The Hidden Secret to Making Offers That Stick When Flipping Houses
Although I WISH I knew the magical answer to that question...unfortunately I do not. In house flipping, some offers are accepted and some are not.
It's just the nature of the business.
However, there are a few things you can do to make sure that your house flip offers stick more often than they don't.
And the answer is NOT what you might think...
How to Make Offers Flipping Houses
When you are first starting to learn how to flip houses, until you know your house flipping team really well, be totally hands on.
It stands to reason that you would actually want to visit the would-be house flip before you make an offer on it. Good idea there.
Ideally, this is usually done with your general contractor, doing a full walk through and having him explain all the things that need to be fixed and or rehabbed in person.
Especially when you are learning how to make money flipping houses, you should soak up as much knowledge as you possibly can from your GC in these walk throughs. This is info and experience you'll come back to your entire flipping houses career.
At some point, you'll be able to do the analysis on the spot without the general contractor. But in the early going, its best to have the both of you doing it together, making it happen. Remember that the more successful you are, and the more realistic and on time and on budget his rehab estimates are, the more you can make money house flipping TOGETHER.
So when you are on site, pick his brain, ask tons of questions and learn and educate yourself on the construction side of house flipping as much as you possibly can.
Just these conversations alone will give you enormous insight into what to offer on the property.
Here's a short video which explains how to make offers flipping houses in a bit more detail:[youtube]http://www.youtube.com/watch?v=jyMcr9y3nqc&feature=plcp[/youtube]
If you can't see this video for whatever reason, click here.
A Hypothetical House Flipping Scenario on What to Offer
To give you an idea on what to offer on a house flip, lets use an example from one of our earlier posts on how to flip houses, where we envisioned the following scenario:
70% rule: $200,000 x .70 = $140,000
Repair costs = $40,000
70% rule = $140,000
Maximum buy price = $100,000
If you need a quick refresh on this house flipping example click here.
What and How Much to Offer?
We determined our repairs to be $40,000, we then deduct that from the $140,000 and we have maximum allowed offer or MAO of $100,000.
So...$100,000 is the absolute most we want to spend.
How do you know what to offer? We use two basic factors to determine that, then act accordingly:
Lots of Activity
The more activity on the property, the more aggressive you should get in your offer. If the property is getting a ton of activity according to your real estate agent, then it's not wise to offer $70,000 for the house. Especially watch out if the broker tells you that there are real estate investor offers coming in, then you have serious, seasoned competition.
In this scenario, you'll want your offer to be in the $90,000’s - even as close to full asking prices as possible while still maintaining your flipping houses calculation. When there are multiple offers coming in, you need to be aggressive
Lack of Activity
If you are in the more favorable scenario of not many offers coming in at all, perhaps because the house has been sitting, it has title issues, or because it's either a bank owned or a short sale, then you don't have to be as aggressive in most cases. In this scenario if its been on the market for a while, perhaps even more than 6 months, you'll want to put in a test offer around $70,000 or even less.
Remember that you cannot negotiate until you put in an offer - so even though the offer may be low you might be able to negotiate back and forth and get it for $80-$90,000.
The KEY to Making Successful Offers Flipping Houses
What is THE common thread in the above scenario?
If you guessed "the relationship you have with your real estate broker"...you would be correct.
As important as any part of flipping houses for profit is the relationship you have with both your broker and if possible, with the listing broker as well.
This goes back to the importance of your house flipping team, as well as the incredible value of information.
However, don't expect your real estate broker to come and tell you what the other offers are, because that is illegal. But after a while in the house flipping business, you'll start to get a feel for sales activity by many factors:
- Measuring the number of days on market
- Gauging how much the bank is involved
- Getting a feel for seller motivation and financial situation
As well as many other factors that come with time in the house flipping business.
Once you understand all these as well as the information above, you'll be able to quickly determine what your first offer should be, while keeping in line with your maximum allowed offer.