An REI offer a day keeps the bill collectors away!
Having written a course on wholesaling, I get a ton of e-mails from people who ask me questions about making offers and what they might be doing wrong. Many of the e-mails that I receive read something like this:
Dear Steve,
I recently looked at 20 homes for sale in my area. After inspecting the homes, I decided to make 2 offers, but in each case the seller’s Realtor just laughed at me. I mean, they really laughed hard! I’m not getting any offers accepted and I’m becoming very discouraged. I don’t think that we have deals like you do where I live. Can you help me? It just seems like most homes in my area sell for the full asking price or more.
-Discouraged Newbie
Discouraged Newbie is making one or possibly two mistakes common to new investors. They aren’t targeting motivated sellers and/or they aren’t making enough offers.
Targeting Motivated Sellers
Where I live, most homes sell for their full asking price and above as well. The only difference between me and Discouraged Newbie is that I concentrate on the sellers who are motivated to sell at something less than full price. Typically, these are banks or individuals who have a VACANT property which needs work. I stress the word “vacant” for two reasons: 1) vacant properties are nothing but trouble for the owners and 2) 99% of the properties I have bought over the past three and a half years have been vacant.
Handling Rejection
Even though I focus on motivated sellers, most of them aren’t motivated enough to accept my offer. If I make 30 offers, with 27-29 of them, chances are that the seller is going to say “No,” or someone else is going to offer more. I strike out much more often than having a seller say, “Yes,” to my offer. But I’m not concerned about all of the, “No’s.” I accept them as part of the process and forge ahead, knowing that if I make enough offers someone is eventually going to say “Yes,” particularly if my offers are targeted toward sellers who have some degree of motivation.
Making Lots of Offers to Keep Your Funnel Full
In this business you cannot make money without inventory. It is extremely important that you always keep your pipeline full, and the way to do that is to constantly make offers. Many people come and tell me that they look at homes all the time but never buy anything. They say they find motivated sellers but none of their deals ever goes through. My next question to them is, “How many times have you put an offer on paper?” They are usually able to counter their answer on one hand.
In order to buy properties, you must make offers. Sounds simple, right? Yet it’s surprising how many new investors have trouble overcoming this hurdle. Personally, I average 40+ offers per month, sometimes many more. Over the course of one weekend, I made about 40 and bought 9 houses on Monday. To this day, this stands as one of my most productive offering sprees, netting about 1 out of every 4 properties (each was sold separately, by the way, not as part of a package). And you know what? I never would have bought all of those homes if I hadn't made those 40 offers. Just like I would rarely, if ever, buy anything if I only made one or two offers a month.
When I look at 20 homes I make 20 offers, not just 2. In fact, sometimes I make 30 offers when I look at 20 homes. I make offers even on the homes I couldn’t get out to see. If I’m targeting the right properties (i.e., those with sellers who may be motivated), odds are that there will be several sellers out of 20 with enough motivation to seriously consider my offer. What I don’t try to do is select who those 2 or 3 sellers might be. The chances of me picking the right ones are very slim. And why should I? My low offers will fish out the sellers motivated enough to respond and thereby tell me where I should invest my time. Too many wholesalers try to pick the motivated sellers from a group by themselves when making offers is the easiest way to find out.
I make offers on every single home that interests me where I think the seller might be motivated. Some I inspect; some I don’t. Some are priced ridiculously high; others are priced ridiculously low. Some are in great areas; some are in bad areas. Regardless of location, condition or price, there is a number that works for every home and that is what I offer. On occasions, I’ve asked sellers to pay ME to take their homes because no other number worked for me. Sure, most of these offers are rejected just like most of my other offers. Even on the weekend that I bought 9 homes, most (31 of 40) of my offers were rejected. In general, though, some of my offers are accepted, and those are the only ones that count.
I hope that this will inspire some of you to get out there and start making more offers. If you make it your goal to make an offer a day, then you will start to buy properties. If your offers are at the right price, then you will sell properties and make money.
You don't need to make offers as I do, but you do have to make some if you want to buy houses. Do your homework, get your questions answered, and overcome your fears. Then make it your goal to average an offer a day because, as we all know, “An offer a day keeps the bill collectors away!”
-Happy Investing!
Steve Cook
Very motivational...I'm going to look at a house today...I haven't talked to the owners yet, but I might just make an offer anyways.
Thanks Steve.
