Real Estate - Make Money With This Technique

The first time I invested in real estate, I was able to make money in part because I bought a piece of land cheap. In fact, I offered 22% less than the asking price. Understandably, the real estate agent didn't want to bring my offer to the seller. But fortunately I was too ignorant to know that such a low offer would normally be insulting, and a waste of time.

I say fortunately, because my offer was accepted. This was my introduction to the art of the low offer. It was of course, a misleading lesson for me, because the truth is that such low offers are almost never accepted. But this doesn't mean that they're not worth making.

First of all, it is important to recognize that low offers ARE sometimes accepted. A friend of mine bought a home on a lake for $40,000 less than it was worth, simply because he made a low offer. No one else was making any offers at the time, and the seller was ready to move.

Of course, as I said, this doesn't work often, so you have to balance the time and trouble of making many rejected offers against the occasional profit from one that is accepted. In the case of my friend, he had probably made ten offers on various homes before getting this one. $40,000 for ten offers seems like decent pay, doesn't it? For that matter, if you aren't too busy, wouldn't $40,000 justify one hundred offers? (That's $400 per offer, by the way, if you want to average it out.)

Make Money By Lowering Expectations

The real point of a low offer on real estate isn't to get the property at that price. That's just a nice bonus if it happens. The real point is just to lower expectations.

Consider the following scenario. You are ready to sell your house and you think it's worth $340,000. Then a friend with some real estate experience comes along and, after hearing that you plan to sell, says, "You can probably get almost $300,000, right?" How confidant would you then be in about your estimate of $340,000. You might lower your expectations, right?

That is why smart investors use "lowball" offers. They make money by lowering expectations. Suppose, for example, that you look at a rental house that is for sale for $123,000. You make an offer of $102,000. Will it be accepted? Almost never. But you will sometimes get a counter offer. You might then go back and forth until a price of $113,000 is agreed upon. Prior to your low offer, the seller might have never considered selling that low, but now he sees it as getting you to come up $10,000.

Of course you'll have a lot of offers that are just plain rejected. Sellers will often feel annoyed or insulted, and won't even consider subsequent offers. That's okay - it is just part of this game. Investing in real estate in this way is about the numbers. You make your money by making more offers.

How low should you go? You'll have to work that out for yourself, based on market conditions in your area, and on the specific of a particular property. But one millionaire real estate investor who uses this technique told me, "If you're not truly embarrassed by your offer, it isn't low enough."