As a real estate investor, you don’t make your money when you sell property – you make it when you buy it.
Welcome back to our four-part series about negotiating to yes. Last week we covered the basic principles of negotiation and quirky personality traits.
Now, let’s focus on buying for profit.
I say this all the time, but I think it’s worth drilling into our brains…
Good deals are MADE, not found.
Picture this story…
Bob is selling an upscale single family residence in a neighborhood you are interested in.
His asking price is $320,000.
The house needs help; it’s been empty for six months, suffered from some vandalism, and needs rehabbing.
Comps in the area are going for $330,000.
You figure you can fix this gem up and get about $335,000 for it in no time.
Don’t get caught up in the excitement of an end result and forget the first step in the money making process!
You need to get this house (before anyone else does) below (and I mean way below) the $320,000 asking price for it to be worth your time.
Buying for Profit
Along the way, I’ve developed a bit of a process for how I buy property.
No matter if it’s a $300,000 single family home or a $1,000,0000 apartment complex.
First, I always employ principled negotiation strategies. We covered this last week, but here is a quick recap:
- Separate people from the problem
- Focus on interests not positions
- Invent options for mutual gain
- Use objective criteria
Second, while using the principled negotiation strategies, I like to keep in mind the personality of the seller I am typically dealing with:
Remember him? He is the distrusting, numbers guy investor who is skeptical of fast talkers and hyperbole.
He might sound a bit like you.
To help create transparency, I like to pull up to my meetings at La Loma with Mr. Analytical in my flip flops and then order a round of giant margaritas.
This guy is not impressed with sports cars and Rolexes, he only wants real deals that are detailed and in writing.
So, to make money when buying from folks like the Clinician I always:
- Demonstrate my willingness and helpfulness by taking real action.
- Show up with all of my facts, and keep them straight.
- Stick to specifics and leave out any “I am so great” stories or antics.
Now that we understand who we’re dealing with and the negotiation rules we plan to use, here are some common sense tips I stick to in order to keep my mind in the game during the structuring of the deal at hand:
- Never let ego get in the way of profits.
- If price is the top priority, make everything else easy
- Don’t brag or be an expert.
- Don’t be a jerk.
- Be empathetic, not sympathetic.
That is the overall strategy behind my approach to buying, but here are the specifics behind the making of a profitable deal.
I like to call them…
Susan’s Six Deal Making Secrets
Pre-frame the seller
Do this by making sure the seller knows their house isn’t the only house you’re looking at. (Even if it is)
This creates a predisposition in the seller’s mind that they have the lesser hand.
You have options that day (even if you don’t – yet)
Relay a story to the seller that their house is the fourth or fifth house you’ve looked at today.
Better yet, let them know, before you’ve even seen their house, that you plan to look at a handful of other possible investments –
“We would like to come see your house at 2:00p.m., but may be a few minutes late because we’re looking at three other possibilities before yours.”
Hide your hand
And put on your poker face.
Even if when you walk into a home and you find it to be the stuff dreams are made of – perfect layout, landscaping, and even the price is right – DO NOT say or do anything that would reveal to the seller you are super interested in the house.
Bury that excitement. Wear sunglasses if you must.
Avoid being too complimentary on the home, pricing, neighborhood – everything.
I like to bring a note book along with me and if I find something particularly interesting I might ask a nondescript question and then jot some notes down to turn the good into a negative in the seller’s mind.
“How OLD is that chandelier?”
Then I give a slight eyebrow raise and record the age of the light fixture (which I am certain is worth mega bucks and am going to make sure is included in the sale.)
Point out flaws
Mention as many as you can.
Along the same lines of hiding your hand, write them down – In your handy note book, right in front of the seller.
Make sure you employ the do not be a jerk rule here.
It’s about the house, not the seller.
Be objective, keep a professional attitude, and just let them know you notice the problem so they notice it too.
Sometimes a seller can get caught up in what they are excited about in a property and forget the flaws when setting a price.
This is how you can substantiate a lower offer than they may be expecting.
“I can see there are some problems in the bathroom upstairs from this water spot here in the kitchen.”
Be Nosy Ned
This is your time to be empathic. Your time to listen.
Ask a ton of questions. This is how you can gain as much insight into your seller as possible without seeming creepy or intrusive.
Try to uncover their true motivation for selling so that you can use it later during negotiations.
Here are my seven magic questions to get you started:
- What made you decide to sell?
- How long have you owned the home?
- Do you mind me asking how much you owe on the home?
- What major repairs have you made in the last five years?
- If you could change one thing about the home, what would it be?
- How soon do you need to be out of here?
- Since you’re asking this much, let me ask you, would you pay that much if you were buying a similar home again?
Use non-verbal cues
Facial expressions can provide information to a seller without you having to commit to an actual word.
By lifting an eyebrow when the seller tells you that fancy chandelier you asked about is twenty years old, you let them play with their own insecurities about the fixture’s value and prestige of the home.
It creates questions…
Maybe the owner made a second rate chandelier choice twenty years ago and your eyebrow raise reminded them of the ‘too-good of a deal’ their client got on the light fixture that has caused them nothing but trouble for the past two decades.
The eyebrow raise might shake their resolve about the perfection and price of the home, yet you never said anything.
Non-verbal cues are a way to uncover those insecurities to the benefit of your pocket book.
“What is your asking price again?”
Your eyes widen and forehead wrinkles at the answer, no matter what it is.
Maybe let your head fall back slightly- like you’ve just been pushed by some imaginary hand that is asking too much for a house.
Plan your outcome
After you have provided a much needed reality check to the seller with the above tips, do some soul searching about what you really want to accomplish with the purchase of this property.
What needs to happen for the deal to be effective and profitable in your business?
Plan your reality before you negotiate the deal.
Then, make your terms known.
If you want a 30-day closing because you’re skeptical of the homeowner, ask for it.
If you want concessions on utility issues, factor them into the deal.
Consider the following to help you get exactly what you want:
- Identify your wants and needs for the property.
- Make sure all the parties involved in the deal are present so you can get your answers immediately.
- Have strong whys for your demands/concessions. Use the information gathered in your handy note book as your support.
Keep Parties on Track
It’s important you help the deal move along by continuing to take action throughout your principled negotiations.
If you find the seller veering off course, getting confused, or getting personal, here are some tips to keep parties on the path to closing on the deal you planned ahead of time.
Develop a best objective alternative to counter offers when you sense ego coming into play from the seller.
An alternative to bottom-line thinking so the seller can have a moment to evaluate the worst possible outcome they might be egotistically suggesting. (You walking away)
Respectfully turn down solutions that would be worse than your best alternative. Present a win-win solution instead by presenting more facts that support your proposal.
These strategies have paved the way to millions in profits for myself and my students.
The ideas are not complex, but they can be tricky to stick too when you don’t have practice or an experienced shoulder to lean on.
It’s sticking to the strategies that is hard.
Let me help you stick with it.
Check out my Getting the Deals program.
Imagine a team of investors working together to help you make the profits you envision for your business.
Imagine making millions…
I can seriously help take your real estate investment business to the big time with 65 WAYS TO GET REAL ESTATE LEADS and I will help you stick to the strategies to close your deals your way.
Next time we’ll flip the tables and investigate the proven strategies to negotiating to yes when you are a seller.
You can keep money in your pocket when you sell well.
Have fun. Create value.