Increase Your Cash Flow with French Fries

I know, I know that title has you scratching your head.  But rest assured, if you’re a rental property owner you’re gonna love this technique.

Yesterday I went to sign a lease on one of our properties.  Normally this particular property rents for $750 per month and that’s exactly what we marketed it for.  However, after a short discuss with the tenant he happily agreed to pay $815 per month for the property.

So how did we do that?

The answer is simple – we gave him the McDonald’s treatment.  When you go into McDonalds what’s the first thing they ask you after you order a burger?

Would you like fries with that?

I love fries and I’m sure you do too – they go great with a burger.  Well, let’s pretend we’re McDonalds but we’re not selling burgers, we’re renting houses.  What do you think McDonalds would offer their prospective tenants once they agreed to rent?  If you really think about it there are hundreds of things you could offer.  Here’s our menu of “fries” that we offer to our tenants.  You can see that each upgrade increases their monthly rent by a nominal amount.  For this particular lease signing the tenant took one look at the list and said:

I want the flat screen…make it happen!

There was no coaxing, no selling, no haggling to increase his rent.  This guy took one look at the list and knew he needed a big screen.  Heck he was even eyeing the lawn mower but that was “too expensive”.  So, just like that we increased our monthly rent by $65.  Sure, we’re going to have to go out and buy a TV, but let’s take a look at the numbers.

The TV we’re going to buy is a 42″ plasma TV from Costco at a cost of $399.99 ($424 with tax).  Over the course of the first year we will collect an additional $780 from this tenant which means we’ve increased our cash flow by $356 for the year.  Now here’s the kicker – if this tenant stays beyond the first year we’ll increase our cash flow in the 2nd year by $780 (I won’t even talk about the 3rd year).  The bottom line is that we set the pricing on each upgrade so that it will pay for itself during the first 6 months of the rental.  Everything after that is gravy.

This certainly doesn’t work with every tenant, but it’s an easy program to offer.  If you don’t offer things like this you could be leaving money on the table…so take a cue from McDonalds and start offering fries with your rentals.

2012
05/06
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I Hate No-Shows…Here’s a Solution

A few years back we bought our first rental property.  We put a lot of time and effort into the purchase and rehab which is why I was really excited when I got my first call from a prospective tenant to rent the property.  He called me up and we had a very good conversation.   By the end of the call we decided it was best that he come and take a look at the property, so we made an appointment to see the property the following Saturday.

So that Saturday I went over to the property early to make sure everything was clean, and I even brought over some candles to make sure the home smelled  nice.  Our appointment was for 10am that morning.  I can still remember sitting there at 10am…then 10:10…then 10:20…still no sign of this guy.  After waiting for 25 minutes I decided to call him, and when he answered I asked if he still wanted to see the place.   He simply replied:

Sorry I changed my mind.

And that was that.  Quite frankly I was really upset.  How did this guy have the nerve to change his mind and not have the decency to call and let me know.  I had wasted several hours of my time just preparing for the showing but it was no skin off this guy’s back.  Well, since then I’ve learned a few things about showing properties to tenants and perhaps the best idea I’ve come across is the idea of the rental open house.

As we talked about in last week’s blog we paid one of our tenants to leave which created  a vacancy.  Under that scenario the agreement was that we would pay her to leave as long as the property was left clean and with no damage.  This of course allowed us to begin showing the property immediately after the tenant moved out.  So, I made it a goal to fill the property within 72 hours after the tenant vacated the property and here’s what we did…

I started all the marketing for the property the week leading up to when the tenant would vacate.  The marketing included advertising on Craigslist, Vflyer, and placing a sign in the yard.  This marketing worked great, and the phone started ringing early in the week.  Now rather than set up individual appointments with each prospective tenant, I told them I would be available to show the property at 10am on Saturday.  I didn’t tell them this, but I was creating a rental open house.  The goal was to get as many people as possible lined up for the 10am showing.  The current tent was set to move out on that Friday, and I was able to get 7 people set up to see the property at 10 am on Saturday.  This of course was a bit of a risk because I wasn’t 100% sure the property was going to be clean, but I did have the agreement with current tenant, and I was relying on that.  If the house was a mess my plan was to reschedule with everyone.

