Negotiation help or suggestions
Hi everyone, I am in a little bit of a creative block for lack of a better word. I am in the process of negotiating on a investment building that needs some work and the owner knows it. The problem is that he is pretty stubborn in his price and thinks its priced well with the renovations in mind. Normally in my area I have been buying units for around 50k-65k. This deal is about 54/55k a unit. It’s not awful but I am worried because it needs a lot of work to be done. The entire exterior of the building needs work to be done to it in siding, soffit, facia, gutters, windows, and roof. The building is about 5,000sq ft so I’m guessing work for that will be around 70-90k. The interior flooring is not even at all as well. It has to be torn up to see what problems are inside of there.
I have thought about telling the owner that we can bring a contractor in or an inspector to look at all the issues and figure out a price on what it would cost to get done. Is that stupid or even worth my time? Any suggestions or ideas are appreciated!
I think that more data for yourself certainly helps you and the deal. Finding and confirming deformities, and then assessing the cost to get them done is almost the whole reason why we do inspections on homes.
We are seeing a lot of properties come off the market because the owners had unrealistic expectations about what they could sell for and then decided they did not want to sell at a lower price. That really is your only risk with the deal specifically, but that really is not a risk in my mind, because if you cannot get the owner to come down to a number that makes sense for you, you shouldn't buy it anyway.
Quote from @Nathan Grabau:
I think that more data for yourself certainly helps you and the deal. Finding and confirming deformities, and then assessing the cost to get them done is almost the whole reason why we do inspections on homes.
We are seeing a lot of properties come off the market because the owners had unrealistic expectations about what they could sell for and then decided they did not want to sell at a lower price. That really is your only risk with the deal specifically, but that really is not a risk in my mind, because if you cannot get the owner to come down to a number that makes sense for you, you shouldn't buy it anyway.
The price they have in mind isn’t really the worst. I will still be able to cash flow with renovations and increase in rents as well as property appreciation. This would just be the largest deal I would ever do and that scares me. Rents currently are low (500-600) but with the units fixed up rents could be 1100-1200 a month and there’s a possibility to rent one as a str. Ideally I’d like the asking price to come down but as I mentioned before the owner is just stubborn. Says he knows what the value of the building if it were fixed up to its best.
Hey John - Not sure if this tactic translates to RE perfectly, but I work in sales and one of the tactics I've found success in when trying to win someone over is to show them the financial pain of inaction and then visually graph the numbers on a chart/powerpoint/posterboard/etc right next to the outcome that I'm looking for a.k.a. doing business with me.
For example, if holding the property is costing the potential seller X, put that next to what they gain when they sell to you. If you know what they are going to do with the funds you're giving them (i.e. retirement, another investment, etc), you've got something even more compelling. You can show how them selling this headache to you for what you're asking for, gets them much closer to what their ultimate goal is than hanging onto it.
It's not a miracle formula, but even if he balks it will advance the conversation and show him you've taken his long term interests into consideration.
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Quote from @John Christodoulakis:
Hi everyone, I am in a little bit of a creative block for lack of a better word. I am in the process of negotiating on a investment building that needs some work and the owner knows it. The problem is that he is pretty stubborn in his price and thinks its priced well with the renovations in mind. Normally in my area I have been buying units for around 50k-65k. This deal is about 54/55k a unit. It’s not awful but I am worried because it needs a lot of work to be done. The entire exterior of the building needs work to be done to it in siding, soffit, facia, gutters, windows, and roof. The building is about 5,000sq ft so I’m guessing work for that will be around 70-90k. The interior flooring is not even at all as well. It has to be torn up to see what problems are inside of there.
I have thought about telling the owner that we can bring a contractor in or an inspector to look at all the issues and figure out a price on what it would cost to get done. Is that stupid or even worth my time? Any suggestions or ideas are appreciated!
There are millions of deals out there. Tell him to keep your number, and when he hasn’t sold it in 12 months give you a call to see if you’re still interested. Sometimes (often) it time better spent prospecting for realistic sellers than trying to get a seller not ready to sell to sell at market price. Look at it this way. You want to buy a stock current price range 25-25 1/2. Your neighbor owns some of that issue and tells you he”ll sell at 40. Do you waste time talking with him or do you just tell your broker to buy at the market (25 1/2)?
