One of the greatest secrets to top-notch property investing is quite simple: you must become a ruthless negotiator. When you locate a potential money-maker property, you’ll want to treat your negotiation as basic warfare.
Win-win scenarios in negotiating?
Never. There should only be one party standing after a deal is concluded – and it had better be you. Machiavellian? You bet! Most investors in real estate make the mistake of taking pity on a seller, due to the circumstances surrounding a seller’s reason to leave their cherished home. A very humane, and admirable trait to be sure. But if you count yourself as one of these folks, do not go into property investing. You’ll get wiped out in short order.
The taking of grandma’s house. Boo-hoo.
So you’ve just walked through the home of the ninety-year old woman, living alone in the home she’s occupied for fifty years. Oh – and she’s suffering from Alzheimer’s as well. Now you get to be the one to make the astoundingly low offer on it. You should have no reservations about doing so…In fact, maybe you’re the first offer she’s gotten after many months she’s had her house on the market. You could be the answer to her prayers. She needs to sell her home, maybe to be able to move into a private nursing home. It’s not your business, nor should it be your concern. This is a business transaction, plain and simple. You should feel no remorse about “taking her home away from her.” Rather, you should only be thinking about how much money you’re going to profit from by renovating this property and then selling it.
Steal this house! (Some basic negotiating tips)
From the first contact with the owner (and/or their agent), you should be trash-talking their house. Complain about every major and minor flaw with the home. You want to make them feel as though they will never be able to sell their property!
Lovers and other strangers…
Never fall in love with a property. Sounds easy, right? But be aware of your blind spots. For example, if you just happen to love antique homes with great character, period crown moldings, arched plaster doorways, stained glass windows and the like – it would be a good idea to steer clear of antique houses. You’ll unconsciously be drawn to renovating it to suit your own personal tastes, rather than what the preponderance of the market would like. You could easily be creating a money pit, for yourself, unknowingly. You’ll love the finished product. But you won’t enjoy the potential loss you may have to incur because you overspent on the rehab work.
Get ready for crunch time…
Always triple-check your numbers. When you crunch your numbers for any potential property investment you’re considering making an offer on, make sure you go over your pro forma income statement several times. Once you’ve determined the top amount you will possibly pay for the property, pick a strategy you’ll want to use when entering this negotiation (see article on negotiating strategies).
No time for wimps…
Become thick-skinned. Pay no mind to what the rest of the market is doing. It’s OK to make “insulting” offers (consider 25% or more off asking price to be “insulting”), as long as you fully understand the potential negative ramifications of this strategy – like having to bid upwards against yourself (more on this under negotiating strategies).
Use time in your favor. There are times when slowing the pace of your counter-offers down to a crawl can make the seller sweat. This tactic usually works well once you and the seller are getting close in price in your negotiation.
Calming the nervous seller…
Make sure you remove any doubts the seller has about your credit-worthiness. Next to price, the greatest fear of any seller is that you won’t be able to obtain your mortgage. They certainly don’t relish the thought of achieving a signed contract, only to find a month later that your lender is unable to offer you a mortgage commitment. Either be prepared to pay all cash for the house, or have your financing in place by having (at the very least) your pre-approval letter ready and current, to give to the seller when presenting your opening offer.
A riskier, but much stronger way to negotiate, would be to become pre-approved for a mortgage, and negotiate as if you were making an all-cash offer. Basically, you’d be signing a contract with no contingency for backing out, should your lender not extend a mortgage loan commitment to you. Your attorney will always advise against you doing this in order to protect your down payment that‘s in escrow. But you’re the investor here – it will be your decision if this is a risk you’re willing to take in order to negotiate from a much stronger position.
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