For those of you that don’t know, Bobby Bonilla was a 6-time All Star baseball player who played for various teams including the Pirates, Mets, Braves and the 1997 World Series Marlins. At the height of his carreer, Bobby Bonilla landed a very sizeable 5-year contract with the New York Mets. However, towards the end of that contract, Bobby was no longer performing to the level that his large contract warranted. With one year left and 5.9 million left to pay him, the Mets came to an agreement that allowed him to go play for another team with specific terms delaying the payment on the 5.9 million they owed him.
While an initial glance at this type of arrangement may not seem that unusual, I think it’s a very interesting case study on negotiating terms. You see, Bobby Bonilla was able to turn a negative situation into something very profitable based solely on his ability to negotiate terms that would end up being extremely favorable in the long term.
The Mets were ready to release Bobby, but were more interested in delaying the 5.9 million that was owed to him. Bobby, knowing that his career was coming to an end and that he would need income later in life, was okay with the notion of pushing the balance of his contract into the future. As such, the Mets agreed to delay payment on the balance of his contract for 11 years …. with interest. Actually, as it worked out, the Mets would end up paying him 1.192 million every year for 25 years starting in year 11. Bobby actually received his first payment in 2011 at the age of 48 and will continue receiving this big league salary until he’s 73! Not a bad retirement plan.
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Applying Term Negotiation to Real Estate Investing
As real estate investors, I think this story is incredibly applicable to how we approach any deal. The numbers in and of them themselves don’t always tell the whole story. For example, if I were to ask you if you’d be interested in buying a house from me for a million dollars with anticipated rents of $1,000 a month, what would you say? Most of you would say, “Not a chance!” Why? Because most people believe that $1,000 a month in rent can’t possibly make sense on a $1,000,000 purchase.
While this is true in most cases, what if there were special terms associated with the sale of this million dollar property? Perhaps I am selling the property with no interest and monthly payments set at only $250/month until the balance is paid off. Suddenly, the price doesn’t seem as important as the terms that are being offered.
While this may seem like an extreme example, it illustrates the point that we should always be cognizant of an opportunity to negotiate favorable terms before passing judgment on a deal. Whether you are buying a property from a seller who is willing to give you owner-financing or selling a property with some form of financing, there is almost always opportunity to negotiate some type of terms.
Just a few months ago, I had a sale fall through because the buyer was turned down for a loan. Rather than kill the contract and start over, I put the buyer in a short term lease purchase contract and will actually end up making more money as a result of that negotiation than if the buyer had purchased up front as originally planned.
One of the most important skills a real estate investor can hone is the ability to take a deal and make it better through the negotiation of terms. Whether you’re taking a dead deal and bringing it back to life, or simply making a good deal that much better, learning the art of structuring terms is a sure fire way to ramp up your returns and excel at real estate investing!