Home Flipping Houses If You’re Not Embarrassed by Your Offer, it’s Probably Too High

If You’re Not Embarrassed by Your Offer, it’s Probably Too High

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Like yesterday, it was September 1995 when I first tried to buy a real estate transaction without spending my own money. I just completed a real estate investment course as a credit for a broker’s license and my instructor taught me how to buy real estate transactions using OPM (Other People’s Money).

At the time, we were using credit card prepaid checks, before banks were aware of and raised all cash prepaid fees as they are today. Now that I know how to buy a house without money, it’s time to trigger.

Know your exit on the way

They say you should know your planned exit before you start investing, and I couldn’t agree any further. So my plan was to deposit in my checking account using a credit card pre-check. And I was going to buy all the following properties in cash. (Today I will probably spend my private money.)

Related: 101 Negotiations: Yes, you need to make your first offer. This is the reason.

I was convenient and under construction, so I was planning to repair the property with a few friends and put all the materials on another credit card. Then I intended to borrow a mortgage loan before going to a local bank.

So, before buying the property, I visited the bank to understand the expected terms and loan-to-value and discuss how to pay by credit card. They agreed to make the credit card debt part of the settlement, so my intention was to repay the credit card at the time of closing, preferably to maintain cash flow.

At that time, an advertisement for FSBO (sold by the owner) was on paper. Currently, these ads may appear in several locations, including online sources such as Craigslist. But I will never forget, there was a two-bedroom tenement house listed in an area on the brink of change. The ad said “as is” and only required $ 19,900, so I decided to take a look. I know what you are thinking. $ 19,900 seems to be very cheap. And to be honest, that was a fairly small number even at that time.

My embarrassing offer

If you are like me, you are thinking, How low can they be … right?

Ironically, when I went to see the house, it was occupied by relatives of a health inspector in the autonomous region, but the location was terrible. There was no real kitchen, the roof was leaking and there was junk everywhere. I looked at the place and told the man that I couldn’t give him $ 19,900.

He said, “Well, what can you give me?“I told him $ 8,000..

Then the older gentleman literally went on the trajectory for about 10 or 15 minutes. He thought he would have a heart attack.

I had him vent, and when he was done, I explained that his number didn’t work for me and started mentioning what I needed to fix. After that, I settled for $ 12,000.

(I later learned that they paid $ 2,500 for the asset in 1945.)

Know that your number makes sense

This is how it shook.

The house was only worth about $ 35,000 to $ 40,000 in repairs. I used a used kitchen, paint and rugs to go all-in for $ 18,000 and initially borrowed for $ 650 a month.

My payment was about $ 450 a month. A $ 26,000 20-year mortgage loan (which was an 80% loan-to-value). I was still able to get cash flow and left without paying out of my pocket with a tax exemption of about $ 8,000 (because it was a loan) on my first real estate.

Related: Avoid newcomers’ mistakes when making real estate offers

After that, the capital could be used for the down payment in the next transaction.

For the next few years, I continued to offer low-value offers, especially with a statement of intent, but I was pretty lucky with this particular deal. Not only did he buy the transaction without spending his own money, but he left with duty-free cash and sold hundreds of dollars a month for the next nine years until he sold the property for $ 58,000. The numbers weren’t high, but it was a solid deal.

So the lesson of my story is to find a deal, know your number, make a plan, know your exit, and make an embarrassing offer.

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