Finding and closing great real estate deals has become increasingly competitive in most markets across the country. These days, sellers in high-demand markets might field multiple offers well above asking price in the first 48 hours after listing. So how does a savvy real estate investor bring their offer to the top of the pile? This post discusses a simple strategy that buyers can implement to boost the attractiveness of their offer packages in less than 20 minutes.
The Importance of the Real Estate Offer
Securing a great real estate deal can be overwhelming in any market. There’s always some level of uncertainty, information asymmetry, and stress. For inexperienced investors, these feelings loom even larger. It’s one thing to learn how to analyze deals, but it’s quite another to master what comes next.
In “hot” markets, where deals might only last for a couple of days, these emotions are magnified. With the help of an experienced agent and hundreds of hours spent consuming real estate investing content, I learned the importance of crafting a strong offer package. Not only does this help mitigate risk and uncertainty, but it boosts the odds that a seller will choose you…even if your price isn’t always the highest.
Historical Real Estate Market Context
Following the 2008-09 housing market collapse, buyers were tripping over homerun deals on their way to breakfast. Overleveraged homeowners rushed to fire-sell their properties in an attempt to avoid financial ruin. Banks foreclosed aggressively and sold homes for pennies on the dollar.
Investors who held large cash reserves throughout this period made out like bandits. For instance, I spoke with one builder who told me he bought 30 parcels of land in a transitioning Florida neighborhood as part of a bank foreclosure deal in 2011. He paid about $1,500,000 for the entire portfolio. Today, he estimates that each property has appreciated $150,000-$200,000. Talk about building wealth!
Unfortunately for those of us who weren’t in a financial position to capitalize during those crazy times, the supply of attractive real estate deals has plummeted. So how do some real estate investors succeed despite these challenging dynamics? What makes certain folks thrive while others crumble under the pressure? How can buyers avoid the trap of chasing bad deals due to FOMO? Let’s take a closer look.
My Real Estate Offer Experience in a HOT Market
I can appreciate this struggle firsthand. I’m actively pursuing a House Hack deal in a market with extremely limited housing supply. Check out the link above to explore this House Hacking strategy more deeply, but here’s a quick summary:
- Buy a small multifamily property and live in one unit while renting the others out to tenants
- Finance the deal with attractive owner-occupied financing terms (lower interest rates, smaller down payment, etc.)
- Reduce or eliminate your living expense (some investors even generate significant cashflow on their House Hack)
- Save all the money you would have spent on housing, use it to invest in more assets, and repeat the process
The wealth-building power of this strategy is incredible when it’s implemented carefully. I was quickly sold on the concept. Unfortunately, applying it to my personal situation proved challenging. My Florida target market is red-hot, and the best deals are often scooped up within hours. Many buyers even submit all-cash offers above asking price! This makes it quite difficult to compete.
My Light Bulb Moment
I began to study the science of making a real estate offer and how to boost the odds of getting one accepted. One suggestion was to make an all cash offer myself. This eliminates financing risk for sellers and expedites the closing process. Unfortunately, this isn’t a realistic option for me given the price of properties in my market. Another option was waiving inspection or financing contingencies. This felt too risky to implement on my first deal.
Then I stumbled upon a powerful tip in Brandon Turner’s The Book on Rental Property Investing. He submits a personal letter with almost every offer that he makes.
The idea immediately resonated with me. I began kicking myself for not having found this suggestion earlier. With just a small investment of time, these letters would help me connect personally with a seller and possibly even land a deal for factors outside of price.
This post takes a close look at the anatomy of an effective personal letter. It examines each section of an effective letter individually and explains tactics to help buyers appeal to sellers across a variety of situations. Finally, the post closes with a sample letter that I wrote. Feel free to use it as a template that you can tweak and modify to suit your own real estate investing needs!
The Anatomy of a Personal Real Estate Offer Letter
The Opener
The opening greeting sets the tone for the entire letter. It should walk the line between making things as personal as possible without making the owner feel uncomfortable. Addressing the owner by name can be effective, but starting with a more generic alternative is a safe bet as well. I like employing phrases such as “Hello”, “Hi there”, or “Good Morning.” Others prefer a more formal “Dear Sir / Madame.”
Adapt this phrasing based on the circumstances surrounding your deal and the formality that you wish to convey. I prefer to keep my tone more casual since I’m a young investor looking to project a friendly demeanor. My goal is to make the seller think of me as a competent, yet amicable buyer. Someone who is trustworthy, eager to invest, and committed to closing.
Section 1 – Investor Background
You’ve likely written a cover letter for a job at some point in your life. While your resume demonstrates raw qualifications and achievements, the cover letter bolsters your candidacy by providing personal context and memorable anecdotes. Think of your offer letter similarly. The rest of your offer documents could stand on their own. But your personal letter creates a story behind your packet of paperwork.
