Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Importance of Knowing Your Numbers in Real Estate

I have been noticing a theme on several of the forums lately.

Some real estate investors are worried about "offending the seller" with their low offer.   What?  There is only one thing we should be doing and that is making solid offers based on the numbers.

There is a saying that goes something like this; "If you don't feel at least a little bit uncomfortable about your offer, you've just offered too much".

In general, I have found this to be true.

Many real estate investors especially folks that are new get a little "squirmy" when they reach the actual number they should be offering on a property.   They will then go back and look at the numbers to see if they can raise that offer a little bit to a number that they think the seller will like a little bit better and doesn't make them squirm when they say it out loud.  Getting this new number often involves what I like to call "eraser math".

Eraser Math
Eraser math is when you start erasing the numbers that should be on the paper and putting down numbers that ease the "squirmy factor" in your offer.  I am here to tell you that is almost always a mistake.

When you are putting together an offer on a property there is only one thing that should be happening; you have to let the numbers do the talking. It's always about the numbers.

Making solid offers is not about falling in love with a property, or trying to find a way to "make it work".  Now I am not talking about normal negotiation. What I mean is that you should have an absolute MAO or maximum allowable offer.  If you have to start fudging the numbers; raising the anticipated ARV or lowering the repair estimates to make the numbers work that is eraser math, and it is always a bad idea.

Know Your Numbers
Investors all have a little different way or method of doing this, so I'm not really going to go into this part of the equation.  The thing you need to know is that you must get really good at nailing your numbers.  You need to be completely accurate and this takes a little practice.

I am a wholesaler and my investor buyers are almost always rehabbers or landlords.  If I have a house to sell to a rehabber, I have to know what he will need to spend on repairs before I can ever make an offer.  The folks on my cash buyer's list always do their own rehab estimates.  But I have to know what those costs will be too.

This is also true for the landlord buyers on my list.  They may not update the kitchen today or put that roof on today that will be needed in the next 12 months, but the bill will eventually come due.  The numbers for my offer are generally the same for both rehabbers and landlord buyers especially since I'm not always sure who that buyer will be.

If you are presenting deals to other investors and you don't have your numbers right, your credibility will go right out the window.  This skillset is a must in our business.

Here Are Some Important Numbers

  • What is a realistic ARV for this property?  Don't look at that oddball high comp.  Look at what most properties are selling for, and only compare like properties within a half mile range of your property.
  • What will the repairs likely be? Get your number and then add a little more. Things always take longer and cost more than you expect.  This brings up another point; learn to expect the unexpected especially for rehabbers.  Ask yourself, "What else can come up"?  The older the property, generally there will more of the "unexpected" that will show up.
  • Know the market conditions in your area.  If you are a rehabber or a wholesaler selling to a rehabber, look at the days on the market for properties like yours in that area.  If the days on the market are longer, folks will be looking for a little larger spread to cover holding costs.  This won't necessarily be true if it is a seller's market where there is a low inventory and properties are moving quickly.

Final Thoughts
Real estate investing is no different than any other business; knowledge is power.   Your knowledge is also what will give you credibility with other investors.  Spend whatever time it takes to make you an expert in what you do, and it will pay big dividends down the road.

This article originally appeared on Bigger Pockets and is Copyright 2014 BiggerPockets,

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3080092, ~/Articles/ArticleHandler.aspx, 8/29/2015 3:25:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

BiggerPockets is the premier real estate investing social network, information hub, and marketplace. With more than 200,000 members, it is the one stop destination for real estate investing education, networking, marketing and deal-making.

Today's Market

updated 18 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes