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in Series: Getting Started in Real Estate · October 30, 2022

Time to Buy- How to Make a Winning Real Estate Offer

You’ve found a property either on your own or through a realtor, you’ve run your numbers, you’ve got a lender and now you are ready to make an offer. What’s next?

In this post I want to discuss a few items:

  1. Key components of a real estate contract
  2. How do you make a compelling offer to ensure you get the property you want
  3. The main contract contingencies and how they work
  4. Communicating with your realtor

In this blog, I am also assuming that you are working with a realtor. In a later post, I can discuss off-market deals.

The Real Estate Contract

It is important to understand the basics of the real estate contract before making an offer. Even when working with a realtor, you will have to let them know what terms you want to offer. It is important to note that every state has different contract requirements, especially California and New York, so please consult with your local team. You might even want to ask your agent for a blank template before making offers so that you have an idea of what the contract in your state looks like. I should also say that I am not a lawyer and this should not be taken as legal advice.

Alrighty! Now that disclaimers are out of the way, let’s continue!

Key Components

Names of the Party to the Contract

One of the first decisions that you have to make is, who will be the purchaser. Is it just you, you and your partner, or your company? Sometimes you might have to change this after signing the initial contract. In the state of GA and FL, our realtors have been able to draft an amendment to change the purchase name. It might be good to confirm with your realtor the requirements for your state.

Description of the Property

In addition to the street address, properties usually have a legal description. These are generally found on the property tax appraisers’ website. Your realtor would populate this in your contract for you. The title company will verify this as well. In the past, we’ve had to make amendments to our contracts because the street address was not correctly stated and the lender wouldn’t accept it. For example, the address per the property tax appraiser’s website was 1709-1711 NW and the contract stated 1709 NW. Good practice would be to search for the property to verify (if available).

Purchase Price

This is probably THE most important item. Make sure it has the right offer price!

Closing Date

Generally, the standard is 30-45 days from the contract date. Ask the realtor what they recommend, and verify with your lender (if using one) and title company to make sure that their timeline agrees with your closing date. If we are doing financing and it’s a new lender, we usually aim for 45 days. Usually, this is one of those items in the contract that will play into making a winning offer. The quicker the closing date, the more compelling your offer is. If I’m in a competitive market and I have a great lender or paying with cash/lines of credit, then I usually drop the closing date to 15 or 20 days. In GA, the contract has an automatic 8-day extension, so that gives us some leeway.

Earnest Money

The earnest money is a deposit towards your purchase price. Generally, refundable until the contingencies expire (explained below). It serves to provide the seller with proof of the buyer’s good faith to purchase the property. If the contract is canceled before contingencies expire, the buyer gets the earnest money back. However, if the contract is canceled after contingencies expire, your earnest money goes “hard” meaning non-refundable and if you cancel the contract, generally the money goes to the seller. This may vary by state. This is another place where buyers have room to make a winning offer. Generally, realtors recommend putting 1% of the purchase price. If we want a property, we would generally put more. I think we’ve done like 10% for a few. A seller will take your offer more seriously when you have more skin in the game.

Closing Costs

The contracts generally state who pays for closing costs. Confirm with your realtor who generally pays for what. For example, in Florida, who pays for closing costs varies by county. This is something you may be able to negotiate. Discuss with your realtor if perhaps, you can give the seller the asking price, but get a concession/credit for closing costs. Maybe you make an offer for the asking price with credit for closing costs. This could be advantageous if you want to bring less money to the closing table. Your mortgage will be based on the purchase price (without credits), so would essentially borrow the money that would have otherwise been for the closing costs. Generally, this does not make your offer competitive, but it is a good option when in a buyer’s market or when you need to lower the amount of money needed for closing. Brainstorm with your realtor.

Contingencies

A contingency is a clause in the contract that allows you to renegotiate or back out of the contract if certain expectations are not met. The main three contingencies that you will see are inspection, financing, and appraisal.

Inspection/Due Diligence Contingency

This is one that you want to discuss with your realtor. Depending on your state, you may have a Due Diligence Period, Right to Inspect Contingency, Right to Request Repairs, and some others. Generally, this contingency lets you back out for any reason or if the inspection is not favorable. The period would depend on your market, but generally can be 7-15 days. I always thought that inspection contingency and due diligence contingency were the same. In Georgia, you could waive the due diligence without waiving your right to inspect. This is why having a great realtor comes in handy. We bought our cabin in Blue Ridge, GA right when the market was at its peak, so we had to be really competitive. Our realtor suggested waiving our due diligence and adding a right to inspect and request repairs for major components like the roof, plumbing, septic, foundation, etc. If there was an issue with any of those items, we had the right to request repairs or cancel the contract. If the seller has nothing to worry about those items, they’ll likely see it as a competitive offer. Luckily, we got the offer accepted and thanks to the inspection clause, a minor issue with the septic was covered by the seller. We have yet to waive inspection altogether because we usually buy ugly, old houses and it would be too much of a risk for us. However, that’s another option.

