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With home prices soaring and competition through the roof, it's important as an investor to know how to be competitive without compromising your returns. In this episode, we discuss different strategies to consider to make sure you're not left high and dry from an emotionally driven deal. --- Transcript Emil: Hey everyone, welcome back for another episode of the remote real estate investor. My name is Emil Shour and my co host today are,   Tom: Tom Schneider   Michael: and Michael album. And today's episode, we're gonna be tackling something that's a little relevant to the time. So as everyone knows, very hot real estate market, not a lot of supply a lot of demand. So we're gonna tackle the question, how do you make competitive offer in today's environment without overpaying? So let's hop into this episode.   Alright, guys, this is a very timely topic. As I mentioned earlier, very hot market out there not a lot of supply. A lot of demand a lot of owner occupant demand, right people very interested in home. So if you're an investor looking to buy a single family home, probably pretty tough out there right now. So Michael, I wanted to kick this one off to you first, just because I'm sure in in Roofstock Academy you get this question a lot from new investors, seasoned investors. So I'm curious what your you're telling people what the message your your relay is?   Michael: Yeah, absolutely. Is I First off, I just have to say I love the wording you use. It sounds very coach, like at a sports event? So my answer is like, you got to have high and low and you go out there. It's tough out there. But you got it. Yeah, score barkos. So I think it's really apt. It's really apt question and definitely really timely. So what I always tell people is, look, the numbers need to drive the decision making above anything else. So if you can afford to pay 5000 over ask 10,000 over ask or ask or 10,000 under ask. I mean, that's just the numbers. That's the math.   So you need to do your analysis really thoroughly and be very confident in your numbers both on the income and the expense side, which is then going to dictate Okay, what kind of returns should you be anticipating based on these different purchase prices. And so we've actually got a really great tool in the academy, the property analysis tool, and you can do a goal seek in Excel, which will basically tell you, Hey, this is the maximum offer price you can have, or that you can offer in order to hit your goals, whether that be cash flow, or cash on cash or cap rate. And so like Pinocchio says, always let your conscious be your guide.   Tom: But that's not a good mentor He’s got a, you know, a checkered history. So think of someone else Michael   Michael: Depending on his nose length is gonna determine how how good of a mentor he should be, always let your numbers be your guide. And the other thing too is if you're buying with a loan, there's going to be an appraisal done. And so the lender is also kind of going to be your backstop in that sense. And they're going to look to other properties and say, Well, this isn't worth that much. So we're not going to lend on this much. So you've got a little bit of leverage. But the thing to keep in mind is that a lot of people are overpaying for properties they're paying over ask they're paying above and beyond what the appraisal comes in at. So it is just very competitive. So I'd say first and foremost, let your numbers be your decision making beat up pointed out spear. Tom, what are your thoughts there?   Tom: I think that's great. You know, it's funny, we have the outline of this episode. And sometimes I'll I'll sort of quickly run the episode and how I expected to go out like our talking points, just kind of knowing each other and I think you stole mine in this episode.   Michael: You were going to use my reference to Pinocchio?   Tom: Well, no, I didn't know we're just talking about this is the magic bullet for like making competitive offers it is knowing what your maximum bid is. And in a really tight environment, like volume could be could be part of it is just evaluating more properties. If you're in a less competitive environment, it's going to take less offers, I think to get stuff into contract, but you know, being data driven and knowing what that maximum amount you want to pay, having that in going forward in making your offers.   And like I said, in this type of environment, I think it's it could be a little bit more of a volume play of just evaluating more properties to get there. Now in the episode of my head, Michael, you have this really beautiful narrative around do what you got to do to make your competitive your offer like a little bit more unique, you know, if you can do things around, I don't know, like contingencies or get to know the seller, you know, and see what makes it worth it. That's what I heard in my head of the Michael version of Michael in my head going on,   Michael: You must be looking at my screen then cuz I've got notes on on that that was gonna be the spirit handle.   Tom: Okay, Okay, got it. Alright, so it sounds like we're getting back on track. The feedback is, you know, within this environment, it could be easy to get caught up and wanting to win win win when you need to win at getting the returns that you want. So you know, making sure you know exactly what that maximum bid is to get and using that and not going beyond it and then oftentimes doing a little bit more volume.   