Hi all,
Wanted to start out by saying thanks for some great info on here.
First let me say I'm relatively new to real estate investing, and I come from a technical engineering background and am finding it VERY difficult to justify things I've been told to say by my coaches, because to me it feels like I'm manipulating instead of being straight forward and honest. I am a very honest person, almost to a fault sometimes.
I basically do my negotiation, by reviewing the facts of the property with the seller, let them tell me some things about the property, their situation, why they are selling etc... but when it comes time to closing the deal, I have no idea what to say to justify my offer without spelling out how I arrived at the numbers (such as I put in offer of 70%-repairs-profit). The biggest stopped I've run into, is people don't want to tie up the property. What do you say to counter this? How do you even get them under contract if they don't want to "tie up" the property?
I also am wondering what the best way to transition into writing up the offer and getting them to agree to sign it so that I can move forward on trying to promote a signed agreement at my local clubs.
Many times I end up making the offer, and they say something to the effect of "let me think about it", "i have other offers" or "i dont want to sign something and be locked in", etc... what do you say to salvage the deal and motivate them to sign papers?
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
19y
Hello Rxr. Welcome to the forum.
Now on to your questions.
I get the feeling that coming from a "technical engineering background" is holding you back.
Okay you are going to have hang on a little with this one.
If you are coming from a technical perspective then your idea of clearly communicating the truth to someone is going to be full of technical detail that I would guess will mostly confuse and complicate the mind of a normal seller. A normal mind is not necessarily in need of all the details that your mind thinks are important to understand, and when it is time for a normal mind to make a large decision (selling a house) it has to find peace through its choosen avenue and not necessarily through yours. When you try to help others find peace like you find peace (details), you actually complicate most people's minds with more clutter. This will produce an environment in their mind in which they won't feel comfortable making a decision and will want to think about it more. It will also promote them to not feel comfortable with you.
I would recommend analysing yourself and your approach. Are you helping answer their questions or are you answering yours? Real estate investing is a sales and marketing beast. People skills and salesmanship are paramount. Salesmanship is based on directing and focusing information to ANSWER the questions your seller has in order to develop a relationship of trust and confidence.
It follows the idea of the iceberg. You only see 10% of what is there. A seller will need to understand only the piece of the iceberg that they require in order to personally feel comfortable with you and with the situation. Most sellers don't want to know that you know everything about real estate and closings and selling houses and repairs, but they do need to feel comfortable with the fact that you know what you're doing. Again, they need to feel COMFORTABLE with you and your knowledge and abilities. This comfortability does not necessarily come from you communicating how much you know. It comes from listening to, interacting with, and answering THEIR concerns and questions. People are emotional creatures, and creating a soft fluffy environment where they feel safe and secure following you in this transaction is key.
Some people's brains will work like yours and some will work the opposite of yours. It is your responsiblity to know which gear to be in to work with their brain. That's salesmanship.
To get some more info on how people's decision making processes are different, I'd recommed reading Positive Personality Profiles by Robert Rohm.
Okay on to a couple technical details :D .
Why are you spelling out how you arrived at your numbers(also 70%-repairs includes profit)? Be confident in your offer. "This is the most I can give you." If they anwser with a gasp or a look of shock and awe, then I explain that I do real estate to put food on the table and that with all the risks involved that is the most I can give. I am not ashamed of my offers. I understand the absolute necessity for me to make offers this low to stay in business. When somebody is shocked by my offer it is because they don't understand investing, but I don't expect them to. Now Rxr, are you sure you know why you are offering 70% minus repairs? Here's a good post on why: http://forums.biggerpockets.com/viewtopic.php?p=18225
I am also curious if your problem might just be that you haven't made enough offers to QUALIFIED leads, yet. Making 10 offers on unqualified leads, you are going to get all no's. When you make 10 offers on qualified leads, then you are going to find a yes or two. Qualifying is merely a tool to sift through the hay stack to make your time more efficient. If on the phone you don't find out how much equity they have then you are wasting your time 9 times out of 10 going to meet with them. When you qualify 80-90% of your calls as duds and you are only taking time to look at and make offers on the 10-20% that have equity then you will be a lot more effective in your offers.
One more thing. Why are you tying up the property? Why aren't you buying it? I'm going to guess that you feel it is necessary to fully explain to the seller that you have no intentions of buying the property and that if you have not found a buyer within the 30-45 days to closing then you will back out of the contract? If this is the case, and your conscience won't let you do it otherwise, then I would recommend that you step up and go get some financing lined up (hard money or conventional prequalifying) so you can honestly and with confidence tell the seller that you are going to buy their property. If you feel its necessary, tell the seller that you intend on selling it before closing but either way they will get their money so they don't have to worry.
Thanks very much for the reply and advice. I appreciate you taking your time to go over each aspect.
You've given me some things to think over. I'll take a look at the book you recommended.
Sellers just want to know you are a serious buyer. Get your short term financing source so you can make a "cash" offer, then put in the contract that you may wish to assign the contract. I must be missing a link here. Are you a realtor or an investor or both? You must be asking for long closing dates with your offer in order to find a "real" buyer.
Remember, every 1031 exchange has contract language stating that the seller agrees to participate in a 1031 exchange as the deed, HUD etc. will be in the QI's name not the buyer's. That hasn't bothered anyone selling in my transactions-the biggest problem is getting the replacement property seller to give you enough closing time to realistically close out the relinquished property.
