On a recent episode of Flip or Flop, Christina and I found a property that we were really excited about. It was kind of a small house, but it had a huge backyard where we thought we could build a mother-in-law suite. Then our buyers could rent that space out, and it would be a huge selling point for us. We knew we wanted to flip this house really badly.
While we were looking at the property, though, we noticed another guy who we knew had to be an investor. He was walking around, looking at the place, and then he walked away to make a call on his cell phone. We knew he had to be thinking the same thing we were and that he was definitely calling to make an offer on the house.
We had to act fast. So, we quickly discussed the property’s value, how much we thought we could get for it, and rehab costs, as well as what we thought the other guy was offering. Then I got on the phone and made my offer. Of course, our competition had already offered something above asking price for the property, and he was paying cash, too, so that wouldn’t give us an advantage. I had to come back fast with a really good counter offer, so I went for it, and we won the property.
Keep Your Goal in Mind
First of all, remember that your goal is to make money. Getting in a bidding war and driving the price of the property through the roof isn’t going to help you meet your goal. So, before you start making offers, set a firm ceiling for how high you’ll go. If bids go out of your budget, walk away.
If you watch some of the earlier episodes of Flip or Flop, you’ll notice that I’ve actually broken this rule before. I’ve gotten too excited about properties and spent way more than Christina and I originally agreed on. Sometimes you do have to step out of your comfort zone, and, as you can see in those episodes, I made the right decision in paying a little bit more for a really great property that made us a profit. But it’s really not good to do this on every property you buy.
Don’t Be Afraid to Break the 70% Rule
That said, you don’t have to set your ceiling to exactly match the 70% rule. Take into account how long you think the project will take and how much you think you’ll have to spend on rehabs. Then determine how much you need to make on it to consider it a profitable project. That will help you set your highest offer price much better than the old 70% rule.
Don’t Forget to Offer Cash in Full and Upfront
If you’re making offers over the phone (and not in an auction), don’t forget that your seller may be getting other offers and that they may not be in cash. So, when you come in with a slightly lower offer than other buyers, don’t forget to tell them that you’re offering to pay for the whole property in cash upfront. That’s a really attractive thing to hear, and your seller may take your offer over an offer that involves a mortgage.
Follow these tips, and you might be surprised at how many houses you win over competing entrepreneurs and other buyers. When you want to flip this house, take a cue from me and Christina when we negotiate on Flip or Flop.