Gather all of the Facts Before Making an Offer
Negotiation of the purchase price for a property requires that you have all the facts in front of you. We’ve found that it’s always smart to have a seasoned real estate agent working with you. Our agent was able to help obtain pertinent information concerning the property, such as all expenses from the previous year, taxes, insurance, comparative sales analysis for similar properties in neighborhood, and even history of sales on the Investment Property in question. Your agent should also have some knowledge of external factors that affect property values such as:
- the current rental market for the area
- the health of the neighborhood for the Investment Property (are there a lot of properties on the market?)
- possible information from city or county that may affect future property values
- what’s happening in the local economy
- police stats for area
Even though you will get expenses from the current owner it would be a good idea to get your own quotes for the anticipated expenses: estimated taxes, insurance, property managers (if needed), lawn maintenance, pest management, handy man services, etc. Again, your real estate agent can help with some of these items.
Also, talk with your mortgage broker to find out what you can afford and get Good Faith Estimates (GFEs) for financing purposes.
You should plug all the numbers (expenses, rents, etc) from the current owner into the investment property calculator and see what ROIs are generated. You should also plug in the quotes you obtained and see what happens. And you should definitely work backwards with conservative ROIs and see what the sales price should be.
Getting an idea of the current condition of the property should be done using the services of a licensed and qualified home inspector. The inspection will help you determine if repairs to the structure are warranted or replacement of personal property items like stoves, refrigerators, etc are needed. Finally, by combining all the information concerning the property’s condition and external factors, you can make an informed offer for the property.
You should never, ever be embarrassed with an offer if the Investment Property Calculator tells you that with the current rents and expenses the property should be valued at a price much less than the current asking price. You should just move on if the counter offer(s) is not to your liking and begin anew the negotiation process with all the facts in front of you for another investment property.
There will always be properties that meet your investment expectations.