In the first paragraph, provide a brief overview of who you are as an investor, what you do, where you live, etc. The objective is to build empathy and further legitimacy. This will help the seller relate to you on a personal level and gain comfort that you’ll follow through on your commitments.
Remember, the rest of your package will be stuffed with lengthy pages of legalese, numbers, and contingencies. This is your opportunity to let your personality shine. For an attractive property in a competitive market, a seller might evaluate your offer next to 10-15 others! What will make yours memorable?
Perhaps you grew up on the same street as the property. Maybe you remember walking to that lake just minutes down the road with grandma years ago. If you’ve never visited, you might mention your fascination with the town’s charm after seeing it on TV. This section requires creativity, but small details or personal touches like this can foster instant rapport.
Section 2 – Attraction to the Investment
In the second paragraph, explain what specifically drew you to this property. If it seems particularly well-maintained or clean, highlight that. This is a small way to flatter the seller. It shows that you recognize and appreciate their ownership / management capabilities.
For houses that will require significant renovations or repairs, you might focus on the neighborhood dynamics or nearby development. In the case of properties located in less desirable areas, you could position yourself as someone who wants to reinvigorate a rougher part of town through safe and affordable housing.
Again, the details are situation dependent. Section 2 will require modifications based on a deal’s unique characteristics. Under all circumstances, however, remain optimistic and highlight positive components of the property. After all, something compelled you to make an offer. Even on the most distressed deals, there are qualities that differentiated this property from all the others in the world. Focus on those characteristics.
Section 3 – Offer Highlights
Next, summarize your real estate offer with more optimism. After highlighting what makes the seller’s property attractive, do the same for the offer itself. Again, the rest of your offer packet will be stuffed with legal technicalities and numbers. (And the numbers in your offer might be lower than the ones the seller hopes to see!)
If offering below the asking price, cushion the blow by explaining your rationale. For example:
- “I know my offer falls below your asking price, but it represents the highest price I can pay while still ensuring the property will meet my cashflow requirements”
- “Although your home is a bit beyond my family’s budget, we still felt compelled to submit an offer. Your property provides the perfect combination of proximity to the city center and ample room for dogs to run freely in the backyard. We’d love an opportunity to work towards a mutually beneficial outcome for everyone.”
If offering at or above asking price, Section 3 almost writes itself. Draw attention to the full-price offer. Reiterate that it demonstrates your strong commitment to landing the deal and closing expeditiously.
To provide additional assurance to sellers, buyers can manipulate additional levers beyond price. These additional value drivers include a large earnest money deposit, waiving a financing / inspection contingency, or guaranteeing an expedited close timeline. Make sure to mention any additional value that your offer provides. It’s hard to know precisely what aspect of a deal is most important to a seller. The value that a seller places on these secondary drivers might even trump the priority they place on sales price in some scenarios. Maximize your chances of capitalizing on this by highlighting your unique offer structure.
Section 4 – Closing
Close succinctly and politely. By now, you’ve made your offer stand out by showcasing your unique personality. Conclude with a couple sentences reiterating your strong interest and “kill them with kindness.” Express gratitude for the opportunity to present your offer. Finally, let them know you look forward to working constructively with their team throughout the process.
Bonus
Include a picture of yourself on the letter if you’re comfortable with it. This added touch further humanizes your offer and provides the seller with greater comfort. It’s a strategic way to demonstrate authenticity and even a measure of vulnerability. By including a picture, you implicitly invite the seller to connect with you more personally. This can disarm them, making the seller feel less like an adversary and more like a partner.
Sample Real Estate Offer Letter
Hello!
My name is Jake, and I work as an IT Project Manager at Hilton International in Miami, FL.
I first became fascinated with real estate when I took an alternative investments class during my sophomore year of college. My career has now progressed to the point where I’m ready to buy my first property. As my offer package demonstrates, I’m a committed buyer with financing pre-approvals in place and a willingness to work constructively with your team.
Coincidentally, I also grew up ten minutes away from your property which provides me with a unique appreciation of the neighborhood’s character and community values. I have ambitions to grow a larger real estate investment portfolio one day, and I hope that your home can help me take my first steps down this exciting path.
My plan is to live in one side of your duplex and rent out the other unit. I am particularly excited about the property’s renovated kitchens, open floorplan, and patio space. It provides both durability to minimize maintenance costs and small aesthetic touches that will appeal to future renters.
Given the property’s strong alignment with my investment criteria, I have extended an offer at full asking price. My commitment to close is also reinforced by my aggressive earnest money deposit and abbreviated inspection period.
Considering my familiarity with the community and determination to close my first deal, I would make an ideal buyer of your property. I would welcome an opportunity to discuss my offer further and look forward to working with you. Thanks for your time and consideration.
Best Regards,
Jake Rollins
Blueprint to the Dojo