Well, things worked out with the current tenant on that Friday, and the place looked great.  So we were all set!  On Saturday morning, I arrived at the property early to make sure everything was in order.  I brought some Febreeze to enhance the smell, and I fully inspected the property to make sure everything was in working order.  Then I began to wait.  At 10am the first prospective tenant pulled in the driveway.  Then a few minutes later the 2nd showed up, and about 10 minutes after that the third showed up.  Only 3 out of the 7 people I spoke with actually showed up, but I didn’t care about the 4 no-shows…I had 3 fish on the line.

I’m happy to report that even though I didn’t get 100% attendance it was a complete success.  All three of the people that showed up submitted applications.  Furthermore, not one of them tried to negotiate the rent to a lower price (even though I listed it $50 higher than the previous tenant was paying).   In the end, 2 of the 3 prospective tenants qualified.  By Sunday we signed an agreement with one them, and they moved in this past Tuesday.

So you can see that setting up your showings with multiple tenants is a good idea for a few reasons:

  1. It maximizes your efficiency in showing the property
  2. It minimizes the risk of having nobody show up
  3. It creates a sense of competition for the property, and the tenants are less likely to negotiate.

The bottom line is that this is the model for how we will show our properties in the future because it simply generates excellent results.  Furthermore, you can see the result of how the Cash for Keys offer and the Rental Open House worked together.  We used these two ideas to minimize the vacancy period, and now this property is once again performing very nicely for us.

In total this vacancy cost us $375 which was $300 to pay the tenant and $75 for 3 days of vacancy.  However, when you consider we were able to increase the rent $50 over what we were charging, we will actually come out further ahead in the long run.  Of course it’s better to have no vacancy but in this situation I’m elated with the results!

2012
04/08
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Pay Your Tenants to Leave – Give Them Cash For Keys

If you’re a landlord long enough you’re eventually going to have to evict someone.  Well, that day finally came for us this past month.  We had a tenant in one of our properties that was receiving assistance through the Section 8 program.  If you’re not familiar with this program, Section 8 helps low-income tenants by paying a portion or all of their rent.  For those in the program, it’s obviously very advantageous for them to stay in the program.  Well, in February we were notified that this particular tenant had their Section 8 status revoked because they failed to submit their renewal paperwork.

Honestly I couldn’t believe that someone receiving free rent would fail to send in their renewal paperwork to make them eligible to receive another year of free rent, but I guess that’s a whole other story.  The unfortunate thing for us is that we now had a situation where this particular tenant had no ability to pay the rent, and our only recourse was to evict her for non-payment right.

If you know anything about the eviction process, it takes a minimum of one month to evict a tenant in Michigan, and because of court delays it typically can take closer to 45 days.  This amount of time creates several distinct issues.  First and foremost, you don’t receive rent during this time period so you’re losing there.  Adding insult to injury, your expenses go up because you have to pay court costs will typically run about $300.  In addition to all of this you run the risk of upsetting your tenant leaving your property vulnerable, and a pissed off tenant can do a lot of damage in 45 days.  If you add up loss of rents, court costs and damage to the property, you can easily run into the thousands of dollars to evict someone.

Rather than take on all of this risk, we took a different approach.  We wrote the tenant this letter:

Dear <Tenant>,

As you are aware, you have lost your Section 8 status and you no longer have the income level to afford the home you are living in.  We understand your situation and we are willing to work with you through this transition.

As you are aware, we have begun the legal eviction process.  The costs to you to go through this process are excessive, and can run into the thousands of dollars.  We would like to avoid all of these charges, and we have decided to make the following offer to you.  If you fulfill the following terms of this offer, we will agree to compensate you $300.00.