Excellent. So within the article that peer mentioned, he talked about, you know, waiving all your contingencies going over Emil, why don't you speak a little bit to some of those strategies from that from that article?   Emil: Yeah, so like Pierre mentioned, if you've read anything about this crazy market, people are going way over ask, they are removing all contingencies, because, you know, they really want to get a house. And I'd say the warning there is remember, these are probably owner occupants, these are people who want to live at that property, they are driven by emotion. And you as an investor should be driven by numbers and returns and things like that. And so just like Michael and Tom mentioned, let the numbers dictate what you do.   I would never personally drop all my contingencies for an investment property, especially if I'm buying remotely like there's, there's no way I'm going to do that. And again, just remember, these are owner occupants, these are people who are driven by emotion, who want to live there and doing all these things. So don't assume because you're not willing to do that, that there's something wrong with what you're doing. It's just a different type of person and buyer that's, that's doing those things. You guys agree, disagree?   Michael: I have to say, before we move on, I just want to ask you, for all of our listeners that might not be familiar with what contingencies are, can you just give us a high level overview of what a contingency is, and what the typical ones you might see in an offer or a deal are?   Emil: Yeah, contingencies are things that and you guys, correct me if I'm saying this incorrectly, it's things that protect you as the buyer. And so typically, you have an inspection contingency, a financing contingency, if you're getting a bank loan, that allow you to back out of the offer, if certain things aren't met. So your inspection contingency says, you know, it's, let's call it 15 days out from when you enter escrow, that allows you to do your inspections, and address those things with the seller. And you can back out of the deal if you're unsatisfied with certain conditional things, or things that the seller isn't willing to agree to. So protects you as the buyer. Same thing with financing, let's say you go out bank won't give you financing. It allows that's your financing contingency, it's in place allows you to back out of the deal as well, that right guys?   Michael: That's perfect.   Tom: Yeah. Instead, by backing out of the deal that allows you to get your earnest money deposit back.   Michael: Yep,   Emil: Yeah, you can still back out of your deal. Even if your inspection, contingency and financing contingencies have been removed, you're just not going to get your deposit back.     Michael: And with those contingencies, too, I mean, there are other things that you can put in place, and you can put into a deal into a contract or an offer whatever kind of contingency you want. So it tends to weaken the offer, the more contingencies, the less strong the offer is compared to other offers, which is why people are removing their contingencies to make their offer stand out.   So I was in contract on a commercial property up in Alaska, actually, way back when, and we did not remove all of our contingencies, we still had them in place. But we were not able to get insurance on the property. We wanted earthquake insurance, and there was nobody that would write that for us. And so we had to walk away from the deal, because we couldn't insure it, and we couldn't get our earnest money deposit back, because that wasn't one of the contingencies. That's not part of those two. So I said, well, that's interesting one, so keep that in your back pocket, if you're going to be purchasing any kind of unique property, maybe think about putting an insurability contingency as part of your offer.   Tom: Yeah, I think that article is totally about owner more relevant to owner occupied, like, I get it, like, you know, you have a pregnant wife and a dog and you're living in a studio apartment. And yeah, sometimes it makes sense to pay a little bit over to make that work.   Michael: So something to think about, too. For all of our listeners. I'm curious to get your guys's thoughts on this. But if somebody as an investor is targeting tentative occupied properties that already have a lease in place, do you think there's going to be this same kind of hunger feeding frenzy to buy those properties by owner occupants? Because if there's a lease in place, they can't just kick the tenants out? And so I would imagine that the vacant properties are the ones that are seeing more of this feeding frenzy type of thing. What are your guys's thoughts on that about potentially targeting occupied properties, tenant occupied properties for investors?   Emil: I think it's probably not as crazy but still feels crazy right now. I think just interest rates are so low and prices are appreciating everywhere that there is a lot of single family rental demand. So people who are investors looking to make a single family home a rental property. So you know, I think we see it on the roof stock marketplace, a lot of healthy demand out there still, but I don't think you see the craziness of multiple cash offers going over asking and you know, like dozens of offers. I don't think it's that crazy.   Michael: Tom, I'm curious, would you ever buy a property and waive all of your contingencies?   