Do We Sometimes Force Deals?

One of our previous clients Karina L. Holladay Utah

This article came about because I have seen a lot of comments on various social media platforms lately about how hard it is to find deals especially for new investors.  It makes me think about when I was new and struggling to find properties that I could purchase at enough of a discount to make a profit AND help the seller.  It really needs to be a WIN WIN for buyer and seller to be successful in this business in my opinion.  When deals are hard to find or one is new to the business and has not established their marketing to always be bringing in leads, sometimes people try to force a deal. Forcing a deal can take many forms.

What Is Forcing A Deal?
Forcing a deal is what I call it when someone tries to persuade someone to sell a property in a way they do not want to sell or not being truthful to yourself about what the numbers are showing.

No matter how we look for leads, at some point someone will say "yes, I want to sell my house" when you talk to them.  When I get to this point, the first thing I want to know is what does the seller want to happen in regards to the sale of their house.  Do they talk about a house in good condition that they really want to get top dollar for, or do they have a reason they need to sell their house quickly such as the house was inherited, or many repairs are needed or the seller is tired of being a landlord.  Of SPEED - CONVENIENCE & PRICE, sellers can have SPEED & CONVENIENCE or CONVENIENCE and PRICE*.  Investors can provide speed & convenience at the sacrifice of price, while a seller will need to look to For Sale By Owner for price only and a real estate agent for convenience and price.  And my personal opinion is that most sellers will do better price wise with an agent vs FSBO.  

If someone is determined to get top dollar for their house no matter how long it takes, you can shout from the mountain tops about the benefits of a quick sale with no repairs as much as you want, and it will not change their mind.  You can't force this.  On the other hand, if the seller's house needs repairs, has a bunch of stuff in it and is vacant or they need money fast and they are OK with you making a profit, bingo.  This is a seller you want to work with.

I am currently working with a new investor that found a vacant property and turned to me for help. I found the owner and have had several meetings with the owner.  The seller keeps telling us he wants to sell the property to the neighbor even though we will pay more.  This has been going on for 4 months now, and the seller still owns the property.  I have a follow-up system and talk to the seller every few weeks.  The building needs a ton of work and the neighbor wants to get a loan to buy the property.  Yes, the neighbor can make it happen, but each week that goes buy is time in our favor.  We just need to be there when the seller gets sick of waiting.  My new investor friend is impatient and wants to create all kinds of weird things to entice the seller.  While I am all for creativity that benefits a seller, I think it is obvious we can't force this seller to sell to us while the pain of waiting for his neighbor isn't that bad.  We need to wait until he has a problem we can solve.

Trying to force a deal via the numbers can be very enticing if you are going to take title before reselling.  A ton has been written about the cost to obtain a deal, so I will not go into a lot of detail.  Just remember there is your cost of money, you need solid rehab costs and there are selling costs.  It is very tempting to ignore things or think things will not be so expensive.  Know your numbers especially resale value if you are rehabbing.

I always like to have 2 rehabs going at the same time which means sometimes 2 going on while one is still being sold.  A couple of weeks before this writing, I got a property I wanted to rehab under contract that was a fairly tight deal.  The deal was tight money wise because I would need to borrow money on this property and pay the carrying costs associated with that, I knew the property needed a lot of work which would be expensive, and we are going into the slow selling season if there is such a thing in this market.  On most of my rehabs I do not put together all of my costs to carry and rehab because I know we are getting the house at a good enough margin to make it work.  On this house I determined my holding costs, my rehab costs and sales costs and discovered I was $5000 too high.  Yes only $5000 on a $160,000 purchase and a $265,000 retail price.  I asked the seller to come down $5000 and was told no because he had another offer for more than I had offered.  I either had to drop the deal, find a buyer or go against my judgement and close on the deal.  I found a buyer and got the deal closed.  The point is I didn't try and rework the numbers to force the deal, even though I really wanted to. :)  

What Can We Do To Ensure We Are Not Forcing Deals?

The first thing to do is LISTEN and listen some more to your sellers you are talking with.  Figure out their needs and meet those needs even if that means referring the deal to a real estate agent or another buyer.  Remember we are here to profit from solving problems.

Learn how to make sure you have covered all of your cost and do not be tempted into forcing numbers.  Have a good source of buyers to take the deals you can not take title to.    

* I took this idea from one of Tom Krol's pod casts.  I only mention this because I think Tom is a great listen for new to experienced investors.  I am not affiliated with him or his coaching programs.