Terms of the offer:

  1. You will vacate the property by Friday March 30, 2012 at 3:00pm.
  2. The home will be clean and be cleared of all your personal possessions.
  3. The home will not be damaged in any manner other than normal wear and tear.

If these conditions are met, we will offer you a payment of $300.00.

Please contact our office by Friday March 30, 2012 if you would like to work towards these terms.  If you do not contact us by this date we will assume you have rejected the offer and we will proceed with eviction.

Thank you,

Management

I’m sure there a number of hard nosed landlords out there that completely disagree with this approach because it rewards a tenant for bad behavior.  While I agree with this to a certain degree, we made this decision purely from a business standpoint.  We talked above about the ramifications to the eviction process.  If we went through the full eviction, we would have lost a minimum of $1730 due to lost rents and court costs.  In addition to this we would have faced the high probability of excessive damage to the property.

With the cash for keys approach, we minimized our vacancy to one month, eliminated court costs, and we guaranteed the property would not be damaged.  By doing this, we would limit our loss to $1000 thereby saving us at least $730 and probably much more.

While it is a bitter pill to swallow, in this case it was the right business decision.  Sometimes there just comes a time when you need to cut your losses, and paying tenant to leave happens to be one of those times.

In the end, the tenant accepted our offer.  We showed up this past Friday and the place was immaculate.  It was clean, there was no damage, and the tenant handed over the keys.  We paid $300 and we were happy because we could immediately begin showing the property.  Of course we had already thought about that and lined up 7 showings on Saturday…we’ll talk more about that next week.

2012
04/01
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Are You Smarter Than a 14-Year-Old?

Last week we told you There’s a House Down the Street For Sale…You Should Buy It!  Have you started looking yet?

Well, Willow Tufano definitely took our advice, and as a result she ended up on the Ellen Degeneres show.  Here’s the interview:

 

Now, if a 14-year-old girl can buy a house down the street and generate a boatload of cash flow from it, don’t you think you could too?  The offer from last week still stands.  For the first 5 people that contact me, I will offer to mentor you through your first purchase free of charge.  In addition I will be giving you a free copy of my book, The Millionaire Model: How to Fund Your Retirement with Real Estate, once it comes out around April 15th of next month.

Three people have taken me up on the offer so far, so there are still two slots left…

2012
03/25
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There’s a House Down the Street For Sale…You Should Buy It!

This week I received a very interesting email from an old high school friend.  She knew I had experience with rental properties (because I’m talking about it all the time on Facebook), and so she approached me to ask for some advice.  You see, she has a friend that lives in her neighborhood that is going through a tough time.  Her friend is going through a divorce, and she knows the property they’re living in needs to be sold.  Of course she has the inside scoop on this because the property isn’t listed for sale, so it will probably be really easy for her to offer to purchase the home.  My friend has never invested in real estate before, but she’s looking at the situation thinking…wow we could buy this house and rent it out!

So, she sent me an email asking what she could do.  Of course, the first thing I directed her to do was figure out the cash flow on the property.  I gave her my rental property analyzer, and using this she was able to determine that the property will cash flow about $300 per month.  Suddenly she became excited about the prospect of of the extra $300 in income she would generate every month.  Sure, she will have to manage the property and deal with the tenants, but if you study how to be a good landlord, these things become very easy.  Of course I plan to mentor her through this first rental property and I’m sure once it is set up she’ll be ready to buy the next one 6 months or a year down the road.  She will be well on her way to becoming a successful real estate investor, and it begs the question:

Why aren’t more people doing this???

The fact is there are properties all over the place, and I’d be willing to be there might be one right down the street from you that you could invest in.  I bet half the people reading this blog post can think of at least one friend, neighbor or relative that is trying to sell their home.  In fact, some of those people may be really desperate to sell their home.  You could be just the person they’re looking for to solve their problem and buy it.  For your efforts you may be able to generate a very nice monthly cash flow as well.  So I ask you, why don’t you take the step and ask your friend, relative or neighbor if they would be willing to sell to you.