Tom: So with some properties, there is recent inspections completed by third party inspectors so like with roof stock certified properties, you know, there are not a lot of contingencies on those, there isn't an appraisal contingency. But you know, if they recently did an inspection, it wouldn't include that. I guess that to answer the question directly, I probably wouldn't like there is at least an appraisal contingency where I couldn't get that end back. So no, I would, I wouldn't waive all contingencies. But never say never.   Michael: Never say never. But so let's dig deeper into this. So you have a recent inspection. And let's say you're going to pay all cash for the deal, because it's at a price point where you can afford to do that and you want to be competitive. Would you keep your appraisal contingency in place? Even with an all cash offer?   Tom: Oh, probably not. I feel pretty confident in coming up with comps on my own. Like, I would say I've never really outside of like 15% of what an appraiser thinks it is. And I'm often like a much more stringent, more very conservative on like, when I'm evaluating properties on the like, what the value is, I'm not putting on the pink glasses, the rosy sunglasses pink, something like that. Anyways, so I would be fine. I wouldn't be totally fine giving away the the appraisal contingency if that would make my offer more competitive of giving away that type of a contingency. But I mean, if there was any, like, you know, structural smoke any of that kind of stuff. Like I want to hang on to that. Yeah, but the appraisal one would be a reasonable one that would feel comfortable punting on just in my ability to do that. Get the appraisal my own.   Michael: Awesome.   Tom: Yeah.   Michael: So now I'm curious, if let's say let's walk through a scenario, the inspection looks good. But you have an appraisal contingency in place, and the appraisal comes back. And it's 10,000 less than the price that you have the property under contract for, let's say, the $100,000 property, you got an contract for 100 appraiser comes back says it's only worth 90. So the bank's only gonna lend on 80% of 90 grand and it's a hot market. So if you don't pay that $100,000 price, the deal is going to go away because somebody else is going to come swoop in and pay all cash behind you for 100 grand, what are you going to do?   Tom: There is some wiggle room on the value even if it does like appraise poorly like i would i would be okay coming out of pocket. Like if I feel comfortable on like what I think the value should be even though like the process, the appraiser may come up with something a little bit different. It's just such a subjective game sometimes like on the appraisal art. So like I would still move forward as long as I had, you know, the right kind of reserves to make up the difference on like, what appraisal came out.   I got a different angle on making your offers more competitive to the heart of this conversation. This isn't relevant, you know, within Roofstock, because there's a set end amount, but what do you guys think of putting down like massive earnest money deposit amounts, I'd love to hear you guys riff on that.   Michael: I love it. I think it's a really good play, especially because it is 95% of the time protected and refundable. So if you can structure your deal properly, I think it just shows that you're super serious about the deal, and willing to put your money where your mouth is. So I'm a big fan, I get turned off when I get offers on properties that I'm selling with really small emds because I'm asking myself, Well, what are they concerned about? What do they know something that I don't? are they planning on this deal? Not happening?   Tom: You scared?   Michael: Yeah, you scared, bro? Scared, your end goes towards the purchase price. So it's not again, it's fully refundable, if all the contingencies are not met. So I'm a big fan. Emil?   Emil: Yeah, like it, I've never done it. But I think in a market like this, where you're trying to do anything you can to make your offer more competitive, why not? Especially if you're not waiving your contingencies. Now those contingencies in place for a reason, why not make your offer a little bit stronger with, you know, doubling or potentially even tripling your earnest money to make it stand out.   Tom: Random, emd related, quick story. So I, I have my broker's license in California, but I've like rarely ever used it, I only use it to buy the house that I'm living in today. And I've like I've made some offers on other houses. And it like show that I didn't you know, wasn't like a super active agent, because that's when I was putting my emd offer down. Like it was like not best practice at all it like stood out.   Like I'm used to the standard, whatever, either like 15 $100 or whatever. And when I'm putting an offer like on this more expensive house for like an owner occupied house, my end was such a small percentage of the purchase price where they're like usually expecting it and I found this out talking to the agent after is like, yeah, you look like a moron with your EDM out there. So like there's some best practices with EMD. And, you know, showing you mean business is like could mean perhaps even putting up to like 50%, you know, or some very large amount but me being a moron, not at being an active agent all the time when I was like submitting offers on behalf of myself buying houses, I put like, you know, it was like half a percent where it should have been like three or 5% something's in there like so, you know, in thinking about your offer, that that end amount is a really important lever to show intent and putting it on the table.   