Considerations When Making an Offer on a Home

You want to make an offer on a home and the listed price is $300,000, what do you offer? There are many factors that you need to take into account when offering a price for a home.

First, consider your intentions. Is this a home that you plan to live in or is this an investment property? If this is a house you plan to live in, you want your first offer to be lower that the list price, but not so low that the offer is flatly rejected. If you plan on living in the house for a long time, it may not matter if you pay the list price because you will make that money up and more due to appreciation over the years. However, be wary not to pay more than the home’s worth. You never know when you may need to move and you do not want to lose money on a quick sale.

On the opposite side, if you are buying this home as an investment property, shoot for the fences. In other words, if the list is $300,000, you may want to offer something like $230,000. You would offer this lower amount because you want to maximize your return.

Second, consider the seller’s intentions. If the seller is in a dire financial situation (similar to the current situation facing many home owners in this market), is facing a divorce, obtained an out-of-state job, or something like that, the seller will be more motivated to sell, and thus would take a lower price if you offered a shorter escrow. This would work out for you regardless of your intention.

However, if the seller is selling an investment property, the price is probably going to be firm. In this situation, if you have considered your intentions, (you already know the seller’s intentions at this point) your last consideration is the house’s appeal to your intentions.

Last, consider the home’s appeal based on your intentions. In other words, if the home is a “perfect” family house in which you and your family are going to live for many happy years to come, you may not care if you pay the price listed. If the house is a “perfect” investment property, you may, once again, not care if you pay the list price. However, if the home is just another property that really does not impress you, move on.

Your intentions are most important because they will dictate your next course of action. Know your intentions, find out the seller’s intentions, the make a low offer or list price offering as applicable.

Multiple Streams of Income: Real Estate as a Business

Many entrepreneurs get their start in the real estate business. The real estate business can be extremely lucrative, you just have to know what, where, and how to get in. The real estate market, like so many other businesses, is cyclical. You have to know how to survive and be profitable in the bad cycles in order to create the wealth that is truly befitting an entrepreneur.

First and foremost, before you jump headfirst into real estate, you have to learn about the business and the market. Many would be entrepreneurs are hypnotized by the lore of getting rich quick. They think that every deal that they come across is the next million dollar investment. You can not be “star struck” by every real estate deal that comes your way. You have to carefully analyze every deal and even call in a second opinion when necessary.

As I mentioned, you have to know the market. Many entrepreneurs make the fatal mistake of jumping into the real estate market when it is “hot.” This type of market is called a “seller’s market.” You will know when the current market is a seller’s market by, amongst other things, dramatic raises in real estate prices occur. People think that this is the best time to get into the market, but this is simply not true. This is the time when you want to sell, hence the name “seller’s market.” It is simple economics; when more buyers exist than sellers, sellers can raise the price of their property and thus get more return on their investment.

In the worst case scenario, which occurs more often than you may think, would be entrepreneurs buy all their investment properties in a seller’s market. Once the market cools off (as it inevitably will), these would be entrepreneurs find that their investment properties have negative equity and the mortgages or obligations to investors become too expensive to bear. They end up losing their properties and their investment dollars.

The best time to buy is when the market is in the toilet. You can get property cheap, and if you have the knowledge, money, and time, you can follow the most well known real estate money making formula: (1) Buy, (2) Improve, (3) Hold, and (4) Refinance.

Financial Hardship and Homestead Laws

Many of us have faced times of financial hardship. In the current economy, real estate prices are in the toilet. If you bought real estate at the end of the most recent boom, you probably have negative equity in your investment properties. Additionally, you made a common investment mistake by buying when the market was hot, however, that is a talk for another day.

Many people are unaware of homestead laws. Homestead laws protect your primary residence from a forced sale due to outstanding debt, property taxes, judgment liens, etc. In fact, here in Nevada, a recent Court decision stated that judgment liens are void against fully exempt homestead property. It is the most inexpensive way to protect a large chunk, if not your entire home.

Homestead laws protect a certain value (be it equity) in your home. If your home is worth more or you have more equity in your home than the law protects, your home could still be “forcefully sold,” however, you would get the proceeds from the protected amount.

Homesteading a property is easy and cheap (usually the cost to record a document at your county recorders office). Check out your local laws and county recorder or assessor’s office and see if a homestead is right for you. It is the best, most inexpensive way to protect you home.