How to Beat Other Offers Without Bidding More (Rookie Reply)

Ashley:
If you think the highest offer always wins, think again. Today we’re breaking down the creative strategies rookie investors are using to get their offers accepted without overpaying.

Tony:
Plus, we’ll walk you through exactly what to do when your tenant stops paying rents and you’re staring down your very first eviction.

Ashley:
And if you’ve ever wondered whether your nine to five job is setting you up for real estate success or maybe it’s secretly holding you back, we’ve got some honest advice you won’t want to miss.

Tony:
These are three Ricky situations we see all the time, and by the end of this episode, you’ll know exactly how to handle them just like a bro.

Ashley:
This is the Real Estate Rookie podcast. And I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s get into our first question for today. So question number one. The question says, what are the different types of offers you can make on a property beyond just offering at or below asking price? I want to be more creative and competitive with my offers. What strategies do experience investors use to structure offers creatively? Great question. And I think a lot of Ricky’s ass should do just kind of focus on price as the only part of their offer. But maybe let’s start by breaking down what are all the different elements that go into an offer? And I think for rookies that are curious, if you ask your agent for a sample purchase and sell agreement, that’s all the different things you have to fill out as you’re going through. So just off the top of my head and Ash, jump in here as needed, but obviously you have your purchase price.

Tony:
That’s one big piece that a lot of folks are going to focus on. The second thing you have is your closing date. So how quickly can you close standard purchase and sale agreement’s going to default in most places, I think to 30 days. If you’re in New York, I dunno, maybe it’s like six months because it takes forever to close, but typically 30 days. So you have your time to close, then you have all of your contingencies, and this is where you can actually make your offer a little bit more competitive. So I think purchase price, time to close those two are a little bit more straightforward. Let’s talk about maybe time to close first, if a seller has an option between getting paid tomorrow or getting paid in 30 days, most sellers are going to want to accept the offer that pays them tomorrow. So if you can increase the speed at which you’re closing, then you have the ability to maybe have a slightly stronger offer.

Tony:
I think the challenge though is that for a lot of folks who are using traditional financing is that typically you’re going to need about 30 days for the bank to work through all the things they need to work through to get you your lending. But if you’re using your own cash, if you’re using hard money, if you’re using private money, you have the ability to close a little bit sooner. I just submitted three offers yesterday for some flips and OKC and I put a 14 day closing window on all of them and even told my agent, I can probably get down to seven or 10 days if really needed. And that hopefully positions my offers a little bit stronger than the person who’s going to close in 30 or 45 days.

Ashley:
And I think a big factor of that, like you said, is the type of financing or how you’re purchasing the property. Because also too, if you’re using a FHA loan or maybe a VA loan, there’s more hoops to jump through. So I’ve heard a lot of times when someone receives multiple offers, they’re most likely, like for best case, take the cash because then there’s no bank hoops to jump through. The next would be conventional lending, and then the next would be maybe the FHA or the VA loan because they have those inspection requirements that can scare sellers thinking, well, my house isn’t in perfect condition and I don’t want to go under contract and then it fall through because it didn’t have a handrail or something installed. So that can definitely play a factor as to what your loan is, but sometimes you don’t have the control over that and that can’t really be a negotiating tactic because the VA loan is the best product for you and that’s what you’re going to use.

Ashley:
But I would challenge you to find out what other lending options are available to you. So if you could say, I’m going to do a conventional loan, and this is actually what my sister did. She had a full intention of doing an FHA loan and she actually got a conventional loan at 5%. So instead of the three and a half percent down, she did 5% down, which wasn’t a huge difference for the purchase price she was buying at. And she was able to go in with a conventional loan offer instead of an FHA loan, which was more appealing to the seller of the property.

Tony:
Yeah, and I think you said something that’s super important. It’s like what’s more appealing to the seller? Because timeline contingencies, all those things are important, but sometimes just asking or trying to ask at least because some agents may or may not share this about their seller, but just trying to understand, hey, what is their motivation? What’s most important to them? Why are they looking to sell this property? Why are they looking to get out of it? And knowing that can sometimes help you structure your deal in the best way possible. We’ve given the example before and we’ve heard it from multiple investors helping the current seller move out of their property if you pay for their moving truck to get to the next place, maybe that’s what they need.

Ashley:
One other thing too, with that piece of it is making the offer and whatever you decide on the financing is, is there wiggle room in your purchase price? So I can’t stand this, but escalation clauses and sometimes agents will put right in the listing, no escalation clauses, but this is when you make an offer and say, my offer is $200,000, but I will go up to 250, but no more than $5,000 over the highest offer. So what that does is you’re offering 200,000, but if they get another offer at say 220,000, your new offer automatically goes to 225,000, but if the other person offered two 50, that was your max and the other person’s going to get it. So I don’t like escalation clauses, but that has been a negotiation tactic for people by putting in those escalation clauses where they’re not putting that full offer of two 50, hoping they get it for a better deal closer to the 200.