Michael: That's such a great point. It's something it's a question I asked all the agents I work with when we're writing offers is you know, they say, hey, how much do you want to put for end I'll say what's customary for this market? Because it really does range and varied, you could have a set dollar amount that's customary, you could have a percentage of the purchase price that's customary. So, Tom, that's a really great point to bring up and just have that open conversation with your agent so that you don't look like a moron. Yeah,   Emil: Tom, you just brought up an excellent point that I'd never really thought of, if you're buying your personal residence in California, maybe it makes a lot of sense to go get your your license, because I feel like you can make your offer so much more competitive. If you're like, Hey, I'm representing myself, you as a seller, you're saving 3% you know, get a little bit more of a deal when you go by your by your home, or not just random aside.   Michael: It's like a 6%, swing, right, you'll, you'll save the seller 3%. And then you'll make 3% as the buyer, so you can put that towards your down payment. Depending on the purchase price of the home, it could be this could be big dollars, for sure.   Emil: Interesting.   Tom: EMD. The other lever in the offer, you know, competitive offers his timing, right? Like how quickly you're you're going to close, I'd love to hear you guys riff on, you know, ways that you've used that part of the offer letter to your advantage.   Michael: I've in the past just offered a quick close three week close with a short, you know, shorter inspection contingency period, I'm never willing to waive the inspection contingency if there's not one existing. So I'm not comfortable with someone just walking through the house and saying, Oh, yeah, this is that I mean, I want a professional walking through it. Because nine times out of 10. For that cost of the inspection, I'm able to negotiate the purchase price down more so than that, so that's money well spent.   So I can offer a quick close, I can offer cash clothes a lot of the time. And so that's very attractive to sellers. I know being a seller that's very attractive. I'm in contract right now, to sell a property where someone today we can close in 30 days all cash 15 day inspection contingency period. So it's attractive to sellers, because they want to get the deal sold, they're not in the business of holding on to properties if they're trying to sell them, otherwise, they wouldn't be selling them.   So yeah, I'm just thinking about this too. Like sometimes if you don't have a motivated seller, like myself, for instance, I'm not a highly motivated seller, because the property cash flows, so I just have a better use for the cash elsewhere. So if I can't get the purchase price I'm looking for I'm just gonna hold on to the property. When you find sellers like that, it's tough to really drive your numbers and your price. So just kind of look to understand why the seller is selling, if you can, if you can get some insights into what's driving them to sell what their motivation is, you can then structure your offer to play to their strengths, so to speak.   Emil: Yeah, I've never done cash. But on financing, I'll always ask the bank, what's the quickest we can close so that it helps us write that into the offer, right? You know, instead of having to write 45 day, we can say 30 day, if the bank can close in 30 days, so definitely something to add in there. Just talk to your bank, ask them what the quickest close time is and write down your offer.   Tom: Another lever that I learned about during a recent episode that we recorded was about creating like a resume, like an investor resume. And you know, it sounds kind of silly in like, oh, creating a document about yourself as an investor or your LLC, or whatever, in the deals that you've done. And like performance of like closing quick. And basically like a, it's almost like, you know, when you're owner occupied, submitting a letter, you know, say, Oh, I want to move in with my dog and my baby. And all that kind of stuff. Like this is basically the version of saying, you know, I've closed, you know, 20 transactions, I close on time, blah, blah, blah, here are some references. It sounds kind of cheese ball. But like in a competitive market like this, like I think there's some value to be had in putting together organizing that type of a document.   Michael: I think that's hugely impactful, Tom, and something I didn't realize was going on was the agent that I used to work with out in the Midwest, he was kind of doing this on my behalf anyhow, without my knowledge. So he would approach other agents when we make our offers and say, Look, this is my buyer. He's done, you know, six deals in this market. This is the purchase price, this is the closing this, you know, this were the details of the transaction.   And so I was taken much more seriously than someone who is brand new to the market or someone who is a brand new investor. And so I've actually had and this is not me, tooting my own horn. This is not meant to be a humble brag, but I've had agents reach out to me, because they know of the deals that I've done in the area and have brought me deals. So these are selling agents coming to me saying, Hey, I know that you're serious buyer, you can close. This is a property that my client wants to sell Would you be interested in.   