Trying to justify a low ball offer is hard and usually the seller is mad the entire process even throughout the closing. They (and their agent) always think they've been taken to the cleaners but then they don't have to dump $40 or $50k into fixing up their precious asset. One developer in town lies to owners and tells them he's going to live in their house, then he cuts off the back lot and builds another house facing the back street. People talk bad about him everyday but he's become wealthy. He's just willing to tell tall tales and doesn't worry about getting caught later on.
Thanks for the followup. I'm a part time / beginner investor. The reason I am having difficulty is more or less what Ryan Webber said in his last paragraph regarding "tying" instead of "buying". I actually caused me to think of my approach. My primary exit strategy has been to flip/wholesale the property to other investors so in my mind I'm not actually buying the property for myself, instead I'm acting as a middle man for the final owner. What I find as the biggest stumbling block is the language or vocabulary needed to convey my intentions so that I don't come accross sounding like I am a newbie, which of course is the case. I've bought some NLP programs but have avoided using techniques in that package because I feel that they make me sound like a snake (as does the instructor of the package, which will remain unnamed).
As for 1031s, while I know very basically what they are used for (exchaning equity from one property to another) I've never actually dealt with them. I'm having enough trouble with real estate at it's most basic level at this point :wink:
Yeah there's no way I want to conduct business the way the guy you describe does, by lying his way into a deal. I think it's just going to be a numbers game until I find a deal that will fit. Which, being part time, makes it much more difficult.
most sellers in my area would be suspicious to say the least if they thought you weren't a "real buyer" that could close them out with cash in their hand in 30-60 days Do know an appraiser/property manager that advertises cash buys for houses in the local paper but basically he gets short term bank money and holds them for at least a year and a day and rents them. He used to move every two years and take that tax free residential gain.
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
19y
Rxr, I've been thinking about your post again so I'd like to share a couple more things.
When I first started investing, one of the worst parts about it was when I had to pretty much convince a seller to let me screw them. I personally felt like I was robbing them by making such a low offer. What I would end up doing (like most newbies) is rationalizing a higher price and paying too much for a property.
Now after I did a couple rehabs myself (I made $1,500 on my first REHAB and I LOST a ton on my second), I had to face the fact that the reason I needed to offer such a low amount was to even have the hope of making money on the deal. If I did not offer a low enough amount, what would happen is that I would pay the difference out of MY OWN POCKET. After over a year of rehab projects I was in the red badly. This was a very expensive hobby.
I am now confident in my LOW offers because I know from personal experience what the margins MUST be in order for me or someone else to take on a rehab project. The liability and risk is just too great for an educated investor to undertake a rehab project without sufficient room for profit and for error. Normal people do not understand this, experienced investors do.
Rxr, as you progress in your real estate journey you will become more and more confident in your offers. Practice your techniques and be persistent. The confidence will come as your experience grows.
very sage advice. Also, an offer is an offer between buyer and seller. You're either talented at negotiating or you're not. These days there aren't many buyers and they do want alot--I'm in that group. If you sell a house "as is" for a fair sum, the buyer may understand the "as is" through the home inspection report, appraisal etc. etc., termite inspection etc. The mortgage lender may understand an "as is" sale but on the day before closing the lender's closing attorney may decide that some old moisture damage on a threshold just must be fixed and demand that the CL-100 "clear" before they will close the sale.
I had one this summer in which everyone was on the page but the attorney and he "struck" the CL-100 clause in the contract because of the above. No presence of termites, just didn't like the old moisture damage on a house built in 1900's. The mortgage broker was horrified because he didn't care (as many don't these days) -- he wanted his loan closed. Be prepared on either end to be fair, up front and get ready to walk whenr some jerk sticks his 2 cents into your deal and throws his weight around.
I find the agent of the seller is the ugliest during negotiations on low ball
offers. They sign offers with their name (no POA designation)(the broker's signature) and no signature from the seller (is this even legal?); then after everything is negotiated they want to redraft the contract and have the "real" seller's name on the offer at the end. All this is to tell the buyer how trivial their offer really is (not worthy of the seller's initials). You have to learn not to react to this type of treatment. It happens all of the time. Other sellers refuse to fix anything on a home inspection report. If the agent doesn't pay to satisfy the buyer's demand they say "I'm just not going to sell". This can be a real waste of time because no one knew the hard ball approach was in play.
Because you can lose your shirt in the real estate market, you have got to know the costs of light remodeling, medium remodeling and a full gut job.
We find $28,000 might get you a top grade roof, gutters, new windows, molding, great paint job including closing costs etc. but more like $50-$60k for new kitchen (granite/stainless appliances/tile)...maybe a bath and refinished hardwoods. When you pay say $150,000 for a house and tack on $60k you're already at $210,000 and x months of payment to carry it to sale day. You've got to know that if you price it at $250,000 that you might be selling for $225,000 and be willing to live with $15,000 or $20,000 profit. Or, you can take a chance that your $210,000 investment will appreciate if you're lucky at 5-6% a year and hold it for a number of years by renting it to come out over the long haul. The only way to hold it is to get great financing and have a lot of cash in the house and that a great tenant. There's only two ways to go. Dump it and be willing to take less while it's new or take a chance and support it over the long haul. You can't cash out refi because the closing costs and payment will eat you alive. You can throw cash in a CD or MMA and come out probably as well in some circumstances. It's all a learning experience.