How Walking Away From a Bidding War Gave Me $220/Month Cashflow

Garret Wong (0:00)

If the deal requires a bidding war, is it even a deal? Most investors lose money not because they bought a bad property, but because they overpaid in an emotional auction pretending to be a negotiation. Bidding wars are designed to drive irrational behavior. They're built to make you forget your plan, overreach your numbers, and win the property, but lose the profit. I told him to run his numbers at 30k above list. Suddenly, $175 a month cash flow turned into a negative 43 bucks. The excitement obviously faded fast, and we walked. Two weeks later, he bought a better duplex, off-market, no competition, 220 bucks a month cash flow. So what does that tell you? Discipline wins in the long game.

So, this episode's gonna be really the truth, as I see it, behind Bidding Wars, why they happen, how you can try to navigate that, and be really tactical and strategic. So, number one, let's start with this. Most bidding wars are engineered, sorry, realtors, but they're engineered by realtors, not the market. You know, you've heard this, Showing Start Friday, Offers Reviewed Monday, or Offers Presented Monday. That model is not random. It's intentional. It's manufactured urgency. It creates fear of missing out, FOMO, and it's not real value. Now, the property could be listed at fair market value and sold today, but it's underpriced intentionally to attract dozens of showings, generate a buzz, you know, you're looking and there's competition walking around, opening the kitchen cupboards, and ignite compassion and competition, and compassion, passion, emotion, right? Not great in business. And what's the realtor's goal? One weekend of chaos equals this flood of offers and they're trying to, you know, inflate the price. It's not true economics. I'm sorry, it is a bit of manipulation. I'm not saying it's not a good strategy if you are a vendor, I'm just saying, if you're buying a property, see it for what it is, okay? These strategies are not selling a house, they're selling, again, emotion. All right, number two, the listing price is technically a lie. It's just bait, okay? So the price is intentionally low to bait emotional buyers. Maybe it's listed at 299, but they know it'll sell at 260 So the goal there is not to get you to analyze it, the goal is to get you to chase it. And this is how bidding wars become legalized auctions, essentially, but without transparency or rules. Number three, the realtor psychology. Now, they're trained, well-trained, to create this chaos and stay away from the clarity. Open houses with 40 groups walking through the same home, baking the cookies so that it smells nice, you know, vanilla, candles. That is by design. I mean, you have to see it, right? It makes buyers feel the property is really hotter than it actually is. Now, why would somebody bake cookies or have vanilla candles? Because it evokes emotion. Now, you then subconsciously inflate your offer because you think, well, if I don't move now, I'm going to lose. And that's the herd psychology. And realtors are taught how to trigger it. Number four, most realtors don't understand cash flow and they just push the price. Meaning they're trained in a price per square foot for comps and how to close, not in NOI, Net Operating Income, cash on cash returns, yields on renovations, value at execution. So when you tell them this property doesn't cash flow at 245K, they look confused and that disconnect, it's because that disconnect is what's going to get you burned as an investor. Number five, real estate boards and realtor associations created this game to favor sellers. Now, everything in property sales is seller focused. It's not about the buyers. They want to lock in exposure for maybe 72 hours. They want to prevent early offers. They want to prevent conditional offers from killing the momentum.

That's not what you call a free market. It's staged, managed sales. And unless you understand the script, you're just another actor playing their part. So you want to turn the tables on it. So number six, how do you win a bidding war then? And does winning a bidding war often mean you've lost the margin? Well, it depends. Run the math. The list is 215, and the winning offer is 248, you know? The spread is gone if you're, maybe you're flipping it, and you wanted a $30,000 profit, that's gone. Your ROI collapsed. Maybe you won the property, but then you lost the business because every property, again, rental property, is a separate business, and there's no room for emotion in business. You've heard me say that a thousand times.

I never want you to confuse winning a bid or a bidding war with winning wisely. That's really the biggest difference there. All right, moving on. Number seven, what you should do instead? Well, play a smarter game. So I think you go into these things knowing that it's a piece of inventory and there will be another house. And trust me, I've been doing this for 28 years, there will be another property. So what do you do? You have to be prepared to walk. And that alone makes you more powerful than 80% of the buyers knowing that, you know what? I'm just willing to walk away from this property. Just kind of just tell yourself that, you know, if you focus on off-market private deals and ugly properties with zero attention, that's probably going to be the deals that you're not going to have, you know, realtors lining up 27 showings for whatever showings or offers presented. And that's exactly why those types of deals are valuable. Number eight, if you do choose to compete, do it strategically, but never emotionally. Repeating myself a little bit here, but maybe use escalation clauses. Okay, I used that in my last video. Use escalation clauses to cap your bid, to make sure that you're not going above. Basically put your own restriction in. Maybe submit offers with conditions that are a little bit more clarifications. Maybe preload your offer with your own investor clauses, walkthroughs, access, discretion-based, due diligence. That gives you kind of a cooling off period to go, my goodness, what have I done? Okay, I need to get out of this deal. Hopefully the inspection is going to fail, whatever it might be. And so you have to be ready to pull your offer. The second it steps outside of that buy box, that ROI, return on investment box. Otherwise, what are you buying here? Why would you buy overpay on a business, on a piece of property, on anything, when it's not going to make you money? Number nine, work with investor savvy agents only. So you want to fire the agent that says just go hire. You want to hire the one that says, let's rerun your numbers and see if it's still cash flows. Your realtor really should protect your spreadsheet and not be worried about your feelings. I think any realtor that's trying to push you into something without helping you run the numbers doesn't have your best interests. And make sure that you're not speaking to the realtor of the open house because don't forget, who are they representing? Not you, the vendor, the seller. Number 10, remember this, your discipline in a bidding war predicts your net worth in five years. So every property you don't overpay compounds your equity, your cash flow and your portfolio growth. Every time you hold your line, the next deal comes easier because you're becoming disciplined. Real estate is one by numbers, not noise. So in summary, I'll say bidding wars aren't just frustrating, they're designed to pull you off your plan. They're built to drive emotional decisions in a business that should be ruled by math, strategy and execution. When you know this game, then you won't fall for the bait. And when you know your numbers, you don't need to chase it. You don't need to win by getting the property, you win by protecting your profit. If you want to beat bidding wars the smart way, click the link in the show notes to join our email list. You're going to get notified for all of our different free webinars where I teach every aspect of the real estate transaction, including how to manage the property and the tenant.