Author Topic: negotiating purchase price on potential investment property  (Read 466 times)

CarlosMontegro

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negotiating purchase price on potential investment property
« on: August 14, 2020, 11:11:54 AM »
I have my eye on a one-bedroom condo and the rough math says it would be provide a decent return renting out at the market rate.  I'm considering getting a showing, and doing the following to try to get a better price (juicing both my potential appreciation return, and my cash ROI).

Would the following be reasonable to try to reduce the purchase expense:
  • Work directly with the listing agent, and asking for 2/3rds of the buying agent commission as a win-win
  • Reasoning: I'm familiar with the contracts and I am confident I can adequately represent myself negotiating both the purchase agreement and the inspection response. My concern is, I don't know what pitfalls may lie in the title process, and how do I make sure that I end up with a clean title?

  • Offer all cash
  • Reasoning: I have enough available, removes a lot of risk on the seller, and I can always finance later to leverage up

  • Waive the appraisal
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I have put in offers on 5 properties (won 3) and sold 2 (all personal use).  I'm good at comparisons and I have always come out conservative, either not offering enough or selling for more than I would have purchased for.  I'm super confident I will not overpay for a property

  • Waive the inspection
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I'm a little more iffy about this one.  A small condo shouldn't have any surprises.  I can test appliances during a long showing before putting in an offer.  I don't think common spaces are generally inspected (am I wrong?)

  • Accept the property "as-is"
  • Reasoning: the standard contract agents use here has an "as-is" option.  It's actually more buyer-friendly than the inspection option (still have the right to inspect, can walk away for any defect).  It sounds stupid, I know, because the language is anything but accepting the property as-is.  But apparently people see "as-is" and they like it.

What else could I use to make a lower-priced offer more attractive?

Googs860

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Re: negotiating purchase price on potential investment property
« Reply #1 on: August 14, 2020, 11:21:16 AM »
Since you're offering cash, forgoing inspections, etc you can offer expediency.  You can market this as a savings to the seller, as they'll be on the hook for less payments since it'll be out of their hands sooner.

Jon Bon

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Re: negotiating purchase price on potential investment property
« Reply #2 on: August 14, 2020, 11:55:08 AM »
I have my eye on a one-bedroom condo and the rough math says it would be provide a decent return renting out at the market rate.  I'm considering getting a showing, and doing the following to try to get a better price (juicing both my potential appreciation return, and my cash ROI).

Would the following be reasonable to try to reduce the purchase expense:
  • Work directly with the listing agent, and asking for 2/3rds of the buying agent commission as a win-win
  • Reasoning: I'm familiar with the contracts and I am confident I can adequately represent myself negotiating both the purchase agreement and the inspection response. My concern is, I don't know what pitfalls may lie in the title process, and how do I make sure that I end up with a clean title?

You might be better off with no agent than with the sellers agent. But yeah both can save you money. Contracts in my state are easy, everyone uses the exact same one and you just fill in the price, no joke. The misquire of "agent experience" is mostly smoke and mirrors


  • Offer all cash
  • Reasoning: I have enough available, removes a lot of risk on the seller, and I can always finance later to leverage up

This will help you beat a similar offer, but if its more than a few thousand folks often take the highest offer. You might be better served to say you are putting down like 40% or something so folks no you are serious

  • Waive the appraisal
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I have put in offers on 5 properties (won 3) and sold 2 (all personal use).  I'm good at comparisons and I have always come out conservative, either not offering enough or selling for more than I would have purchased for.  I'm super confident I will not overpay for a property

This is very standard contingency where I come from, I dont think it will get you much either way. Condos are easy to value as they are all (mostly) the same.

  • Waive the inspection
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I'm a little more iffy about this one.  A small condo shouldn't have any surprises.  I can test appliances during a long showing before putting in an offer.  I don't think common spaces are generally inspected (am I wrong?)

Dont do this one, often you can just do a pass fail inspection. That way if the condo is about to fall down you walk, there is no tick tack back and forth over small items. Sellers in general hate this.

  • Accept the property "as-is"
  • Reasoning: the standard contract agents use here has an "as-is" option.  It's actually more buyer-friendly than the inspection option (still have the right to inspect, can walk away for any defect).  It sounds stupid, I know, because the language is anything but accepting the property as-is.  But apparently people see "as-is" and they like it.

This is fine, but you need a catastrophic walk away cause as I stated above.

What else could I use to make a lower-priced offer more attractive?

Close as fast as humanly possible, have all your ducks in a row.
Timing everyone is trying to get a bigger place right now, so you might be ok as young couples/families WFH are dying for more space and you can get one on the cheap?


Also, condos IME are not great rental properties, feel free to share some numbers.  I have guys HOUNDING me to buy my houses, cold calling me like crazy right now. Not a ton of inventory right now, as an investment property you might want to wait a bit. I dont know what the future holds of course, but buying in a hot market is usually aloser. YMMV

CarlosMontegro

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Re: negotiating purchase price on potential investment property
« Reply #3 on: August 14, 2020, 12:00:36 PM »
The as-is option in the standard contract is basically identical to the full inspection option, except the full inspection option gives the seller the right to remedy defects found during the inspection.  The as-is option gives buyers the right to just walk away.  No idea why it's called "as-is".  I got an offer for my house with an as-is option, and we told the buyers to resubmit with the regular inspection clause.

clarkfan1979

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Re: negotiating purchase price on potential investment property
« Reply #4 on: August 15, 2020, 08:14:14 AM »
I have my eye on a one-bedroom condo and the rough math says it would be provide a decent return renting out at the market rate.  I'm considering getting a showing, and doing the following to try to get a better price (juicing both my potential appreciation return, and my cash ROI).

