How to Make Offers In A Changing Market

Mike DeHaan: [0:01] What's going on, everybody? On this episode of the collecting keys Friday focus, I wanted to discuss something that's come up with a few different colleagues of mine. It actually came up today. I was having lunch with another investor here in town, And they asked me, how are we changing our offers and basically our buy box going into the current market conditions? Now looking forward compared to 2020 and 2021, markets was rising pretty quick. Interest rates were low, you could be a lot more aggressive on offers, whether that was through looking to wholesale, and you could be getting selling tighter deals, or you're looking to flip and being able to sell stuff for higher prices a little bit quicker. All those sort of things are kind of in the past. So I've been asked several times by other investors and then also from people in our instant investor program, how exactly we are changing our buy box. And to be completely blunt, we're not doing anything too crazy. Honestly, what we're doing is just adding in a little bit more room on our deals. So typically, you'll hear a lot of people say, a great way to make an offer on an off market deal or a discounted offer is to do 75% of the after repair value minus the repair costs. We typically use that in our business pretty regularly, but we basically adjusted that to be 70% times after repair value minus the repair costs. Additionally, what we're doing is when we're looking at the actual repair value, we are looking at properties, like looking more heavily at properties that are currently listed and sitting, as well as properties that have gone pending recently to kind of see what those values look like, which typically is bad practice. But what we're doing is not saying that those numbers are the ARVs, but instead saying that's probably our ceiling. So we probably need to be a little bit below that, and making more conservative offers.

Mike DeHaan: [1:56] So for example, if we look in the neighborhood, and we see that a bunch of houses are sitting for several weeks at the $3.50 price point, we're sort of making the hypothesis that if we buy this property, by the time we go and flip it, the value would probably be a little bit less than that, or maybe like that at the absolute max. So then we would go and say, we're gonna anticipate the value of this house being worth about $3.30 instead of that $3.50. Right? And we're sort of steering away from going off of stuff that sold several months ago when things were getting overbid because there just aren't realistic expectations anymore, which I know is the traditional way that people look at comps is what are the recent properties that have sold, but properties that were selling six months ago are not really representative of the market right now. So a little bit more conservative with our ARVs. And then also, we are going and doing 70% of the ARV minus repair costs instead of 75%. When it comes to rentals, one of the big things that we're looking at is we are trying to anticipate, obviously, a higher interest rate, especially if we're going to be buying with hard money and refinancing. Last year, we could pretty comfortably predict that we're going to have an interest rate around 4%. Now we're looking at somewhere between five and a half to even 7%, just because it seems to be fluctuating fluctuating wildly every month. So we're being much more conservative on that.

Mike DeHaan: [3:21] And additionally, we are starting to be more conservative on what we expect for rental rates, just because rental rates have gotten so expensive in so many places. And as the affordability issue that's occurring in United States continues, we expect less and less people being able to afford market rents. And as more rentals become available, I know there's like a supply issue and things like that. But ultimately, if people can't afford it, they're, you know, the supply issues is going to sort of start to improve just because there's gonna be less demand because people can't afford the houses, and people will become homeless rather than trying to figure out how to, you know, stay in these properties that they literally can't afford. So as that sort of starts to overturn here, we imagine rental prices will start to come down. You know, the significance of that is going to vary a lot depending on the quality of the property. I think that it's kind of like the middle upper tier ones that will be hit the most. I think if you have A class properties that are just in awesome neighborhoods, people are always going to have a pretty significant demand for that. When it comes to cheap stuff, same thing, people are gonna be desperate to have somewhere to stay. So they're gonna be willing to, you know, stay in a cheaper property.

Mike DeHaan: [4:37] It's those like, middle, upper middle class style rentals that maybe the middle class people were stretching for, and that the upper class people have, you know, are would have to basically default on if they need to, I think those ones might start to become might be hit a little bit, right? So ultimately, when it comes to rentals, though, the key is, you you know, it's a competitive business, you want to make sure that your product that you're offering to people is better than anybody else's, right? So that way, when things do start to slow down there, you have a pretty sweet property, people are gonna want it yours instead of your competitors. So when it comes to rentals, you know, we're being more concerned about rental rates. And then also to, as we're fixing them up, we are putting in a little bit of extra work and a little bit of extra budget to make that property nicer so that it does stand out if things start to slow down in the rental market. So those are some some big things there. When it comes to wholesaling specifically, I know I said before we're doing the 70% of ARV minus repairs. One of the big things that we're doing with from a wholesale perspective is we are really trying to make sure that we are getting contracts at prices that we would be happy closing on just in case we can't find a buyer, particularly because buyers are a little bit less interested right now than they have been in the past couple of years, especially just with the uncertainty that they have closing on these properties that are looking to flip. So, you know, like in the past, if we had kind of niche properties or things that we knew people might bite on, and we would basically just like, sign the contract and take the shot and see if we could find a buyer. We're avoiding those a little bit right now.

Mike DeHaan: [6:17] We've already had a couple situations where we've had to cut quite a few loose because they were good prices when we got them, you know, several months ago, and there were prolonged closings. And then now with how things have gotten, we just haven't been able to get interest on them to move forward and buy these properties and trying to wholesale them. So, you know, make sure that if you're are getting... If you are trying to wholesale, that you're getting them at at actually good prices. And I know it's possible to cut those deals loose, but you gotta also play the ethical game here. You can't be going and contracting all these people and just cutting them loose. Right? If these these people that you're that you're contracting to buy their house, especially if they're distressed, they're probably gonna be, you know, stretching to move into a new place. They're gonna be relying on that money. And then all of a sudden, if you're just going and saying, like, sorry, I know we said this, we're gonna be able to do it, but now we can't do it anymore. And they've gone and they put money on an apartment or they've started to move, that can be extremely detrimental to those people. So really, really make sure if you're gonna be a wholesaler, that you are going and getting those properties at a price that you are prepared to close and that you are prepared to close on. Right? That you have the physical and financial ability to do so. So anyway, going into this new market, start this market shift here, how we're modifying our offers, you know, and how we're modifying our investing.

Mike DeHaan: [7:34] It's not rocket science. Basically, we're just being a little bit more conservative on our deals, both if we're analyzing them from a flip standpoint, if we're analyzing them from a rental standpoint, from a wholesale standpoint, we're just not expecting things to move as easily or for as much as they have previously. So, know, just like with with everything else right now, just be smart, be patient, and, you know, don't don't get caught up on FOMO. If you see other people doing stuff and you're just like, I have no idea what the hell they're thinking doing that, Don't don't copy them. Don't be a copycat. Just stick to your guns, have your buy box and stick with that. So that's my Friday focus. If you got any value out of this, I would appreciate if you would like this podcast, I guess, subscribe, download this podcast that always puts us up in the metrics and gives us a five star review and share it with anyone who you might find it interesting. On top of that, if you wanna learn from Dan and myself on how we've built our business and how we continue to build our business and get direct coaching from us on a weekly basis, go check out the instantinvestorprogram.com and book a call, and I'd love to see if you'd be a good fit. And besides that, go and follow me on Instagram, hit me up on DMs at Mike underscore invests.

Mike DeHaan: [8:47] Thanks for listening to collecting keys, guys, and talk to you here in a couple days on Wednesday.