Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Six Questions To Ask Yourself Before Submitting An Offer

Written by JD Esajian

It can be easy getting caught up with a new property that comes your way. There is something about a shiny, new property that can be very appealing.  In the matter of a day or two, you can go from waiting for your next deal to making an offer.  Before you sign your name on any contract, you should take a step back and think about if this property is really for you.  There is nothing wrong with taking a pass on a property you have some questions about.  One bad deal will set your business back months.  Before you make an offer, you should take a minute and ask yourself these six questions.

  • Can I Add Value To The Property? Regardless of what your goals for the property are, you need to be able to either solve a problem or add value. If you can’t add much value through work or improvements you are not getting a good deal regardless of price. Take a look at the property and see which parts you can update. Then take a look at what has recently sold in the area and see how your property stacks up. If the spread is high, your property may be worth buying. If the work doesn’t yield a good return, the risk is more than the reward and you should pass.
  • What About The Property Do I Like? When you are struggling for deals and a new one comes your way, it is easy to fall in love. Even if your pipeline is full, a new property can look appealing. Before you make an offer you should ask yourself what it is about the property that you really like. This may sound obvious, but too many investors cannot answer this question. They fall in love with something about the home they can’t put their finger on. If you can’t specifically list the pros of the property, you need to rethink the property. Intuition is a strong asset at times but in the real estate world, you need to look at data and numbers. You need to remove any emotions and look at the property objectively.
  • Do The Numbers Make Sense? Everything should revolve around the numbers. You may have done some quick calculations when you first saw the property but that is not enough. You need to really dive into the numbers to see what kind of property you have. It is not enough to simply estimate expenses, cost of repairs or after repair value. You need real numbers to help guide your decision. It is easy to mold the numbers to make the property look however you like. If you do this, all you are doing is putting yourself in a bad position down the road. Use realistic numbers and only if they work you should move forward.
  • Is This A Market I Want To Be In? The market and area you are buying in is almost as important as the property itself, when evaluating the real estate offer process. You need to be fully comfortable that this is an area for you. Buying a property at a discount in a neighborhood filled with crime is more trouble than it is worth. If the property is 30 miles from where you live or work, it will present a different set of challenges. Every market has their own set of pros and cons. Before you make an offer, you need to make sure the pros outweigh the cons. You never know what will happen with the property in the future. You need to make sure that this is a market you are completely comfortable with.
  • Do I Have Enough Capital Reserves? There are many different ways to finance your purchase. Between hard money, private investors, and traditional loan programs, there are plenty of options. Depending on what you want to do will dictate how much reserve capital you need. There is no point emptying your bank account to acquire a property if you don’t have enough funds to make the improvements. One universal theme among new investors is they often need more capital than they think. All improvements with a property cost money. To get maximum returns, you need to put the right work in. Without ample reserves you may end up spinning your wheels.
  • Is My Team Ready To Go? Once your offer is accepted you need to be ready to act. With any rehab, time really is money. Every day you don’t turn your property over is costing you money. You and your team need to be ready to go from the first day the deed is yours. (That includes being armed with the best real estate negotiation tips that are out there.) Prior to making an offer you should reach out to the members of their team and gauge their availability. If they are booked or not available you need to find someone to take their place. If you don’t do these before your offer, you will be left scrambling around once you take ownership. This will cause delays and backlogs in your work schedule. Before you offer make sure your team is ready to go.

Before you make an offer you should take a minute to make sure you are really comfortable with what you are doing. Never make an offer out of desperation.  You never know when a better property will come your way.  Take a minute and ask yourself these six questions before putting your name on a contract.