While frustrating, if a seller is firm on price, usually time is the key, and even then only if seller really wants to sell, as some sellers are just fishing for a certain price or will keep the investment. I've just asked sellers to please contact me first if they ever want to sell at my offer price. I don't put anything in writing, however, as I don't want it used by seller to fish for a higher offer.
Quote from @Don Konipol:
Quote from @John Christodoulakis:
Hi everyone, I am in a little bit of a creative block for lack of a better word. I am in the process of negotiating on a investment building that needs some work and the owner knows it. The problem is that he is pretty stubborn in his price and thinks its priced well with the renovations in mind. Normally in my area I have been buying units for around 50k-65k. This deal is about 54/55k a unit. It’s not awful but I am worried because it needs a lot of work to be done. The entire exterior of the building needs work to be done to it in siding, soffit, facia, gutters, windows, and roof. The building is about 5,000sq ft so I’m guessing work for that will be around 70-90k. The interior flooring is not even at all as well. It has to be torn up to see what problems are inside of there.
I have thought about telling the owner that we can bring a contractor in or an inspector to look at all the issues and figure out a price on what it would cost to get done. Is that stupid or even worth my time? Any suggestions or ideas are appreciated!
There are millions of deals out there. Tell him to keep your number, and when he hasn’t sold it in 12 months give you a call to see if you’re still interested. Sometimes (often) it time better spent prospecting for realistic sellers than trying to get a seller not ready to sell to sell at market price. Look at it this way. You want to buy a stock current price range 25-25 1/2. Your neighbor owns some of that issue and tells you he”ll sell at 40. Do you waste time talking with him or do you just tell your broker to buy at the market (25 1/2)?
You’re not wrong. My only worry is that this is in a really prime location and he’s mentioned how he just had a deal that fell through. I have other properties that can help cover some of the costs until this one is set up. I know that isn’t the most ideal situation but this will cash flow after I were to Brrrr it.
Stick to your numbers. If the numbers don't work for you, don't conform to someone else. It's hard to let deals go but if it's more than what you are wanting to spend or the numbers won't fit into your criteria, walk away and set your eyes on the next deal. Who knows, he may even come back to you and accept your original offer.
@John Christodoulakis It sounds like the numbers work for you but you would just like a better number. In that case, it may be that the seller is right. My position has always been that if the numbers work for an asset in a location/market that i believe in, i do the deal without haggling over relatively small numbers. You being slightly intimidated about doing a bigger deal than usual is not reason for the seller to come down in price.
Considering the numbers work as is, I would consider giving the seller his top line number and negotiating on other terms. Maybe try to get the seller to hold paper at a favorable interest rate while you're fixing the place up, before you can refi. Maybe get a closing credit for some work that needs to be done. Etc.
Quote from @Jon A.:
@John Christodoulakis It sounds like the numbers work for you but you would just like a better number. In that case, it may be that the seller is right. My position has always been that if the numbers work for an asset in a location/market that i believe in, i do the deal without haggling over relatively small numbers. You being slightly intimidated about doing a bigger deal than usual is not reason for the seller to come down in price.
Considering the numbers work as is, I would consider giving the seller his top line number and negotiating on other terms. Maybe try to get the seller to hold paper at a favorable interest rate while you're fixing the place up, before you can refi. Maybe get a closing credit for some work that needs to be done. Etc.
My assumption of what the cost to rehab this building I think is more than I wrote into my original numbers. The entire exterior of the property needs work to be done to it. Plus the flooring of each unit is not flat, it uneven and the stairs are crooked a bit I noticed. Everything will probably have to be ripped out on the inside of each of the units and once that starts to happen there’s always more items you notice that need to get fixed.
Just to give a little update to anyone interested. I had scheduled two different inspections with the owner for the property and both times he never showed up and left my guy high and dry. I have tried contacting him multiple times since and he's never responded back once. Safe to say he was being a big BS'er about wanting to sell the property and wanted to waste my time. Probably a more common occurrence for most of us but on to the next!