I have to tell you it felt great to hear my friend taking this first step to invest in a rental property, and I was glad to help her.  In fact, I would be glad to help you too.  If you find yourself in a similar situation let me know about it.  I would be glad to help you invest in your first property, and if the situation is right, I may even be willing to partner with you on the project.

So here’s what I’m going to do.  As some of you may know, I’ve been in the middle of writing my first book, The Millionaire Model: How to Fund Your Retirement with Real Estate.  It hasn’t been released just yet, but it will be out sometime in April.  So, for the first 5 people that contact me asking for help to buy their first real estate investment property, I will offer to mentor you at no charge, and I will also give you a free copy of my book when it comes out.  The book lays out a plan showing you exactly how you can take your first rental property and turn it into a million dollar retirement fund.  I’m already on my way building my millionaire model, and I’d be happy to help you build yours too.  Remember though, this will be limited to the first 5 people that contact me…so don’t wait :)

2012
03/18
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What’s the Real Rate of Inflation and What are You Doing About It?

You may have seen stories in the news talking about the inflation rate indicating it is not as low as you think.  According to the government, the inflation rate is 3.1%.  This number is based upon the Consumer Price Index (CPI), but some are arguing it is more like 8% because the CPI does not accurately predict the costs for everyday expenses like gas, food, etc.

Well, in true engineer form I took this as a challenge.  What is the real inflation rate, and more importantly what is MY inflation rate.  So, I sat down and started looking at my income and expenses over the past 6 years.  I have very accurate records going back to 2006 for what I have spent money on and how much income I have made (sometimes it pays to be an engineer, and if you’re like my wife Kelly you’re rolling your eyes right now).

To get a picture of my personal inflation rate, I looked at the following categories of expenses:

  • Salary
  • Gasoline
  • Auto Insurance
  • Food
  • Medical / Dental Insurance
  • Utilities
These expenses certainly do not represent all of the income and expenses I have seen over the past 6 years.  However, they they do represent things that have been purchased consistently and have been subject to fluctuation in prices.  For example, I have not included expenses like taxes or mortgages payments because these are either fixed expenses, or they are influenced by factors other than the economy.  So, with this list I was able to calculate my personal inflation rate.  The chart below shows how these expenses have fluctuated for me over the last 6 years.  (Again, these are real numbers representing what I have actually spent or made in income).

The is certainly a lot to talk about in this chart, but the bottom line is that when I look at my personal inflation rate over the last 6 years, it has averaged 3.2%.  This is remarkably close to the rate the government has predicted using the Consumer Price Index (at 3.1%).  This may just be coincidence, but I cannot tell for sure.  I do know that it is clearly lower than the 8% I’ve seen predicted in other news stories.  The other good news for me personally is that my income has increased on average 4.5% over the past six years.  This means I’ve been able to stay ahead of the curve.

Now with all of that said there are certainly a few things that concern me about the inflation rate in the near future.  Just yesterday I paid $4.19 for a gallon of gas.  Then, when I got home, I received a letter in the mail from my long-term care insurance provider indicating that they would be increasing my insurance premiums by over 80%!!!

Why are we seeing these kind of things happening?  Well, if you haven’t been paying attention, here is a very good article explaining why we are seeing prices go up so dramatically.  It isn’t because of a war over oil or a natural disaster somewhere in the world.  It’s because our government has been printing money like it’s going out of style.  Below is a chart showing how the money supply has increased since 1917.

Between 1937 and 1971 the money supply doubled, but between 1971 and 2005 the money supply increased 13-fold!  Since then the rate of increase in the money supply in the US has gone exponential.  This is certainly not sustainable, and only means one thing – the value of the dollar will go to zero most likely resulting in hyper-inflation.

So what can you do?  Well, the obvious thing is to get rid of every dollar you own and buy real assets.  These include things like gold, silver, real estate, etc.  Notice I did not mention paper assets like stocks and bonds.  If the value of the dollar plummets it will have a profound impact on the economy, and in all likelihood the stock market will not fair well.  I have begun doing this by purchasing real estate, cashing out my 401k and I intend to start buying gold and silver real soon.