Financing Contingency

I highly recommend talking to your lender before defining this one. This contingency lets you back out if you are unable to get financing for the property. You would want to know how long it takes your lender to give you approval. I have seen this contingency be 20-30 days. The fewer days, the more competitive. Personally, we have waived this contingency even when planning to get a loan. We usually do this when we have a backup plan for financing or are willing to risk losing our earnest money.

Case in Point

For our Quadplex, the BlueJays, we had planned to obtain financing, but we waived financing and appraisal contingency. We felt comfortable doing this because the purchase price was $100,000 and we had potential private lenders that would give us that much money. The lender required an appraisal, but appraisers in our market were taking forever. In the end, we ended up having to close with the private lender money. Good thing we had a backup plan! If you are wondering about the other terms, we did not waive the inspection period, we had 7 days and we had a $10,000 earnest money deposit.

Appraisal Contingency

This contingency usually lets you renegotiate the purchase price or back out of the contract if the appraised value of the property is less than the purchase price and the seller is not willing to lower the price. You would want to discuss this with your lender as well as your realtor. You need to know how long appraisals take in your area and how fast your lender can order an appraisal. Generally, I’ve seen the sweet spot be 20 days. We’ve waved appraisal contingency for most of our properties because we purchased them in 2021 and the market was really competitive.

Case in Point

For our cabin in Blue Ridge, GA, we had a 16-day contingency period with an appraisal gap of $5,000. Meaning that if the appraised value was lower than the purchase price of $5,000 or less, we would remain under contract. We would have to pay for the $5,000 out of pocket because the loan is for the lower of the purchase price or appraisal value. The initial contract price was $365,000, the appraisal came in at $356,000. After adding the appraisal gap of $5,000, we agreed to a final purchase price of $361,000 ($356,000+$5,000). The loan was based on the $356,000 and we had to add $5,000 to our cash needed to close.

Final Note

Generally, when the market conditions allow and we are in a financial position to do so, we use aggressive terms to get properties at a discount. Quick close, no financing, and appraisal contingency are good ones to work with if the seller is motivated.

Communicating Offers to Your Realtor

As with any relationship, communication is key. Before you start making offers, have a conversation with your realtor so that you can have realistic expectations. Ask them, What kind of contract terms are getting accepted with the current market conditions?

You need to set a process in place with your realtor.

  • How would offers be communicated? I highly recommend this is done in written form whether that is email or text. This will avoid any misunderstandings.
  • What information do they need from you each time?
  • How quickly will they be able to draft an offer after you send it?
    • Are they able to draft contracts after hours?

You also need to continue having conversations with them to check on any changes in market conditions. As the market shifts, the terms required to get an offer accepted will likely change.

Conclusion

The current market conditions will determine what is required for a “winning” offer in your particular market. If in a seller’s market, then you are likely going to have to be more aggressive with your terms and give in to the seller’s requests. If it’s a buyer’s market, then you have the power, and sellers need to be more flexible with your terms. Your realtor can be your best resource when it comes to making offers that get accepted in the markets you are. Each market is different, even within the same state. For example, in Georgia, Macon, and Atlanta are completely different markets.

Finally, I want to note that it may take several attempts before you get an offer accepted, especially when entering a new market. Don’t get discouraged. Also, if you see a good property that seems overpriced, don’t be afraid to send an offer at the number that works. Some sellers just have unrealistic expectations. You never know. You might catch them at a desperate time.

Other Resources

If you haven’t read the other blogs in the Getting Started in Real Estate Series, here a few recommended readings from the blog:

  • How to Prepare to Buy Your First Rental Investment Property
  • Our Real Estate Buying Criteria and Why it is Important to Set Your Own
  • Best Real Estate Analysis Hack – The DealCheck App

If you are looking to join a community and meet like-minded investors and/or aspiring investors, I wanted to invite you to our FREE REI Coffee Chat Community.

You can learn more in the link below:

Join The REI Coffee Chat Community!

Or if you are looking for a mentorship program that takes you from A-to-Z, you can join The Sarah Weaver’s Mentorship Program. It’s a 12-month program that takes through the investing journey.

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Program Details:

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This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

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New Blog Post 🚨 In this week’s blog post I am New Blog Post 🚨 In this week’s blog post I am going over why we bought a short-term rental, our experience so far. Plus what we did prior, during and after purchasing our first short-term rental in March 2022, a Cabin in Blue Ridge, GA.