Would the following be reasonable to try to reduce the purchase expense:
  • Work directly with the listing agent, and asking for 2/3rds of the buying agent commission as a win-win
  • Reasoning: I'm familiar with the contracts and I am confident I can adequately represent myself negotiating both the purchase agreement and the inspection response. My concern is, I don't know what pitfalls may lie in the title process, and how do I make sure that I end up with a clean title?

You might be better off with no agent than with the sellers agent. But yeah both can save you money. Contracts in my state are easy, everyone uses the exact same one and you just fill in the price, no joke. The misquire of "agent experience" is mostly smoke and mirrors


  • Offer all cash
  • Reasoning: I have enough available, removes a lot of risk on the seller, and I can always finance later to leverage up

This will help you beat a similar offer, but if its more than a few thousand folks often take the highest offer. You might be better served to say you are putting down like 40% or something so folks no you are serious

  • Waive the appraisal
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I have put in offers on 5 properties (won 3) and sold 2 (all personal use).  I'm good at comparisons and I have always come out conservative, either not offering enough or selling for more than I would have purchased for.  I'm super confident I will not overpay for a property

This is very standard contingency where I come from, I dont think it will get you much either way. Condos are easy to value as they are all (mostly) the same.

  • Waive the inspection
  • Reasoning: another contingency to remove to make the offer more attractive despite low price.  I'm a little more iffy about this one.  A small condo shouldn't have any surprises.  I can test appliances during a long showing before putting in an offer.  I don't think common spaces are generally inspected (am I wrong?)

Dont do this one, often you can just do a pass fail inspection. That way if the condo is about to fall down you walk, there is no tick tack back and forth over small items. Sellers in general hate this.

  • Accept the property "as-is"
  • Reasoning: the standard contract agents use here has an "as-is" option.  It's actually more buyer-friendly than the inspection option (still have the right to inspect, can walk away for any defect).  It sounds stupid, I know, because the language is anything but accepting the property as-is.  But apparently people see "as-is" and they like it.

This is fine, but you need a catastrophic walk away cause as I stated above.

What else could I use to make a lower-priced offer more attractive?

Close as fast as humanly possible, have all your ducks in a row.
Timing everyone is trying to get a bigger place right now, so you might be ok as young couples/families WFH are dying for more space and you can get one on the cheap?


Also, condos IME are not great rental properties, feel free to share some numbers.  I have guys HOUNDING me to buy my houses, cold calling me like crazy right now. Not a ton of inventory right now, as an investment property you might want to wait a bit. I dont know what the future holds of course, but buying in a hot market is usually aloser. YMMV

I'm going to agree with Jon Bon and say that I'm surprised that 1-bed condo would make a good rental. I understand that this was not part of your original question, so I will try to tread lightly.

If I was ever to buy a condo as a rental, I would want the cash flow to be better than a comparable single family home. When you factor in appreciation, condos are the first to lose value in a recession and last to go back up after recovering from a recession, I would want some extra cash flow to account for lack of appreciation, in comparison to a single family home.

Every market is different, so sometimes condos can make sense. Something that I have observed during the last market cycle is that condo appreciation has a "sweet spot". After the decline of housing prices in 2008 to 2012, prices of single family homes started to increase in 2013.

Prices on single family homes had steady appreciation from 2013 to 2016 and condos were flat.

From 2016 to 2020, I have seen condo appreciation out pace single family homes in many areas.

It seems like at the very tail end of a housing recovery condos appreciate very well. All markets are local, so this is not going to be the case everywhere.


CarlosMontegro

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Re: negotiating purchase price on potential investment property
« Reply #5 on: August 15, 2020, 09:26:40 AM »
Attached is a screenshot of my spreadsheet - feel free to poke holes.

redman77

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Re: negotiating purchase price on potential investment property
« Reply #6 on: August 16, 2020, 06:53:04 PM »
So, if you're offering all cash, the seller won't expect there to be an appraisal contingency anyways, so those two deal points are kind of the same. An appraisal contingency is generally nested inside the financing contingency, which you won't have if you're offering all cash.

Not sure what market you're in but it's usually wise to be only as aggressive as you need to be to get the property tied up. If you waive the inspection now, maybe you can still back out later, but then it's all been a waste of your time. Assuming you find problems, what you really want is leverage to renegotiate the price, and that leverage generally comes from having a clear right to walk away at absolutely no cost to you.

Finally, if you don't do an "official" inspection report, it's nearly impossible to get a seller to take your discount request seriously. You want to be able to back up your $ request with a written expert opinion. Seeing the physical issues spelled out on paper, often with photos, generally gives sellers more reason to accept a pricing discount or seller credit request.

Hope that helps! Good luck.

theoverlook

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Re: negotiating purchase price on potential investment property
« Reply #7 on: August 17, 2020, 08:41:11 AM »
3.5% - 4.7% return does not seem worth it for all the risk entailed in real estate.

Jon Bon

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Re: negotiating purchase price on potential investment property
« Reply #8 on: August 17, 2020, 09:23:23 AM »
3.5% - 4.7% return does not seem worth it for all the risk entailed in real estate.

+1000

Sorry to say but very few investments make any damn sense right now. I have no idea what you should do with your cash, but 4% return and bearing a ton of risk does not feel worth it.


CarlosMontegro

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Re: negotiating purchase price on potential investment property
« Reply #9 on: August 17, 2020, 04:37:08 PM »
I'm definitely going to put some in REITs and Stocks... but everything scares me right now.  Might as well be diversified and scared.