So, the question is, where are you putting your savings?  Hopefully it’s not in dollar bills…

2012
03/11
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An Example of One of Our Deals With a Private Investor

Last week we talked about How We Fund Our Deals using private lenders.  This week we wanted to give an example showing how this works by looking at a property we purchased last year with the help of a private lender.  So let’s take a look at this property at 1041 Argyle, Pontiac, MI.

 This was a picture taken of the property before we purchased it.  Obviously there were some issues with the roof, but all-in-all the property was in very good condition.  The interior needed a few cosmetic updates, but for the most part the house was solid.

To put the deal together we presented the following plan to our private investor:

  • We required $25,000 to purchase and rehab the property.
  • The rehab would take approximately 1 month, and after the rehab was complete we would place a tenant into the property.
  • Once the tenant was in place, we would market the property for sale to international investors for a sale price of $45,000.

As you can see from our plan, we have two primary exit strategies built-in.  The first is to rent the property out, and this will provide the cash flow to make the interest payments to the investor while the property is being held.

Here is a sample of the cash flow analysis which shows the property will generate approximately $535 in net income which is more than enough to pay the investor on a monthly basis.

The second exit strategy is to sell the property to an international investor.  Our primary business (Michigan Turnkey) is set up very well to do this, and we have completed a number of sales to international clients, so this is a very viable exit strategy for us.

Now, in return for the private lender’s investment, we offered the following:

  • 10 points which will be rolled into the loan.  This means when we pay the investor back, he will receive his original $25,000 loan plus 10 points or 10% which equates to an additional $2,500.  This is the first way he makes money.
  • 10% interest paid in monthly installments which equates to $208.33 paid to the investor every month until the property sells.

Looking at the return for the investor, if the property were held under this scenario for 1 year, the investor would make $2500 in points paid for the loan, plus another $2500 in interest payments made over the year.  This represents a return of 20% for the investor.

Now in addition to the interest payments and points, the investor also received the following instruments to secure his investment:

  • A promissory note was given to the investor for $27,500
  • A mortgage was recorded against the property with the investor in 1st lien position
  • Insurance was taken out against the property listing the investor as an additional insured

As you can see, this investment was very fair and safe for the investor.  He has multiple ways to profit from the deal, and there are multiple measures taken to secure his investment by providing a first lien position and insurance on the property.

As I stated in the beginning, this is a property that we did purchase, and currently still own today.  Below is a picture of the home after we completed our rehab and rented it out.

So, this is how we do it, and if you’re interested in setting up a similar investment, we would be happy to talk with you.  Just email me at todd@michiganturnkey.com.

2012
03/04
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How We Fund Our Deals

In the last 3 years Kelly and I have purchased 10 investment properties.  Of course we make no secret about this because we talk on our blog and social media about real estate all the time.  It’s kind of funny when we see friends that we haven’t seen in a while because we always get the same question.

Where are you guys getting the money to buy all these houses?!?

Most people think we get the money from one of two places…either an uncle just died, and we’re rich, or we’re borrowing the money from banks.  Well I hate to break it to everyone, but neither of these are true.  First off, we don’t have any rich uncles, and the banks just aren’t lending right now – especially not to investors.  Rather, we have figured out how to grow a money tree.

It looks nice doesn’t it!  No, no, no, that’s not true either.  You see, the main way we are funding the purchase of these homes is through private lenders.  So what is a private lender you ask?  Well, he or she is anyone who has the capital and is willing to fund the purchase of a property while partnering with us.  We have built up relationships with a number of people who are willing to invest in real estate, and we concentrate on bringing them good deals that they will be comfortable lending money on.  It’s really that simple.

For their investment, we typically we pay our private lenders a 7% – 11% interest rate on their money while we are borrowing it, and we may also pay additional monies in the form of points up front or shared equity in the deal.  This is certainly a much better interest rate than you can get from the banks right now, and many people, including myself , have become very weary of investing in the stock market.

