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Making offers on real estate

Here are 6 key elements to finally getting in the ring, overcoming fear, and making some offers on real estate. Another “no” is just one notch closer to that elusive “yes.”  Rejection is not as bad as it sounds. Not everyone can or will sell to you at a discount, which is necessary unless you’re a very long term investor with a lot of cash to play with. Most real estate investors make 100 offers on real estate before one is accepted. Expect to get a “no” 99 times before you get a deal under contract.

(1) Know your market 

Information is power. If you don’t know a good deal when you see it, you’re always going to lose out to other investors. Know your market and know at what price you’d be excited to get something. If lots in your target area are selling for $700k, you might target $420k (60%) as a no-brainer, “let’s go” kind of price that you want to start with. Making offers on real estate consistently will increase your comfort level and eventually you’ll know instantly if something is worth buying.

(2) Understand the hard stops

Know your hard stops. If you’re working with land those might be utility access, protected trees, setbacks, dramatic elevation changes, or deed restrictions. In a suburban neighborhood it might be busy, striped streets or adjacent undesirable commercial properties. Know your deal-breakers so you can rule those properties out early.

(3) Prepare your financing before making offers on real estate

You need to be prepared to close in a timely manner. Don’t wait until you have a live contract to engage a lender (assuming you need one). Talk to a hard money (or other) lender about timing before you make the offer. If the sellers are giving you a good price, chances are they will want a quick closing. Know the turnaround time to (1) approve your loan aka “clear to close” and (2) timing from contract receipt to close – those are two key dates that must be a consideration when you make your offer. Make sure your lender gets a copy of the executed contract as soon as possible in the process. 

(4) Understand the timing and cash required

If you have a good understanding of your market, then you’ll have a good idea at the offer phase how much your lender will be able to finance and how much cash (if any) you’ll need to close. Little City will lend 70% in most cases, so a borrower buying a property worth $1MM would be able to borrow $700k from us toward a purchase or refinance. An investor with a contract for $750k would only need to contribute $50k cash plus closing costs to close with a hard money loan. They’d likely need to contribute 20%, or $150k+ for a conventional loan.

(5) Get to know the 7 main systems: foundation, framing, windows, HVAC, electrical, plumbing & roof

Fortunately, a limited number of things can go wrong in a residential rehab. The main expensive issues you will face in a renovation project are foundation, framing, windows, HVAC, electrical, plumbing, and roof. If you’re good on those 7, you’re probably looking at a minor remodel unless it’s a very large house or say, a pool that’s caved in or something. Structural changes and/or some of the above 7 major system repairs will probably be a major remodel. If the house is over 75 years old and hasn’t been significantly remodeled, then it’s in the major reno category – expect none of those 7 systems to have useful life left. Budget for a build, but with a house in the way. 

(6) Use wide strokes to estimate repairs

At the offer stage, your renovation or construction budget doesn’t need to be an exact science, you just need to have perspective. Making offers on real estate doesn’t require you to be a construction expert. Review the top 7 above and decide whether it’s a major/minor remodel. Assign a dollar amount per square foot for low-mid-high and shoot your offers from there. Negotiate an option period, which will give you time to get some contractor bids. Just renegotiate if you’re under-budget. And simply cheer silently to yourself about the great deal you’re getting if you’ve over-estimated the repairs. 

Have a Texas real estate investment property that you’d like to finance? Reach out today, get a term sheet tomorrow. We fund flippers and builders in Texas. Purchase and refi, land and buildings, residential and commercial.

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