Check it out at www.beyondjustnumbers.com or link in bio @beyondjustnumbers
I can’t stress this enough. Some investors are l I can’t stress this enough. Some investors are looking to make money from day one, but that’s not always the case. It wasn’t for us and I’ve talked to a lot of rookie investors who have told me “Thank God I have my personal finance situation together.” 

This is just my opinion. Do you agree? Let me know in the comments!

Want to join a free community of like-minded individuals? Join our REI Coffee Chat Community where we talk real estate investing, personal finance and financial freedom, and much more! Link in bio @beyondjustnumbers

Want to learn more about investing in real estate? Read my blog www.beyondjustnumbers.com

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I used to think that investing in real estate was I used to think that investing in real estate was for the rich. I became in love with real estate while working for a real estate investment company that owned hundreds of units. This was back in 2011 and I was 20 years old at the time. I had less than 5 years permanently living the US, so I had no idea about anything. I grew up in Colombia and the only talk of money we ever had was the lack of it. 

The investors I worked for were a wealthy family, so naturally, I thought… Real Estate requires wealth. I don’t have wealth. Therefore, I cannot invest. 

I figured… well shit, I need become wealthy so I can invest in real estate. Eventually, after educating myself I realized how wrong I had it. You can build wealth BY INVESTING in real estate.

Took me a couple of years to figure it all out. Hence, why I didn’t start investing until 2019. I wish I had figured out earlier, but it is what it is. In just 3 years of investing in real estate, I was able to accumulate more wealth than I ever thought possible. 

Just to give you an idea…Did you know you could invest in real estate with as little at 3.5% of the purchase price? For a $150,000, that’s only $5,750. Buy a duplex that needs a little bit of work, fix it up, rent one side and live in the other. This will reduce your monthly expenses significantly, save the money and do it all over again.*

Of course it’s not that simple, but it’s also not that difficult. There are some particular steps and considerations which is  why I recommend doing further reading on the subject. 

Book Recommendation:
✅“The House Hacking Strategy” by Craig Curelop and ✅“Investing in Real Estate with No (and Low) Money Down” by Brandon Turner. 

#realestate #realestateinvesting
🚨 New Blog Post! Continuing the “Getting Star 🚨 New Blog Post! Continuing the “Getting Started in Real Estate Series” 

You’ve found a property either on your own or through a realtor, you’ve run your numbers, you’ve got a lender and now you are ready to make an offer. What’s next?

In this post I want to discuss a few items:

✅Key components of a real estate contract
✅How do you make a compelling offer to ensure you get the property you want
✅The main contract contingencies and how they work
✅Communicating with your realtor

I also provide real examples of what we have done personally. 

Check it out at www.beyondjustnumbers.com

Let me know what you think!
If I listed all of the hats, I’d never end 😂. If I listed all of the hats, I’d never end 😂. Anyone else? Show me the multiple hats you wear and tag me. Let’s have fun with some reels.

Trying to get good at the real game like @investinginyourwealth. How did I do?
The fact that you are not where you want to be doe The fact that you are not where you want to be doesn’t mean you won’t get there. Greatness takes time. Focus on what you control.

And remember, it’s okay to pivot.

#mindset #realestate #firemovement #realestateinvesting #realestateinvestor #rentalpropertyinvestor #rentalproperty #cashflow #motivation #financialfreedom #financialindependence #financialindependenceretireearly
We see a lot of advice around hiring a real estate We see a lot of advice around hiring a real estate friendly CPA. However, when you look up  CPAs that specialize in real estate, they can be pricey.  However, that doesn’t mean that other CPAs or tax professionals aren’t good. They might not be particularly aware of certain items, but they can research and collaborate with theirs peers. Perhaps it may require you to do a little of work to compensate. Things you can do:
✅ listen to The Real Estate CPA podcast or join the Facebook group
✅follow social media accounts of the pricey Real Estate CPA and take notes of what they are saying
✅attend free educational events 
✅read BiggerPocket book on Real Estate taxes 
✅if you know anyone working with a really good Real Estate CPA firm, ask them what they are doing

Then use that to go your CPA or tax professional and be like “Hey, is this something we can do for me?” They’ll probably say, “Let me look into it”. 

If they are good, they are going to research it and/or ask their CPA peer group. (CPAs and tax preparers also have Facebook groups where they collaborate with each other).

Here is a piece of advice, if they tell you “No, we can’t use this loophole or no, you don’t qualify to use this strategy” —> Ask WHY and “How can I qualify in the future?.” This way you confirm they did their homework and aren’t just being lazy. Don’t just take no for an answer. You can then get a second opinion by asking a question in a forum or to your peers.

So don’t panic if you don’t have a real estate CPA or tax professional. 

Next video I’ll be answering the question… “Can I skip the tax professional altogether and do my own taxes?”

#realestate
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