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REAL ESTATE Negotiating a price

mozola

New Contributor
Aug 17, 2007
10
1
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ohio
I'm planning submitting an offer on my first property. What factors do others use to decide on what to offer.
Background on the deal:
Duplex, asking price is 149,900
The market is overcrowded. Each side street literally has multiple houses for sale. I'm not too concerned with the current market because I plan on living in one unit, and renting the other unit. When I grow out of the residence, I will keep the property as cash flow and rent out the unit I live in making this a long term investment.
Comps range from 128k to 146k.
Also, from my initial inspection of the property, I noticed both the house roof, and the garage roof will need work. How do I factor this into my offer?
 

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JScott

Legendary Contributor
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FASTLANE INSIDER
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Aug 24, 2007
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I'm not tremendously experienced, but I'll give my $.02...

Since this will ultimately be an investment (vs. a home), you should offer whatever amount will make fiscal sense in terms of the property as an investment.

Start with your goals...

- Is your goal to have a free place to live until you buy another place? If so, factor in all the costs and income associated with the place, and determine how much you *can* pay to meet your goal of covering the entire debt service with the income from one side.

- Perhaps you have longer-term income goals for when you rent both sides? Determine what your income goals are, and calculate how much you *can* pay to meet those income goals given the costs and debt service with the income from both sides.

- Or perhaps you have other financial goals (tax goals, retirement goals, etc)? Use the parameters defined by those goals to determine how much you *can* pay for the place.

Basically, calculating income on a property is just a formula that takes into account all sorts of things:

- Income from the property
- Debt Service
- Maintenance
- Insurance
- Taxes
- etc...

If you figure out what your financial goals are on the place, you can work backwards to determine how much you are willing to pay in debt service costs, which ultimately will translate into your purchase costs.

Does that make sense?

By the way, once you come up with that number, verify that it makes sense. Perhaps it's way less than the asking price, in which case, this property is probably not a deal for you. Or perhaps it's way more than the asking price, in which case you can probably get a better deal than you'd been hoping for.

As for the fixes/upgrades required, just make sure those are factored into your maintenance costs...
 

Bilgefisher

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Read Millionaire Fastlane
Aug 29, 2007
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JScott,
Wouldn't the excel sheet you posted last month help in the evaluation of this property?
 

AroundTheWorld

Be in the Moment
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Jul 24, 2007
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I second everything J said. What can you rent the other side for? What are you expecting your interest rate to be? What other expenses will you have? What is your personal budget for housing?

Also...

Question: Is this a home you want because it will be your home or are you strictly making an investment decision to live in a duplex and rent one side out?

If this is strictly an investment decision - then consider this:

If every other place in the neighborhood is for sale, make VERY lowball offers - 80K or so on all of them. Why have you narrowed down to this specific house?

I'll bet you get atleast a few counters if not an accept.
 

JScott

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Aug 24, 2007
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JScott,
Wouldn't the excel sheet you posted last month help in the evaluation of this property?
If someone wants the spreadsheet, send me a PM...

I'm on vacation out of the country for a couple weeks (and don't have access to it from this laptop), but will be happy to send when I return home...
 

lee_mre

PARKED
Aug 31, 2007
11
0
9
I second everything J said. What can you rent the other side for? What are you expecting your interest rate to be? What other expenses will you have? What is your personal budget for housing?

Also...

Question: Is this a home you want because it will be your home or are you strictly making an investment decision to live in a duplex and rent one side out?

If this is strictly an investment decision - then consider this:

If every other place in the neighborhood is for sale, make VERY lowball offers - 80K or so on all of them. Why have you narrowed down to this specific house?

I'll bet you get atleast a few counters if not an accept.

AroundTheWorld, I'm curious how you arrived at this number? Has it been your experience that people will even counter an offer that is 33-45% below asking? I would have thought that most folks wouldn't even consider dealing with you?

Anyone else have any erperiences around this?

Thanks
 

yveskleinsky

Bronze Contributor
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Jul 26, 2007
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I would approach this as a puzzle you need to work backward. (...If you goal is to have a small multi unit as an investment, why not go 4 plex? Less money out of your pocket every month.) Assuming that you are really wanting to go duplex, then start with how much you can afford a month in rent. Then how much the other side will rent for. Then get a lender to work up a good faith estimate- which will tell you interest rate and terms. Since this is considered a primary residence for you, you can get great terms. Ideally you want to set it up to where you live for the least amount of money as possible, and when you do rent it out you will be able to make money every month.
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
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AroundTheWorld, I'm curious how you arrived at this number? Has it been your experience that people will even counter an offer that is 33-45% below asking? I would have thought that most folks wouldn't even consider dealing with you?

Anyone else have any erperiences around this?

Thanks
Most folks probably wouldn't.... but a few would. Notice I said make an offer to everyone with a for sale sign up in the neighborhood. Some of them are probably selling because they are on the brink of foreclosure. Play the numbers. Some will take that much less. I have made that offers that low before. Some people laugh at me. That is fine. All of them don't laugh.
 

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