We are very flexible when it comes to our private lenders, and we are certainly willing to share in the profits of every deal we do, because without our private investors, we would not be investing in real estate.  So, we try to create win-win situations, and it has worked very well for the 10 properties we have bought over the last 3 years.

In addition to the interest payments the investor receives, they also get the security of the real estate that backs the investment.  Specifically there are a number of things that can be done to secure the investor’s funds.  These include:

  1. Recording a mortgage against the property
  2. Providing the lender with a promissory note to pay.
  3. Purchasing an insurance policy with the private investor as an additional insured.

Because of these additional security measures, investing in real estate is much safer than investing in the stock market.  How many times have you been offered insurance, or a tangible asset in return for your investment in the stock market.  This of course simply does not happen.

Now in addition to all of this, we follow strict criteria when purchasing homes.  We never pay full retail price for a property, and we make sure there are multiple exit strategies for the property.  This might be reselling the property, renting the property, or both.

Now, we’re always looking for more private investors, and if you would like to talk about how we might help you invest in real estate, by all means get in touch with us.  We’d be glad to speak with you about the possibility of making money :)  Just email me at todd@michiganturnkey.com.

2012
02/26
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Will Your Home Cash Flow?

In last week’s blog we talked about How to Make a Strong Offer as we discussed the offer we recently made on what will be our new home.  We really liked the house because it has so many great features, and living there will be wonderful.  However, our decision was not based solely on how we would use the home.  This was obviously very important, but we also considered the potential down the road to turn this property into an investment property.

To say the least, the property is quite unique in that it has two garages, two kitchens and a finished basement.  As we were taking the tour the first time, I kept saying to myself  “Wow, this is like two homes in one!” 

The property was originally a 3-bedroom ranch with a basement.  The previous owner added a Mother-in-law’s quarters to the home which essentially acts like a 1-bedroom apartment.  This side of the home has its own entrance, separate utilities, and it would be very easy to separate it from the main portion of the house.  Because of this, the property could be turned into a duplex in the future renting as a 1-bedroom apartment on one side, and a 3 bedroom house with a finished basement on the other side. 

So, to determine the cash flow the property would generate for us down the line, we used our Rental Property Analyzer spreadsheet and computed the cash flow as shown below:

 

So, as you can see the property stands to generate almost $400 per month if we rent the property out down the road.  The takeaway from this is that not only do we have a great place to live, but down the road we will have options.  We can sell the property if the value goes up, or we can rent it out and collect the cash flow that it will generate.  The bottom line is we won’t be stuck with the property like we found ourselves in with our current property. 

If you’re in the market for purchasing a new home this is something you should definitely consider.  As we talked about in our post Don’t Be an Accidental Landlord…Plan for It, many people these days are becoming unexpected landlords.  If they had considered the cash flow analysis when purchasing their home, becoming an accidental landlord probably wouldn’t be as big of an issue.

Now I realize that not everyone will want to consider renting their home down the road and that is fine, but for us as real estate investors, we’re certainly leaving our options open by selecting a home to live in that will potentially be an investment property down the road.

Stay tuned…

2012
02/20
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How to Make a Strong Offer…

In last week’s blog, we told you about the template we use to look at properties and how we used that form to evaluate six properties.  We also mentioned that we put an offer in on one of them and this week we’ll show you how we put our offer together.

So here’s the story…

First off I should mention that this is not an investment property (well at least not yet) because we plan to live in it for quite a few years.  It was interesting how it came about because Kelly and I have been looking for a new home for a few months now, and this property came on my radar last week.  It is a short sale that has been on the market since August, but last week they dropped the price $30,000 instantly making it a bargain.

I showed it to Kelly and she was immediately turned off by the home.  ”It’s too close to my mom’s” she said.  And it was!  The house is literally about a 2 minute walk to her mom’s house.  We went back and forth a little bit about the pros and cons to living that close to her mom, and in the end we decided that it was at least worth a look.  So on Saturday we asked our Realtor to set up a showing.

