-ticket items on this house, either through photos or physically going to the place.
Figure Out Repair Costs
So the first thing you’re going to look at is how much the kitchen needs rehab. You’re going to look at the kitchen. You’re going to look at the bathroom. You’re going to look at the mechanicals, so what kind of heating is it, what kind of air is it, does it need a new hot water heater because those are fixed costs, those are going to be a couple thousand each. You’re going to look at the roof of the property. You’re going to look at the curb appeal, how much it will cost to make the house look nice on the outside? And then you’re going to look at the bedrooms.
Now those are the main things you’re going to want to look at whenever you are figuring out how much it will cost to fix this house up so you can reach ARV.
So typically what you can run is if it’s a complete gut is you want to run about 10 to $12,000 for the kitchen, about 5 to $8,000 for the bathroom, about 500 to $1,000 for each bedroom. You want to look at the roof which could be a large ticket item, that could be about $10,000 for a full new roof. And then you want to look at curb appeal, if it’s painted nice, if you need to repaint you can typically do that for $6,000 to make it look nice, that can go a decent amount of ways.
So you want to kind of add up how much it will cost to fix this house up so you reach ARV.
Now the third thing you’re going to do is you’re going to start calculating. You’re going to take that ARV number, the top number, and you’re going to subtract the total amount of rehab that you have.
I’m going to use really easy numbers for an example. Let’s say that the house you have is a 3-bed, 2-bath house, and after it’s completely fixed up it will sell for $250,000. So if that’s the nicest it’ll be it’ll sell for 250.
Now if you add up all of the rehab you need to do, let’s say that that comes to $50,000. $50,000 to fix the kitchen, the bathroom, the bedrooms, all of that. You’re going to take 250,000 and subtract 50,000 from it, and that will give you ba-da-da-da $200,000, right? So $200,000. Now I don’t know why I made that sound before I did the math, but that’s what I do I guess in my head. So you’re going to have $200,000, right?
The next thing you’re going to do is you are going to multiply $200,000 by 30%. So that is going to tell you how much you should subtract from $200,000. And I’m going to explain this in a second. So if we take 200,000, I’m going to do it right now on my computer while I’m talking, if you’re going to multiply that by 0.3 that will give you $60,000.
So you’re going to take the ARV, 250,000, subtract your rehab, 50,000, that’ll give you 200,000. Then you’re going to multiply 200,000 by 30%, that’ll give you 60,000. So you’re going to write that down, you’re going to write down 60,000.
Then you are going to take 200,000 and you’re going to subtract 60,000 from it. So you’re going to take 200,000 and you’re going to subtract 60,000 from it, and that will give you $140,000, and that is how much you should offer on the house for your first offer.
Why You Should Build Margin Into Your Offers
Now why did I choose 30%? 30% is going to give you a very good buffer for things to go wrong, because things will go wrong when you flip a house. I know I said this in the previous episode, but I flipped a house with my friend, we’re still going through this, the house caught on fire and it’s been a huge headache and we were never expecting the fire to happen.
Now we have insurance, we have a claim on it and whatnot. But basically with all the extra time, the extra investment, we’re pretty much … we’re going to lose some money on the property. So you want to build a buffer, and 30% is a good buffer that isn’t ridiculous, that you’re not going to offer $90,000 for it, it’s going to give you a very good buffer to help you make a profit on that house.
So if everything goes right you could make $60,000 profit. If some things go wrong, you need to have an extra $10,000 you could make $50,000 profit. If something terrible goes wrong, it’s another $30,000 of rehab, you can still make a profit of $20,000 on that property. So you are going to take 30%, that’s the number you want to multiply your ARV minus your rehab, you want to multiply it by 30%, that’ll be your first offer.
Now don’t lose a good deal if there are more offers on it. So you can come up on that number a little bit. I don’t suggest that you just go all the way to a higher number, but if you want to make sure you can solidify that deal start at 140, then you can make a second offer, go up $10,000 on it. So you can go up $10,000, hit 150,000 on that offer, and then you might be more likely to accept the deal.
Now don’t go crazy, but you can come up a little bit and that’ll still give you a buffer room to solidify that you get it house. Now if you know there’s nothing wrong with it, you know that you can just fix up the kitchen or whatever to get it to the ARV, then I suggest you come up a little bit.
But that’ll be a good base start for you to make your first offer that won’t be ridiculous. It’s not going to be crazy, but it’ll give you enough buffer to make a profit to get everything done and you’re also not ripping the people off.
So that is how you can make a good offer on a property if you have an off-market property. That’s how I suggest you make your offers, that is actually how I make my offers. I first start with these numbers and then every situation is different, so I might come up a little bit, I might be able to come down a little bit depending on the situation if the house is in very bad condition. So that’s how you do it.
Free Resources to Get You Started Making offers
Now if you’re still listening to this, I am going to actually mark … I mean, I am going to put a download to an Excel sheet on my website so you can download this for free right on my website. So I’ll put that in the show notes because I haven’t actually put it on a page yet. It’ll probably be Glanzair.com/offers, that’s probably what I’ll have it on, but I’m going to put it on my website. I’ll put the link in the show notes here so you can download that for free.
And I also, on the last episode, I do have a free download on there as well for you to help ranking for marketing for your website through building videos and having that text on your site. So I have that as well, you can feel free to check out a previous episode on that.
Now a couple of really cool things coming up here in our podcast. Adam and I are going to be interviewing Josh Eberly again, and we’re going to be talking specifically about how you can get links to your website in a super easy way, Josh has an awesome system for that. I’m really excited. We’re going to be interviewing a couple other guys in here that specialize in SEO and specialize in advertising for this through Facebook. So a couple of those episodes are coming up, you’re going to want to subscribe so you don’t miss those out. You can go to Glanzair.com/podcast to subscribe to our podcast and get more information about every episode.
All right, guys, thanks so much for taking your time to listen to this. Hopefully it was helpful. Please reach out with any questions and please consider giving us a review. We’ll see you later and talk to you soon.