When Their Asking Price is Your Offer, Close the Deal
This seller lead came in towards the end of the month. Nothing strange or unusual. Just a typical owner of a house looking to sell without any hassles. The seller was the niece of the deceased owner. Her aunt passed away 8 years ago and the house had been rented ever since - to the same tenant at the same rate. She said it was in good condition, but there were a few minor things wrong. In this business, a few things wrong could mean it needs a roof, it is infested with termites and the slab is cracked. One just never knows!
While I had the seller talking, I started running my numbers. Based on what I thought ARV was, $225K (I'm quite conservative), I figured I could pay $140-150K and still do OK on the deal. I asked the seller what she was looking for and she said $150K. Ouch. Hard to close a deal at the price I actually want to buy it at and make the seller feel like she got a good deal. If I agreed right away, she might think she could get more. Everyone, and I mean everyone falls for this same trap. You. Me. Everyone.
I was bold enough to actually tell her my range on this deal is $140-$150K and I could do $150K if it really didn't need very much work at all. I asked her if she would take $140K. She responded with, "Well, there are more people looking." At this point, I wasn't ready to bid against myself and I wasn't ready to fall for her objections. We ended the conversation and hung up.
I sat there and mulled over my situation. This was quite the dilemma in my book. I could give her the $150K and possible leave $5K or $10K on the table. That's a lot of money. Or, I could make her think she got me at $150K, a good deal for her, and I still make a nice check on this deal. I thought this over for an hour or so and decided that letting this very nice house in a great location get away from me over $10K would be a very dumb move. A very, very dumb move. I sent her the following email;
I know this neighborhood well and after careful consideration, I have decided to up my offer to your asking price of $150,000. My spread was $140-$150K going in to the deal. I've owned many rentals in this immediate area and these houses are all well built. As much as I'd love to buy the house for $140-145K, I'd hate to miss an opportunity over a few thousand dollars. If you can accept the $150K and be happy with it, I can open escrow today and have it closed on or before the 8th of Sept.
Attached to that email was an offer and I sent the email on a Friday. I didn't hear back from her. Saturday and Sunday were very long days. On Monday morning, I received an email from my escrow officer;
See attached signed contract. Should I open escrow?
Man, nothing like walking into the office to a new escrow! I decided I wanted to keep this house. I called up my private money lender and gave him the deal specs. Unfortunately, he said he was currently out of money and didn't have any coming in from the rehabbers he also lends to. Wow, what a let down. I started shopping the deal to a few other lenders and had some interest, but not a solid 'Yes.' I knew then that I would go with my old standby. The Norris Group. You can never go wrong with The Norris Group. They ALWAYS have money to lend.
I had to get an appraisal, but was I happy I went with TNG. The appraisal came in at $240K. They offered to lend me $145K at 6.99% for 3 years. I spent a few hundred putting in new light fixtures, painting the exterior trim and redoing the grout/caulk on the tile walls around the tub as well as painting the bathroom. I raised the tenant's rent to $1,150. To me, this is one of those keeper properties that will someday be traded into a nice Orange County rental house. Someday when it has $150K in equity, but it has around $95K today so that day may not be too far off in the future!
Would you have kept this house, wholesaled it or rehabbed and flipped it? Please leave any comments below, share this post with others and head over to my blog for more insights on investing in real estate.