Well, as luck would have it we were heading over to Kelly’s mom’s that night for dinner, and we decided to take a drive by the house to look at it from the outside.  As luck would have it while we were sitting there parked in front of the house, the owner pulled into the driveway.  She could tell we were interested in the house and she invited us in to let us look through it.  This was a big opportunity because you don’t always get the chance to meet or talk to the owner of the house when a home is listed on the MLS.  Well, we had her full attention, and she took us on a tour of the house.  She went through every nook and cranny telling us the good and the bad.  By the time our tour was done (which lasted a good half hour) Kelly and I were sold on the house.  We of course didn’t discuss this in front of the homeowner but through our non-verbal communication with each other, we both knew we were going to offer on the house.

So, at the end of our tour I asked the seller “If I made a full-price, cash offer right now would you accept it?”

I knew the house was a steal at the list price, and I also knew we would probably eventually have to pay more because the bank would have to approve the agreement (remember this was a short sale).  Well, in her response she gave us a lot of information.  She told us that since they dropped the price last week they had 10 showings on the property and her Realtor told her two offers were already coming in.  She wanted to review those offers before she would accept ours.  I fully understood her position, but I knew what we had to do to get the house.

We continued to have a great conversation with her and Kelly’s mom even stopped by after Kelly told her to come over and see the place.  Through the extended conversation we developed an excellent rapport with the seller and I knew we could use this to our advantage in our offer.

So, Kelly and I left and went back to her Mom’s house to eat dinner.  The conversation revolved around the house, and what our offer was going to be, and here’s what we came up with to make our offer as strong as possible:

  • Price - For price, we settled on a number that was $11,000 OVER the list price.  We knew there were two (or more) offers coming in, and if we wanted the house we had to be competitive on price.  I figured someone might offer $10,000 more than list price so we went $11,000 over.  Now, as I mentioned at the list price the house was a steal, and there was a good chance we would have to raise our price anyway once the negotiation with the bank began, so I really wasn’t too concerned going this far over asking price.
  • Cash - We offered cash for the property with the ability to close within 10 days of acceptance.  This gives the seller a little more confidence that the deal will not fall apart because we cannot obtain financing and that the deal will not take long to complete.
  • Deposit – We put $5,000 down as deposit.  This showed the seller we serious by putting some skin in the game.  We want the house so we have no problem putting a higher deposit down.
  • No Inspection – The seller gave us an excellent tour of the house.  She told us the good, and the bad – even about the raccoon that got caught in the chimney.  The bottom line is we knew everything about the house we needed to feel comfortable with its condition.  So, again to strengthen our offer we did not request an inspection.

By itself this offer was very strong, and it was by design, but we had one more cherry to stick on top.  Again, we developed a very good rapport with the seller when we spoke with her, and we wanted this to be considered.  We knew that if just submitted our offer, she probably wouldn’t know which offer came from us.  So, we decided to include a thank you letter with our offer.  I was going to type the letter out, but to put a little more touch on it we decided to have Kelly hand write the letter (Here’s what it said).  It was the icing on the cake and we knew it would provide some consideration in our favor.

We were confident in the offer, but we were still on pins and needles because we really loved the house.  Well, on Wednesday afternoon, to our delight, our Realtor gave us the confirmation that our offer was accepted.  Of course we still have the bank negotiation in front of us, but I’m confident going into this that we can substantiate our offer and it should get accepted.  Also, given the seller’s personal situation the short sale should get approved.  So, at this point we’re pretty confident moving forward.

Now, I’m confident that had we not been seasoned real estate investors we would not have gotten this house.  Our offer would have been substantially different.  For instance, we probably would have offered list price, with financing and a 7-day inspection.  There’s no denying our offer was much stronger than this, and when you make offers on the properties you’re buying you want to take these things into consideration.  Of course the strength of your offer will depend greatly on how bad you want the house, and the return you will make, but these different variables in the offer should always be considered.

We’ll keep you updated on how this deal turns out…stay tuned!

2012
02/12
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