Buy low, sell high. Every real estate investor in Philadelphia knows that is the only way to succeed.
But, from time to time, wholesalers and fix-and-flippers may be challenged by someone claiming their “Buy Houses for Cash” approach convinces people to accept low offers, way less than they should be getting. Sometimes we end up asking ourselves, “Is it wrong to make low offers?”
Philadelphia real estate investors provide a valuable service to homeowners who need to sell their houses. They pay cash, close fast, and typically buy the property as-is and will even deal with problematic tenants. Because of the work that wholesalers and flippers do, houses that were previously not available are being returned to the active housing market. Critics who feel they are making “low offers” often just don’t understand how flippers play an important role in revitalizing neighborhoods.
Flippers make offers on houses, but the ones who are good at closing deals focus on solving problems for their clients. A lawyer with a fixer-upper that he never got around to fixing up got a job in a different city and needed to sell quickly. He was happy to sell that house at a deep discount to a flipper who could close with cash in four days. No realtor could’ve made that happen.
Most every real estate investor Philadelphia has run into someone who inherited a house that is abandoned. They can’t afford to continue paying property taxes nor can they fix it up to rent it out or sell it. People like this who are stuck with houses are happy to deal with an investor who can solve their problem.
Fair offers, not lower offers
Maybe there are some bad apples, but most real estate investors we know in Philadelphia are not making low offers, they’re making fair offers based on the real value of the house (not the perceived value of the house). They follow something like the 70% rule: Buy a distressed house at 70% of its After Repair Value (ARV) minus the cost to rehab it. For example, a flipper could offer $50,000 for a house needing $20,000 in rehabbing and then sell it for $100,000:
● 70% of $100,000 (ARV) – $20,000 (Rehab) = $50,000 (Fair Offer)
This house flipper would make $30,000 minus rehab overruns, financing costs, holding costs and closing costs. If we saw this flipper on one of the fix-and-flip TV shows we’d applaud them for making a nice profit on the flip. There’s nothing wrong with making a fair offer on a distressed house, even if someone people will look at that offer and consider it low.
When a real estate investor Philadelphia makes an offer on a house, the homeowner (or other people) may think it’s a low offer. They can refuse it the same way I would refuse to sell you my car if you offered me $50. Most flippers are not out to cheat people or trick them. They are working the numbers and making offers that make sense and will get that house rehabbed and resold.