Taking the Fear OUT of Writing Offers on Real Estate
by Karl Benson, Senior Real Estate Advisor
- A healthy relationship with fear can keep you from making the wrong investment
- Building a strong investor mindset is crucial to overcoming fear
- You will not be a successful real estate investor if you don’t make offers
Many new real estate investors are occupied with fear and doubt.
You may have the fear of failure, but what many new real estate investors forget is that a little fear can be a good thing. A healthy relationship with fear keeps you from making mistakes, but too much fear can prevent you from not acting at all. The big fear that comes with real estate investing is the possibility of losing significant amounts of money.
Overcoming Your Fear with A Strong Investor Mindset
You may doubt your understanding of the market, how to establish values, or not have the resources to finance an investment property. You might not know how to estimate the true cost to rehabilitate a property, or even where and how to find a buyer. You may doubt your understanding of how to write an offer that will be accepted. But these doubts shouldn’t stop you from learning how to do these things. Every successful investor got their start in the same place that you did: with little to no experience. What matters is how you build your knowledge and how you use it.
It is true, that investing is not without risk, but there are actions you can take to separate an investment with acceptable risk from a risky investment.
Every new real estate investor needs to understand their overall strategy, which includes an entrance and exit strategy. Having a strong investor mindset and plan of what you want to accomplish will help set you up for success.
Determine the Numbers: Make an Offer!
Do your best with your current understanding to determine the numbers. Even if you aren’t fully confident in how to write an offer with preliminary numbers, don’t think you should not present an offer. Many people believe incorrectly that you need to have complete and detailed analysis of the property, prior to the step of making the offer. You may believe before you make an offer you need to determine if it’s a really good deal. This takes time, and time may not be on your side.
- Look at the preliminary numbers based on your strategy that you’ll be using to calculate your offer: ARV, rental amount, rehab, holding costs, closing costs, selling costs, financing costs, wholesale fees and PROFIT.
- Create an offer based on your goals and know that you will never be wrong in presenting the right offer
- The purpose of an offer is to see if the seller is serious and if you can come to mutually agreeable terms.
Once you have an accepted offer, you now have control of the property and that gives you time to conduct your due diligence to verify and refine the numbers. It is in this period that you can complete a scope of work, get professional cost estimates, find a wholesale buyer, verify your margins, establish property value and verify the potential profit.
If in the due diligence process you find that the numbers are not in line with your preliminary numbers, you can re-negotiate the terms or cancel the contract. You will never close on a deal without conducting full due diligence first.
No Offer Means No Profit
You don’t risk anything by making offers. But you are guaranteed not to build your real estate portfolio if you never make an offer. Don’t expect every offer you present to be accepted. Most offers will be rejected, that is why this is referred to as a numbers game. The more offers you present the more you will have accepted.
Commit today to keep a proper perspective and know where your fear is coming from, knowing that you control your level of risk will keep fear and doubt from preventing your success.