And this is usually off market type of stuff. So I'm like, holy crap, like your reputation precedes you both good and bad. So you know, and people talk in the industry. So make sure you've got a good reputation and absolutely highlight your wins, highlight your successes, show people that you are serious and that you are capable as an investor. It's massively impactful.   Emil: You know, does?   Michael: Who?   Emil: My good friend Michael Zuber baby. He invests in Fresno, he has a fantastic resume, write anything he would enter in contract. I think he closed like 99.9 like some insane number. And so he wrote this resume, number of deals he's done, what percentage he's close all these like awesome facts about himself references like you guys mentioned, and he says he believes that that has helped him a lot. And so I got bought a lot of property, and he does it. So I would imagine pretty solid tip.   Michael: And for anybody that thinks it's cheesy or kind of silly, just put yourself in the cellar seat and flip the roles a little bit. If you're selling a property and you're getting you have 10 offers, nine of them are a name and a number that they want to buy the property for an attempt one is a name, a number and a list of other deals that they've done in the area of purchase prices close on time transaction percentages are probably gone with that person, you know, 95% of the time, as long as there's not a huge Delta in price point.   Because to be honest, everybody else has kind of taken a gamble with a lot of deals fall out of contract. And when they do, you've got to start back from square one. And if you come crawling back to a buyer, the second or third or fourth down the list, they might get wind of that and say you know what, you're coming to me now. Now the balls in my court, the price isn't the same. Now we're I'm gonna make you pay for that. So look to do the deal when you're selling property and get it done with the most likely candidate who's going to close, which is why sellers like all cash, because there is no bank to muddle up the deal.   Emil: It is a little cheesy, but you stand out as a professional in a sea of anonymous, you know, contracts being submitted. So it's probably not as relevant if this is your first or second property. You don't have that resume or track record. But I'm sure there's something you can think of that. I think it just it makes you look like a more professional real estate investor. So I think anything you can do to create some type of resume, I think it's solid.   Tom: I like it guys. So we got a couple of things here we got knowing exactly what that max bid is and coming against your offer, you know, put it crafting your offer with that in mind. Probably volumes going to get to be an aspect of evaluating more properties when it's really competitive, raising the EMD tightening the offer, the closing timing, and then also some collateral about yourself as being a performer, right and sharing that seller agent and whoever will listen to you talk about that.   Michael: Yeah, love it. All really great, actionable takeaways.   Tom: Awesome, guys.Any other final thoughts on the episode submitting competitive offers?   Michael: The last thing I would say is your ego is not your amigo. And so oftentimes we'll see a property, let's say is listed at 70,000. And you've got to go pay 80 grand to get it done. Well, you're thinking yourself, man, I'm paying 10,000 over ask, this might be a crap deal. But if we just raised the list price to 90k, and you got it for 80 you'd be thinking oh my god, this is an amazing deal. Everything else being the same. So don't let purchase price influenced your decision making or opinion of the deal. Again, look to the numbers.   Emil: And along those lines. Don't let your emotions get the best of you. I say this you know if you're if you're watching on YouTube, I'm saying this with a smile because I have let my emotions get the best of me. You know, it's hard. It's hard when you've lost five to 10 consecutive offers to not let your emotions get the best of you. But please learn from my mistake. Don't let your emotions get the best of you stick to the numbers. Be patient. It's more about getting the right deal than just getting a deal under your belt. So that's my final tip.   Tom: How about this Emil, Don't get lost in the ocean of emotion.   Emil: You guys with your Amiga when I go and ocean emotion you guys are rhyming bars today.   Michael: Yeah, yeah, keep up. We're rhyming, we're right on.   Tom: And I'll close this out with sometimes your best deal is the one that you didn't do. You know, the by not needing to win, being patient. being strategic. I think, you know, I definitely believe in a bias for action. But it's super important to be disciplined in setting that number and not going beyond it. So that will be my final, final input.   Michael: My final final final…   Emil: No, no, you're done, Dude.   Michael: Crap. We were chatting about it the other day, the person who wins the negotiation is the one who cares the least. So if you're able to walk away like Tom mentioned, you stand to gain the most.   Emil: Solid. Alright, and any other cheesy one liners or   Michael: There's no crying in baseball.   Emil: It takes two to tango.   Tom: Yeah.   Emil: Thanks, everybody. Hope you enjoyed this episode. hope you got some great valuable tips and we hope you you win that next offer and get an awesome deal. Happy investing.   Tom: Happy investing.   Michael: Happy investing.