what i learned today

Question

a few weeks ago i realized something that @Brandon Turner mentioned in a recent podcast - I seem to learn something about real estate almost every day. i have met with numerous members from BP and other sites, so thought it would be good to list the things i learn as i go.

- if you have a wholesale deal, dont name your asking price, let the buyer name the price. you might make more. learned it from @aaron Mazzrillo

- if you have a wholesale deal, dont name your asking price, let the buyer name the price.  you might make more. learned it from @aaron Mazzrillo

Jay Hinrichs · Answer

@Mark  Ferguson

@Justin B.

As your lenders what their max credit is to anyone borrower, if your dealing with a smaller community bank they will have a loan limit per borrower.. Or they call if familial debt.. IE you have many different LLC which each have different projects in them.. This is how we work it in the building trades.. So each subdivision or grouping of lots will be in a different LLC .. So the banks will have a total dollar number they will allow to anyone borrower.. At least that's how it works in our market and of course depends on the size of the bank my community bank is about 350 mil. and there max loan is 6 mil to any one borrower or company.  Depending on were your at in the country this could be ample credit or it could be just 6 houses in San Francisco area :)

Chris Kennedy · Answer

I read an article in Harvard Business Review a while back that referenced some research that showed that job applicants who jokingly suggested a ridiculously high salary for the position they were applying for actually ended up coming out with better salaries. So the guy/girl who answered the "How much are you looking to earn each year?" question with "oh, 2 million would be okay" actually ended up doing better than the person who gave a serious answer.

I'm sure the same applies to making the first offer - just make it ridiculous and obviously a joke: "i'll buy it for ten bucks, is that fair? I might be able to do fifteen, but I'll need to ask my wife first"

Same gist as what @Brian P. mentioned above....

Brian P. · Answer

I'm always willing to give price first, they say how much do you want, I'm always glad to say with a smile "I want $500,000, what price did you have in mind? This something I want $250,000 for. They will then give a price and we can go from there, or they will get excited and say are you crazy or some such thing, and I will say of course I don't expect to get that price but if your willing to pay that much I'm willing to take it of course, now tell me what do you think is a fair price, what would you be willing to take if you were in my shoes?

After we have done the deal I've asked and many said they gave a higher price after I said that then they were going to give originally. My goal was just to get a starting price from them and avoid the old game of no you first, no you first , no you first.

Andy Collins · Answer

I negotiate (other than real estate) for a living, there are times it is better to throw out the first number, especially if you think a seller has a crazy high number in their head.

If you have reason to believe they think its worth (pick a number) $100k, and a fair deal would be more like $60k, throw out a low number to start, this makes the negotiations start at the lower number.

Now I will say, don't throw out the top dollar you will give for the property, and I agree in most cases let them throw it out, but I'd rather defend a $50k offer that is somewhat realistic, than start at $100k and work your way down,,and don't just 'throw out a number', given the reasons for your offer before you give the number.

If from your conversations you know the seller is going to use the house down the street that sold at $110k, then go ahead and deal with that now,,explain that there are houses in the market that have sold for very high prices, those houses (explain the difference),,,take away what he is going to try to use against you in negotiations before he can.

John Thedford · Answer

There is an old saying in the used car business: the guy that gives the first price loses! I have often found this to be true.

George P. · Answer

we have almost 10 loans each. we made the (unknowingly at the time) mistake to close on a few jointly, so they appear on both's record and count against the 10. Our next step is to bundle a few of them and open a commercial account.

sure, the terms are worse (15 yr amortization vs 30 on the current) and the rates are slightly worse (low to mid 5's on commercial loan), which will push our monthly payments higher. But on the flip side, it will give us the opportunity to continue to get conventional financing, which is priceless. you can even get cash out if you have enough equity.

so, are you close to your 10 or reaching that limit? If so, bundle up a few and give them to a commercial lender. it will give you a chance to get more 30 yr loans.

I know @Mark  Ferguson is getting close.

George P. · Answer

i met with my financial planners at wells fargo last week. they only hold our investment & retirement accounts. I learned that our accounts have grown about 3%-4% for the year. I found it laughable and the more we talked, the more i was encouraged to invest in real estate. on account was  -0.1% for the quarter. lol

J. Martin · Answer

The typical limit that will be the complete backstop is 25% of capital. Many banks have a "house limit" that is more like 15% of capital. You can take a quick look at their financial statements, and just multiply those ratios by equity capital to get a quick potential idea. That will be for good customers who are strong. Then call them and see what they say.. Not sure how that compares to yours, Jay, but that's what I typically see..

If they're loose, they might let you slide on LLCs with different ownership. But if all the ownership is the same or similar, it's going to look like the exposure is all to that same "relationship."

Justin B. · Answer

I'm sure there is a limit somewhere but if I hit it, I guess that's a good problem to have :)

Michaela G. · Answer

As to 'who blinks first' - when I was wholesaling lots, it was much better for me to offer them a price first. I was usually dealing with unsophisticated sellers, who didn't know much about value for vacant lots and were happy to get something.

If I had pushed them to name a price, they would have gone out and educated themselves and I would have had to have paid much more than what I did.

what i learned today

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