Ashley:
The next thing that I heard of, which is this was completely new to me, so this is my sister again, she put in an offer on a house and there was another offer. She ended up getting the house, but she found out later on what the other offers were from the seller of the property, and one of them was that they were willing to pay 10% above the appraised value. So no matter what the house appraised for, they were going to pay 10% over the appraised value or their offer. Let’s say they offered 400,000 or 10% of the appraised value. So if the property appraised for over 400,000, they would pay 10% more, but if it appraised for the 400,000 or less, they would just stick with their regular purchase price. So I thought that was super interesting too. So if you think your house is going to appraise for more, then yeah, you might want to take that offer. But if in this case the offers were already $75,000 over asking and stuff, so the seller was already surprised how high the offers were, they didn’t think that it would appraise for much more, I guess, I don’t know. But they didn’t take that offer. But I thought that was really curious. That was the first time I’d ever heard of anyone doing that method of negotiating.

Tony:
You touched on contingencies, which I guess is the last kind of lever that you have to pull as a potential buyer, but contingencies are basically parts of the contract that say, I have the right to back out as the buyer if X happened or if X doesn’t happen, right? It’s your way of backing out of the deal. And some common contingencies that we see are financing contingencies. Vast majority of home purchases in the United States are done with some sort of financing. And buyers typically want to make sure that if for whatever reason they can’t actually get their lending, if they can’t actually get final approval on their loan, they have the ability to back out of that purchase. So financing contingency is one of them. If you’re coming with private money or cash or hard money, the risk of financing contingencies actually being an issue kind of goes away.

Tony:
And for me, typically when I’m buying a deal, I don’t put a financing contingency because I’m usually working with private money and I’ve got a high degree of confidence and we’re going to be able to sort that out. So financing contingency is one, Ashley, she just talked about the appraisal contingency. So you might be able to get approved for your financing, but if the bank appraises it at $50,000 less than your purchase price, well that means you now as the buyer have to come out of pocket $50,000. And if you’re willing to do that, great. If you’re not, then you put in some sort of appraisal contingency that says, I’m only willing to go up to the appraised value. So that’s another one that you can either add or remove. Another common one is the inspection contingency. And I think that’s one that for most rookies you probably want to keep in because if say you do your inspection and you find out that there’s something wrong with the main line going out to the city sewer, it’s a big issue and you don’t want to be on the hook for maybe fixing that.

Tony:
So the ability to say, Hey, if something comes up during my inspection period, during my due diligence period, I have the right to back out as well, or at least to renegotiate. And then maybe some other ones that aren’t as common. And Ashley, I dunno if you had any to add on to that, but it could be like home insurance. I’m thinking about where I’m at in California, you’re trying to get homeowners insurance with fires, it’s a little bit tough. Places like Louisiana or Florida, other types of insurance could be tough. So making sure you can actually ensure the property could be one. And then this probably doesn’t happen as much in real estate transactions, but say that you’re trying to buy a property, but it’s contingent on you selling your existing house like, Hey, this house needs to close in order for me to get the down payment to buy this house hack. That could be another one. So those are all the different contingencies I think we typically see.

Ashley:
Another one that I would add is the interest rate too is like the interest rate cannot exceed 7% too. That one I see is very common in a lot of deals that I’ve done is that the interest rate of whatever the person’s pre-approval is at it cannot exceed a certain amount because, or else they may not qualify for that loan anymore because their payment has gone up and it’s not going to meet their debt to income anymore, whatever that may be. So that’s also a part of the financing contingency. So I think my favorite actual negotiating technique is to give multiple offers. So design two, three different offers where maybe one does have a contingency but you’re paying a little bit more. Maybe one isn’t all cash offer but you’re paying less. Maybe one is seller financing and you get really creative with a down payment. And then maybe it’s just seller financed over one year with a balloon payment that gives you time to fix up the property, go and refinance, and get a loan from the bank. So that is what I really like to use is multiple offers with different types of contingencies, different ways of paying for the property, and then that lets the seller actually decide, okay, which one of these will work for me?

Tony:
Alright, we have to take a very short break, but when we come back, we’re going to go over an eviction that’s going on right in Ashley’s backyard. Alright guys, we are back from our short break and we’ve got a question from Matthew, a fellow investor in Ashley’s Buffalo, New York. And Matt’s question is, I’m going through my first eviction in Buffalo, New York. I’ve sent the five day late notice and the 14 day demand letter if rent is still unpaid after the 14 days as my next step filing the notice of petition with the court, I prefer not to use a lawyer because I want to learn the process myself, Matthew, and Ashley, this reminds me of your very first eviction where you also wanted to learn the process yourself. And for maybe the rookies who haven’t heard that story yet, how successful was Ashley attorney at law in her first eviction process?

