How to Navigate Purchase Offers & Negotiations in Today’s Real Estate Market

You’ve found the perfect investment property–but do you know how to seal the deal? 

One of the biggest tips for buying investment properties involves knowing how the system works. Being aware of the motivations and constraints of all the players involved makes you and your agent powerful negotiating partners. 

Your offer must depend on what a property is worth to you, regardless of the listing price. Your target ROI and any required repairs will dictate how much you can pay and still be profitable.

If you’re considering buying an investment property that seems overpriced, keep an eye on it for 30 days. Price reductions often happen at 30 days. The longer it sits, the more likely the asset manager will be willing to negotiate. The smaller players who bought in pool sales are often receptive to any offer, even a lowball.

There are many moving pieces when you’re ready to buy a property – and it’s important to manage them correctly. As you navigate today’s real estate market as an owner-investor, here are some tips to keep in mind. 

3 Tips for Buying Investment Properties 

Even though the real estate market is volatile, I assure you: There has never been a better time to invest in residential real estate property. However, like any other investment, there are risks involved. 

To stay ahead of your competitors – and ideally dodge some of that risk – there are a few areas you can focus on to give yourself the best advantage. 

Before you purchase a new property, keep these three things top of mind. 

1. Ask the Right Questions

Sure, that listing may look like a fantastic deal – but you still have to ask the right questions. Many properties purchased “sight unseen” often come with a lot of hidden issues, so it’s vital to know exactly what you’re buying before you sign on the dotted line. 

Your listing agent will likely cover a lot of ground in this category, but as a buyer, you should also know what questions to ask. 

Here are a few questions to consider: 

• How long has the property been on the market? 

This information can indicate whether the seller might be open to a lower offer, especially if it has been on the market for a while and/or is struggling to sell. If it has been on the market for a while, this also can clue you into whether it’s a good buy or not. 

• Why is the current owner selling the property? 

Sometimes, a person’s motivations for selling can be eye-opening. For example, the choice to sell because they need to upsize to a bigger property to accommodate a bigger family is very different than selling because the neighborhood has taken an economic downturn, crime has increased in the area, etc.

• When was the property last sold? 

If the property was last purchased a few years ago, it might not need any major updates or work, but if it has been decades since the last sale, you might need to budget more for maintenance and upkeep. 

• What is the neighborhood like? 

You always have to consider the neighborhood when you buy a property. After all, you’ll need to find a tenant and keep your property occupied if you hope to turn a profit. 

Think about aspects like amenities (grocery stores, parks, entertainment centers, schools, etc.) and other factors, like walkability, that could make people want to live there. Another factor to consider is what would draw renters to the area. 

For instance, if there’s a new factory that just opened nearby, a big-box store being built that will open soon, or something similar, this could draw new workers (and potentially, new tenants) to the neighborhood. 

• What types of renters live in the area? This information can indicate how much you’ll be able to charge for rent. I always remind people that we want to set rental prices based on neighborhood standards. 

If the neighborhood is composed of young professionals who work remotely, you’ll probably want to buy something with an office space or something that could be converted – and you may be able to charge more for rent based on the salaries these types of professionals make. 

If you’re mostly tailoring to blue-collar workers or people who have factory jobs, work at Wal-Mart, etc, you may not need that office space – but you might not be able to charge as much. 

Either situation can still be profitable, but you need to be aware of how much you’ll ideally need to charge before you purchase anything and whether that’s possible based on the prospective tenants you’ll screen. 

2. Consider Location & The Property’s Overall Condition

Similar to how you need to consider the types of renters and potential draws that bring people to potentially rent in a neighborhood, you also have to look at the big picture. 

What is the overall outlook of the real estate market in the area where you’re considering purchasing a property? 

Are properties moving pretty quickly, or are they sitting on the market for months (or longer) at a time? Are more people in the area looking to rent or buy? Is there anything that indicates more people are moving to an area, or are people moving away? 

These are all things to consider when choosing a neighborhood or city to invest in. 

Likewise, you need to factor in the overall condition of the property before purchasing. Maintenance and rehab can be some of the biggest budget-killers for investors. A fixer-upper can seem like a bargain until you start crunching the numbers about what all those repairs are going to cost. Likewise, a well-maintained property that hasn’t been updated since the 1970s could need modern amenities to ensure it rents. 

Depending on your budget (and your location), a turnkey property could be too expensive, but you have to weigh the pros and cons of every facet before making your final decision. 

3. Educate Yourself (& Learn From Your Agent)

Your agent knows a lot about real estate – but that doesn’t mean you shouldn’t educate yourself. A well-informed investor-owner will be able to be more independent, and more of a collaborative team member with your agent. However, it’s always best to lean on them as a resource to help you grow your overall understanding, especially if you plan to buy multiple investment properties and expand your empire over time. 

You don’t need to be an expert, but you should have a cursory knowledge of the following to give yourself the best chance at success. 

• Market trends and analysis
• Local and state laws, particularly eviction laws
• Fair Housing Laws and Section 8
• General maintenance and repair costs 
• Property taxes
• Appreciation and depreciation 

Real estate agents seek continuing education to ensure our skills are honed to a razor-sharp edge so we can stay ahead of this ever-changing market. I encourage our owner-investors to do the same. 

How to Handle Multiple Offers For Real Estate Properties

While some properties are listed too high at first, others are listed too low, and attract a lot of action, resulting in multiple offers. 

This can be tricky to navigate. Most asset managers ask for the highest and best offer by a certain date. Others only negotiate with the best offer (or offers) and reject – or ignore – the others. 

Also, a listing agent typically cannot disclose multiple offers without the seller’s consent. Some agents prefer to disclose multiple offers, some sellers prefer not to, and all of this can be aggravating to a buyer who does not understand the legalities and complexities of these situations.

What is Considered a Lowball Offer in Real Estate?

Anything below 80% of the list price is a low-ball offer. Repeated low-ball offers can damage your reputation as a qualified buyer. Everyone involved is very busy, and it’s important not to damage what could be a very profitable relationship by wasting their time. So listen to your agent. 

If the listing agent hints that the seller is looking for offers, consider it an invitation to make whatever offer makes sense for your portfolio. If they say no today, they may come back later. Your offer helps both the listing agent and the asset manager.

Handling Earnest Money and Proof of Funds

Most REO asset managers prefer a cash sale because the process is quicker and cleaner, and additional time on the market can adversely affect an asset manager’s performance and compensation. 

Proof of funds in the name of the person or entity making the offer is required with the offer. Earnest money—10% of the purchase price or $1,000, whichever is greater—will be required by the seller. After the contract is ratified, a certified check for the earnest money is exchanged.

An experienced real estate professional is a vital resource for a real estate investor. They will help you navigate the complexities of an REO purchase and get you to the closing table. And they will help you expand your portfolio by identifying and evaluating potentially great investment opportunities.

Final Thoughts

Real estate investors have a lot of choices to make. Negotiations are a skill, and as a business person, you want to ensure you’re getting a great deal–but not at the expense of your reputation and relationships. 

Working with licensed, seasoned professionals is instrumental to your continued success and deepened understanding of the market, the industry, and beyond. The more you understand all elements of the business, the more likely you are to thrive as a real estate investor. 

That’s where we can come in to help you. If you do not have a relationship with a Realtor specializing in REO properties, please let me know. I would be honored to help you grow your portfolio. If you are outside the markets I work in, I would be happy to help you find a Realtor to partner with as you grow your portfolio.