Learn by Doing, Exercise 1 for Real Estate Investors: How to Buy

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The best way to learn is by doing.  So what is better than exercises that will teach beginners the skills they need to become successful in real estate?  Not only that, but they can be done fast and with very little expense.  If you are a beginner real estate investor and dying to learn the business, the series of learning exercises I am providing are a must.  Everyone can learn from these exercises so by all means, take this challenge and sharpen your skills.

Your first exercises are to Buy and Sell something on Craigslist and post your results in the comments of this post.  Not just Buy and Sell, but to do it right.  You are looking to buy the diamond in the rough and get people to fight over the item you are selling.  Besides not having a plan, not buying right is the 2nd biggest mistake made by beginner real estate investors.  In this exercise, you must buy an item for 50% of its value.  The methods used are almost identical to how you can buy houses at deep discounts.  Master this, and you may have mastered buying right.  Finding great deals and buying right are critical to success in real estate.

 Buy – Select a normal item that will have some demand such as a TV, bike, laptop, electronic, etc.  I did it with a TV, laptops and even bought a car.  We are trying to simulate buying an investment property at an extreme discount, so pick an item that people want — not an obscure item that has little to no demand.  If you can’t think of anything pick an item in your home you want to upgrade for a discount.  Buy something at around 50% or less of what it is worth and do not buy unless it meets your criteria.  If you do not know what it is worth, look at similar for sale items.  Call and find out what they sold for so you have comparable sales.

 What do you have to do? 

  1. Play the numbers game – the more prospects that meet your criteria the better the deal.  Get as many motivated seller leads as possible into your pipeline and cherry pick the best one until you find that diamond in a rough.
  2. Find out if they are motivated and what that motivation is – If they are not motivated, pass and move on to the next one.  Motivated sellers will sell at a discount.  Always find out why they are selling as they will give you a great reason why they should discount the price such as they need the money today.
  3. Do not deviate from the criteria of 50% of value – Never ever pay more than your criteria dictates.  Pass and find another.  Remember, this is a numbers game so the solution is to get more leads not compromise and overpay and take on too much risk with lower return.  By doing this, you will avoid huge mistakes that investors make all the time.
  4. Do your due diligence – Make sure if it is a larger item like a car to do your due diligence and get an inspection.  Investment properties always require an inspection and thorough due diligence to mitigate risk and likelihood of unpleasant surprises.
  5. Negotiate down every chance until you get a no – Give reasons why it is not the best fit or point out flaws without offending them.  Tell them you are still interested but want to reflect it in the price and ask for a reduction.  Do this until they say no.  Then you have found their bottom line lowest they will take.  Do this every chance you get.  Don’t forget to negotiate terms.  If they say no, maybe they will drop it off to you to make it easier for you.

 Here are my results:

  1. TV – 1 year old 52 inch HD TV for $500 selling for $1000 and $3500 brand new.  The seller had it playing Gladiator when I showed up so that was just an extra bonus.  3 years of use and zero issues.
  2. Laptops – 2 laptops and a nice laptop bag for $50 worth $200+.  Used one for a year then gave both away but still use the amazing laptop bag.
  3. Car – A 2001 car that will last 5 years bought for $1K worth $3K.  There are some dents which is OK, when fixed the car is worth $5K.  Just like buying a rehab.  I first negotiated it down from $2700 to $1800.  Then got an inspection and negotiated it down to $1400.  Then after test driving it negotiated down to $1200.  Then got it down to $1000 at the purchase meeting.  This is where I got the ‘No’ that told me it was the absolute minimum sales price.  This is a larger item so I made sure I got a full diagnostic inspection.  I passed on 3 other cars that I had inspected.  It has already been driven for 2 years with zero issues just routine maintenance.

 What will you learn?

  1. Find motivated sellers They will sell at a discount and you can often negotiate terms like get them to drop it off at your location.
  2. This is a numbers game – Maximize your leads then lowball enough sellers and you will find your diamond in the rough.
  3. Learn to talk directly with motivated sellers without any competition – They are likely more motivated and will give you a better price.
  4. Negotiation skills – It never hurts to ask.  Find their motivation.  If they need to sell quick, say you can only do $X if you buy that fast.  Negotiate the price down first before seeing the property and at every meeting or conversation negotiate down more until they say ‘No’.  If they are asking $300, it is worth $400 then you will only pay $200.  The $200 you will pay should be exactly in the middle of the current asking price and what you will pay.  First ask what the lowest they will take and maybe they will drop to $250, and then ask for $150 since $200 is in the middle.  It is a psychological thing that the seller thinks he is also winning by getting you to come up and meet in the middle.
  5. Ask for reductions without offending the seller – Anytime you see the item, have it inspected or talk to the seller mention a flaw or something that makes it not the best fit.  Then say you are still interested but you want to reflect it in the price and ask for a reduction.  Again worst case is they say no.
  6. Learn to get comps – Look at comparable for sale items and call if necessary to find out the sales price.

 Additional tasks:

  1. Obtain motivated sellers lists – Get foreclosure/default, probate, absentee owners, expired listing and other lists.  If you do not know where to get these, contact local investors, real estate agents, title, escrow, county recorder’s office, etc.  Keep looking until you find these lists as they are out there and most people do not know about them.  Other lists are for sale by owners, rehabs, for rent lists, etc.  This step is necessary as the best deals you will find are by getting sellers from these lists to contact you.  You will negotiate directly with the seller usually with no competition.
  2. Create a direct mail postcard – This step can be easily completed using any of the online services that send out direct mail.  Many of the mass email services such as Vertical Response, Constant Contact, Infusion and even Click2Mail provide the functionality to create and send mailers online.  Go through the steps to create a postcard that you would send out.  You want to invoke a response, use a P.A.S. message or Problem-Agitate-Solution.  I recommend researching this type of message.
  3. Phone – Even if you are comfortable on the phone this exercise is great.  I want you to call 3 complete strangers and get them to give you advice.  Use your phone number but with the last 4 numbers different.  Ask for the wrong name and explain to them you accidently dialed the wrong number but maybe they can help you.  Get them to recommend somewhere to eat, get coffee, a good movie, place to get some specific item.  Make up a story like you are heading to a date and meant to call your friend to recommend a restaurant and maybe they can help by telling you the best sushi restaurant in an area.  This will get you comfortable talking to complete strangers and asking them to do something for you, such as sell you an item for 50% of its value.