Ashley:
Well, I know that the part you’re referencing is the part where I cried about this happening. And actually this was a question I found on Facebook and I actually responded to it and I did leave out the part where I actually cried. I did say that the eviction got thrown out, but I didn’t humiliate myself on Facebook. I chose to leave that part out. But I did have tears welling in my eyes as the judge is telling me, you did this completely wrong. And so I actually had my first two evictions at the same time, and I was working for another investor and he’s he, to be fair, he was the one that told me, ah, you could do this. You can do this on your own, you’ll figure it out. It shouldn’t be that hard and stuff. And after that time, we never ever had me do it again on my own.

Ashley:
It was always with an attorney and the process is so much easier. But for this example, I recommended using an attorney because they will do the whole process for you and it’s not as expensive as you think. On average, I spend $1,100 on an attorney fees for an eviction, and that’s if the eviction goes the full route, we have to have the marshals come and everything like that. So to me, that is worth it because that is oftentimes one month’s rent. If you go through this process and you make a mistake, you are having them stay for another three months while you start this process all over again to evict them. So I think that as an investor, you need to be prepared with reserves and having money to spend for things like this that happen and you will end up hopefully saving money in the long run because you hired the attorney to do it right the first time. And in his question he said, because he wants to learn the ins and outs of being a real estate investor. So Tony, that’s like you saying that you want to learn how to change to be a real estate investor. You are a very successful real estate investor and you haven’t gone and learned how to install a toilet, right? Or have

Tony:
No, no, I have not. I have

Ashley:
Not. So it’s like you don’t need to learn everything to be a real estate investor and you can still know the process by seeing what the attorney’s doing following it. I mean, they document it for you. You get copies of everything, you can go to eviction court. But in New York state, it is a long process. You have to send a couple different notices. You have to make sure everything is in a certain timeline, they have to be served by somebody. You have to have an affidavit signed that this person served them. And that’s what I like about the attorney is that that’s all part of the package for you. They handle all of that for you. And I think it is well worth getting an attorney to do the eviction for you, then spending your time, your time can be better spent. Okay, what do I need to do once this person’s been moved out? I need to get this property rent ready right away so that I’m not losing more money. Do you need to get a contractor lined up? Do you already know it’s destroyed? Do you need to start getting your listing ready? Things like that. So I think there’s a more valuable use of your time than running around sending certified mail, finding a process server to serve them, things like that.

Tony:
Yeah, you make a super valid point, Ash, that being an investor means investing, right? It doesn’t mean turning yourself into an attorney or a trades person. Hey, can I find the right person to execute on these different pieces? So couldn’t agree more.

Ashley:
Tony, have you ever evicted someone?

Tony:
No. No. I never have the only long-term rentals we ever had. I had property managers in place and luckily we had mostly decent tenants and yeah, no issues at all. I have though had to call the sheriffs on a few short-term rental guests to get them out because they wouldn’t leave. So that was

Ashley:
Okay. I thought I was the only bad person evicting people. Now we’re level now.

Tony:
Yeah. So we’ve had to do that a couple of times. But yeah, no evictions. Luckily

Ashley:
After our last break, we’ll be back with a question going over your job and if that plays into giving you the ability to be a real estate investor or if it doesn’t matter. Okay, we are back. Thank you for taking the time to check out our show sponsors. Let’s get into our last question. So this question is also from somebody regarding Buffalo New York. This one is my wife and I are moving back to Buffalo and want to get into real estate investing. I need to secure a job to make the move back. I’m currently a construction project manager and was wondering if this is still my best option as I consider money flexibility and being able to do flips and spec homes in the future. I’m worried working as a project manager in construction could limit my ability to do side work to get in real estate investing.

Ashley:
I would love your thoughts. Thanks Josh. Okay, well, I’m going to tell this story because there’s probably one person listening that has never heard it, and I already know Tony’s sick of me saying it, but we were at it, I’ll say it really fast. We were at an event and somebody said, I don’t have a job that in real estate, should I quit my job and I do something in real estate. I don’t feel like my job helps me become a better real estate investor. So we said, what is your job? And they said, A project manager. And then we said, everybody raise your hand if you want somebody to manage your rehabs. And everybody’s hands went up. Okay, so first of all, I think this is a great skillset to have to be a real estate ambassador. And the first thing I thought of when I saw this question is, okay, you come to Buffalo or you go to any city, you most likely don’t know a ton of people there or have referrals or recommendations of contractors or other real estate investors.

