How To Make "Soft Offers" (The Only Way To Get Deals In 2020)May 26, 2020
Have you been trying to buy properties lately but you keep getting beat out by other investors?
Are the deals “flying off the shelf” in your market?
By the time you get your contractor to the house, run your numbers, someone else already has the damn thing under contract…
And you missed out again.
Right now, if you want to thrive in this hot and competitive market, you have to totally adjust your approach.
You need a method to get control over the deal, butt out the competition, and then you can perform the majority of your due diligence.
That’s why I use what I call a “soft offer”.
With a soft offer, I can make an offer in 5 minutes or less. I use the #’s provided to me by either my software, a wholesaler, property manager, or realtor.
I don’t double check anything...yet. I just look at the high level numbers.
If a house has an ARV of 75K, and rent of $850/month, here’s how my thought process will go:
“OK, for the BRRR model, I’d need to be all in at no more than 70% on this thing. $75,000 x .7 = $52,500 all in”
“Also, I want it to cashflow at 200+/month, so I need rent/all-in price ratio to be around 1.5%...so if I just divide rent/.015 (quicker way to get the #), I see that $850/.015 = $56,666.”
“So, from a cashflow perspective, I can pay up to around 56K all in. From the BRRR perspective, it’s about 52K”
“This thing looks like it needs a rent ready rehab, so using $10/SF on a 1,200 SF house that’s 12K in estimated repairs...”
“So, I’d really like to get this thing for about 35K, but I’d probably be willing to stretch to 40K (40K + 12K repairs + 3K closing/money costs = 55K all in price)...”
“I’ll offer 35K via email and see what they say.”
That whole process takes me maybe 5 minutes to do. Yes, I may have gotten some of the #’s a bit wrong, but I’m typically not that far off. Also, since the deal was likely sent out above 35K, I’m finding out really quick how flexible they are.
I’ve also submitted an actual offer, so I’ve gotten the attention of the seller. There’s been times where my offer was declined, then the seller came back to me 3 weeks later to see if it was still on the table, and we did the deal.
I also don’t put my offer in writing. I communicate it via email, text, or a phone call.
Now, IF the offer gets accepted, I insist on an inspection period where I can really dig in and do my due diligence (contractor + inspection + discussions with property manager & realtor + deeper dive on comps, rent projections, neighborhood, property taxes, etc.)
If I learn something during my due diligence period that changes what I’m able to offer, I communicate that to the seller and we either agree on a new price, or we cancel the agreement.
Also, since I’m under contract, the deal can’t be stolen away by another investor, and I have time to decide if I really want to buy it or not.
Right now, investors are dealing with a lot of overpriced opportunities. Overpriced in the sense that they don’t work as an investment. If a deal gets sent out for 60K, but it’s obvious you'd need to get it for 40K for it to actually work - there’s no point in putting a ton of time into that deal until you test the waters with the seller around the 40K mark.
If they’re flexible, you can look into it more. If they aren’t, you find out right away and can move onto the next deal.
It’s my belief that, in this competitive market, you must get control over the deal first, and then you can make any adjustments to your offer and decide if you want to go through with it or not.
If you want some help with making soft offers (and the entire process of building a cashflow portfolio)...
Click the link down below to grab some time for us to talk.
To your success!