Post your results as comments so we can all learn from your experience.  Also post any questions before, during and after.  Happy Buying!  Oh, and stay tuned for additional exercises.  As I said, these are hands on exercises that will help beginners learn the skills needed to be success extremely fast.

About Author

Ryan is the founder of Real Return Real Estate™ , a company focused on buying property at extreme discounts, selling and renting with cash flow.

11 Comments

  1. Ryan – This is an outstanding exercise! I think it will benefit ANY and ALL upstart real estate investors, and frankly, I think it is a good thing for the more experienced folks to work on as well. Great out of the box thinking here!

  2. Thanks Josh, I appreciate the compliments and am excited about the next 3 exercises in the series. It is easy to understand theory, but the best way to learn is hands-on. You are right, these exercises are great for investors of any experience level. Beginners can spend years learning theory, these exercises will allow them to learn so much just by doing. I hope everyone finds them helpful, I sure did.

  3. That’s fantastic Drenda. Definitely get a full diagnostic inspection. You can negotiate the price down then have them drop it off at a place you choose that will give a good thorough inspection. You can use the results to negotiate down more too, especially if they are truly motivated. I looked for stuff like ‘Must Sell’ and other motivated keywords. Keep me posted and feel free to ask any questions and we can discuss as you go through the process. Buying a car right is as close as it gets to buying a investment property right.

  4. Awesome idea, Ryan!

    I’m actually in the market for a new Blackberry- this would be the perfect opportunity for me to sharpen up my negotiating skills and get a steal on a new (used) phone at the same time.

    I’ll report back with my results…

  5. Thanks Stephani and Joe! Next week I am going to post about ‘Sell Right’. So you can actually sell your current phone and computer chair for more than they are worth. If you can buy right and sell right on craigslist, then you can do it with a home. Can’t wait to hear the results.

  6. Melinda Allen on

    Huh! Great idea. I know this article is a year old but I am just getting started and I am looking for a way to ‘conquer the phone’ fear.

    About a year ago I bought a treadmill off Craig’s list and resold it a couple months later for more than I bought it for. I think I will try this again only implement the negotiation strategy when buying.

    So here we go. I found three treadmills that I am interested in. Two sellers appear to be motivated as they are moving soon, we’ll see how motivated they are when they call me. All of them require that the treadmill be picked up, one for $200 by today at the latest. Two are listed for $200 and the the third is listed at $475.

    Since I don’t have a truck, I need to a)have it delivered, or b)borrow a truck from a friend. If I have to pick it up I want the price to reflect it. So I am not going to pay more than $100 for the two listed as $200, and no more than $ 235 for the one listed as $475.

    Now I have no intention of buying all three, I don’t have that kind of capital…yet. But if I can buy one and resell it for $300 that would be a good profit, don’t you think?

  7. That’s fantastic Melinda,

    I hope the sellers go for it. What I like the most is it seems you know what the items are worth and buy for around half. And you are playing the numbers. You may only get one of the 3 but what is the worst that can happen? You get a NO. Following up always helps, time often leads to motivation. I used the skills I acquired from this buying activity to negotiate a seller down from 35K to 17.5K over time, 15K to 10K and got seller financing on another. Finding motivated sellers is key, asking nicely and explaining your position will either result in a huge victory or a No. And you can always counter and followup on the No. Best of luck!

    • Melinda Allen on

      Thanks Ryan.

      I don’t know why some people (myself included) are scared of the word ‘no’. I like your take on the ‘no’ answer. Taking the ‘no’ as a ‘maybe’ later on as they get more desperate.

      Here’s an update:
      I had one seller call me back, the one selling for 475. Turns out she is going on vacation next week and won’t be back until the 5th. So now I have a week to turn chicken again (bawk). Just kidding. I asked her to send me an email when she gets back so I can look at the treadmill. In the meantime, I am going to continue to look on Craig’sList and get more practice. I am also going to follow up once with the two that did not respond to my email.

      It takes courage at first, but with practice I expect it will get easier.

  8. Actually you have not reached their bottom price until you get a No. So No is almost a word you should hear every time. It is good to practice different techniques. For example:

    -I never had much success shooting out lowball offers for half of asking price
    -Instead I ask what the lowest they will take if I bring cash over now. Whatever they say I ask if they can go any lower until I get a No. Then I tell them we are not in the same ballpark. I tell them I’m sure their item is very nice and I want to buy it today with cash but I have a strict budget and can only afford X. It comes off much less insulting when I explain why the lowball offer, it is my situation that has caused the lowball offer and since you have already got a discount the offer is no longer half. You can explain you are sorry you cannot afford it but if they change their mind you would love to take it off their hands. Then follow up, and always be nice.
    -If you can relate to them and get them to like you in your emails and/or phone calls it helps a ton. For example, “My spouse keeps me on a short leash with expenses if you know what I mean?” This can get a response such as, “I know exactly what you mean, I tell you what, I like you and if you pick it up now or if you can come up a bit higher then it is yours.” You can use sports teams, struggles, common interest, etc but when you relate to them and they like you it does wonders.

    I hope this helps.

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