Ashley:
What a great industry to get started in because as the project manager, you’re going to be working with so many different contractors and subcontractors. So you’re going to get that whole network and you’re going to know which are the good ones, which are the bad ones, and you’re going to be able to use your job to give these contractors a trial run and say, okay, I know that I can use this contractor for one of my jobs. He did great. I think the fact of you’re worried that you are not going to have time to do the side hustles or work on your own projects, things like that, really look at the opportunity costs there. So are you able to make more money in this job than you would actually doing the rehabs on some of your own projects where you can take the money you’re earning and pay $10 to the contractor and you are keeping five of it or whatever. Obviously a larger lump sum of that. But if you are able to still retain some of your money that you put into your work for your, say you break it down to an hourly rate or whatever and you make more than you’d actually paying a subcontractor do the job, then it should be a no brainer to stick in your work and to have the subcontractor do that job and still be a real estate investor.

Tony:
I think maybe if we add a little bit more detail, it also might be easier to give a more confident answer because one thing that he said here was, as I consider money and flexibility, and I wonder if maybe he feels that from a financial perspective, he just won’t make as much doing this in Buffalo compared to wherever he’s at right now. And I do think that is one thing to take into account because yes, obviously I think agree with Ashley completely, there’s a tremendous amount of value in your job being in the field of real estate investing for all the reasons that she mentioned. But if you feel like it’s going to severely reduce your ability to earn the income, need to actually go out there and buy the real estate, that is something to take into account. So I think without knowing how much you’re making now and how much you’re going to be making, it’s hard to stay confidently.

Tony:
But if we assume that it’s a wash and you’re making about the same, then yeah, I don’t see any reason why it would be a conflict of interest. And if it’s something that you’re really worried about, just be honest with your job. Say, Hey, look, I do real estate on the side as well. Obviously I would never have our subs leaving our jobs go work mine, but are you okay if I need them to work late nights or weekends on a job that I have? Is that okay? And just be honest, be transparent with them. And I think most places probably aren’t going to have an issue with that. And if they do, then maybe go find somewhere else to work where they’re a little bit more open to that sort of flexibility. But in general, it feels like a great idea. It feels like a great way for you to go into a new market, build your book of contacts, get to know who does what, and build your roster. The hardest part really of trying to do rehabs is finding the right crews. So if you can test these folks out on your jobs’s dime, I think it’s a win-win situation.

Ashley:
And you’ll have steady income coming in just to support yourself while you start investing in real estate. And you’ll have the W2 income to be bankable if you’re going to do some burrs or something like that to refinance until a long-term loan. The one last thing that I would look at, and to Tony’s point here is that if this project management job isn’t going to give you the flexibility and it’s not going to give you the amount of money you want, is it worth it finding a job that isn’t as demanding and maybe you’re making way less money, but it’s a very flexible job, or you’re very set hours where you’re never working nights or weekends, you have that time for real estate. Is it the opposite of what I said earlier? And is it more beneficial for you to do all of the work on the properties and say you get a quote that it would be $30,000 for labor to rehab this home, but you know that you could do that over two months?

Ashley:
Would that $30,000 be more valuable to you to make working on your own project or to save working on your own project than hustling it at your job to make sure you have the money to pay the contract or whatever that may be? So that’s when I think of too, because we have a lot of friends and a lot of other investors we see where they would rather do the work on their projects because they’re their own boss. Instead of paying another contractor, they’re just keeping that money in house. And then when they sell the flip, that’s them paying themselves for the labor that they did in the property. And yes, their margins are larger, and when they post on Instagram, I made a hundred thousand dollars. Some of them, most of them are transparent, but some of them make it look like their flip is great, but that’s because they did all the work and they don’t have any labor involved in that. But that is also something else to consider is take a lower paying job that is less stressful, less demanding, more flexibility so that you can save all that money putting it into your flip.

Tony:
I think regardless of this job or that job, there’s always going to be a challenge around balancing getting started in real estate with your current day job commitments. And I think we all, as we get started, have to figure out how to walk that line in the best way possible. And for me, when I was just getting started, it was early mornings before my typical workday started. I was up at five o’clock in the morning every morning just to get a couple hours on real estate stuff, and then it was nights and weekends. So regardless of what path you choose, I think you’ll still have to figure out how to find that balance. And again, I think it’s almost easier to do that if the job that you’re working in is so closely aligned with your goal of becoming a real estate investor.

Ashley:
Well, thank you guys so much for listening to this week’s rookie reply. If you have a question that you want answered, feel free to leave it as a comment on this YouTube episode. Or you can also go over to the Real Estate Rookie Facebook group or send a DM to me and Tony. Thank you guys so much for watching. I’m Ashley, he’s Tony, and we’ll see you guys on the next episode.