I liked your thoughts on making a lot of offers, but I do have one question on this - I have read elsewhere, and most people say, that there must be money changing hands to make it a valid contract. So even if I put in the contingency clauses that most REIs use, don't I still need to put down some money to make it a valid contract? This could get expensive if I make 40 offers. On the offers that you are talking about, do you put down a deposit on each one, or are the sellers motivated enough to not request one? Without a monetary deposit, is it actually a valid contract?
Sure they are valid. When you make that many offers you aren't going to get many of them accepted (at least if your numbers are right). I put a clause in my contract that reads "earnest money deposit will be submitted upon ratification of contract". That way I only have to cut checks for the accepted offers.
Blessings,
Steve
Any chance you could share a copy of the contract you use when making an offer? Of course, I understand it may not be valid in all states, yadayada, should have an attorney look at it, etc.
Yes, in order to have a valid contract, you need to exchange something of value. However, there is no specification as to how much this has to be. 50 cents would create a valid contract. Since most people won't agree to .50, I imagine he is using something else.
I believe that in most states they are not allowed to deposit your money unless they accept the offer. As a result, if you wrote checks, I would *****ume you would be okay. Since not everyone would accept the offer. However, I imagine there is likely a better way.
Okay, newbie question. How do you determine what you are going to offer for a property? You base it off of recent sales? off of present similiar units on the market?
Do you have a set percentage that you look to offer? (E.g. 75% of the recent sales prices)
What is that %, if you don't mind me asking?
GOOD ADVICE THAT INCREASES YOUR CHANCE!! When making an offer, staple a check to the offer for the amount you are offering, when the owner sees the check, he knows you are serious, and a check looks good. If a realter laughs about your offer, and declines to submit, go straight to the owner, mail the owner an offer, or tell the realtor you want the name of his boss/owner of the realty, he will change his mind fast.
The other issue is the realtor laughing at him/her. I find many of them will not present really low offers. (yes I know they supposedly have to but they do not) You have to shop a realtor. good advise on this matter is on this board too.
Steve, great article, however ... I've read this article a while ago and still don't see something. How do you make offers with no money/credit? haha. What happens if I make 5 offers one weekend and 3 of them bite! I'd then have to be ready to buy 3 places, because offers are in stone when accepted by the seller, correct?! Your article seemed more targeted to newbies with either pre-approved credit and/or decent cash. Please let me know if I'm missing something.
Stephen Cook says it well. Some years ago I ran what is called a "Deal Shop" It is a real estate operation dedicated to the proposition that all members should get rich and as quickly as possible.
Our offer level was very high. So high that we did not use the standard MLS Offer form, we cut the offer form down to two pages. I am sure somewhere in California there are attorney twirling in their graves. But making offers at and around five to six per day it was necessary. There was a trust account from which we drew the offer checks which were minimum in amount. Nicely typed and attached by staple to the offer. If there was another Broker involved we always accompanied him to presentation. I must admit on several occassions we had to hold him by the arm and tell him not to laugh. But we were present. You see in many instances the offer is merely the first opening round in the dance of Offer, Counter Offer etc. etc. to Acceptance of Offer. The Broker from my office usualy me (Lucius) would then negotiate and with the normal amount of Hutzpah shove the Sellers Broker sideways from the path of Transaction. Get the Signature and then run for Escrow , I mean run, do not pass go do not collect the $200 just run. Dictate the deal to Escrow and then return with his Broker or without for signature. The entire time the check is still attached to the original offer. It worked well, we had such a high volume that we received a excellent discount from Escrow and frankly on the small deals I was tempted to Abstract instead of full Title Policy. Especialy those deals in which the existing mortgags were *****umed and the Seller was coming back with a Purchase Money Second Trust Deed.
Inasmuch as I run a very small Hobby Shop, that is what the Big Brokers call small Brokers who operate out of home offices. The volume is no longer so intense, and the game played is more centered in the actual transaction. My target selection is a little more specialized. I can hit the door with all the information on the property, on the mortgage, on the individuals in ownership. I think a few of my prior postings have shown a rather specialized way of operation. Mr. Stephen Noh Cook, is correct, but as time goes on and your closing skills increase. You reach the point whereat you can begin to show a property owner who is high listed and above it all, the advantage to him to take less, cut down his expenses of Escrow and Broker Representation. Examine the taxes that come into play and tailor an offer that while considerably lower achieves a better value for the Seller. I really like to meet the Seller who is high listed. Is going to take the cash from sale and invest it into a retirement account or buy annuities etc. etc.
Cheers, Lucius