Negotiation is one of the most important skills you can learn as a real estate investor. I can easily think of hundreds of thousands of dollars I’ve made from small improvements to my negotiating skills.
Almost daily you will negotiate to get a property at a good price, a lender’s money at good terms, a quality tenant who will pay on time and stay forever or a buyer who will pay top dollar for your property.
If you read my previous article, you know that I believe you make the most money by focusing on delivering a valuable service to the person sitting across the negotiation table from you. But once you’ve done that, how do you also negotiate to ensure you get what you want?
Ironically, the answer is the opposite of our impulsive behavior. The secret is this:
If You Really Want Something, Stop Wanting It So Much
It’s a paradox. At first it doesn’t make sense. But the willingness to temper our desire and prepare to walk away from any deal is probably the biggest advantage you can create in a negotiation.
- If you need a lot of money, figure out a way to not need it so much
- If you want a lot of real estate deals, make sure you don’t really need them that much
- If you want a good tenant, make sure you can afford to patiently wait for the next tenant
- If you want a buyer for your house, make sure you can afford to patiently wait for the next buyer
In other words, if you act desperate and needy in negotiation, the other side will sense that, and you are instantly in trouble.
Especially as a new investor, you are understandably anxious and impatient to make progress, but you have to figure out a way to stay patient and to only move forward if the deal meets some sort of predetermined, objective criteria.
We humans are hardwired, it seems, to become suspicious and cautious when another person wants something too much from us. If the seller, lender, tenant, or buyer becomes suspicious of you, they are much less likely to say “yes” to whatever you’re asking.
And if you’re sitting across from a more experienced negotiator, as soon as you tip them off to your overeagerness, they will smell a win and will become less likely to give in or move past their entrenched position.
To help you take advantage of this secret and to tilt negotiations in your favor, I’d like to share five more tips with you.
5 Practical Real Estate Negotiation Tips
1. Never Negotiate Alone
This tip applies to any type of negotiation. A negotiating partner can help you to not act as needy or overeager.
You and your negotiating partner should decide ahead of time what your walk-away position is. If you have promised your partner something, you’re then less likely to overreact.
So, for example, you won’t pay more than a certain price, you won’t rent to someone who doesn’t meet a certain criteria, and/or you won’t borrow on terms above a certain interest rate. The promise you made to your partner beforehand will make it much easier to get up and walk away during the heat of a negotiation.
2. Only Buy Demand Real Estate
This tip relates to renting or flipping real estate. I have put myself in the biggest negotiating trouble when I bought the wrong properties in the wrong locations.
Demand real estate properties are those that have the largest numbers of qualified renters or buyers. There are many properties in your market, but not all of them will be in high demand.
If you own demand real estate, the large numbers of potential renters or buyers seeking you out will make it easier for you to get up from the negotiating table and say “next” if the first person doesn’t meet your criteria.
The opposite is true of non-demand properties. You will have fewer quality renters and buyers, and you will be more likely to act too needy and want to do a deal even when it isn’t smart for you.
It’s amazing, but just owning better real estate makes you a better negotiator by default.
3. Generate Lots of Leads
Whatever you’re buying, renting or selling, if your marketing can generate lots of leads from potential prospects, you will tend to be a better negotiator. Again, you can say “next” and move on to another prospect if the first one doesn’t make sense.
I have seen many new real estate investors miss this lesson by only looking at a few potential deals to purchase. They get too stuck on those few deals, and they become poor negotiators, overpay, and put together a bad deal.
4. Keep Large Cash Reserves
There is nothing that makes a poor real estate negotiator like a lack of cash reserves. This is especially true with landlords trying to rent out vacant units.
Just because your rental unit is vacant does NOT mean you should rent it to the next warm body who promises to make you a payment. In fact, the more urgent and motivated a prospective tenant is the more cautious you should be.
Cash reserves allow you the peace of mind to wait an extra thirty days for a very good tenant instead of taking the less qualified tenant who can move in next week.
Cash reserves also give you leverage over tenants already in your rental who aren’t abiding by your rules. If you’re not afraid financially to have a vacant unit, you can tell your tenant, “follow my rule or get out.” Likely, the tenant will follow your rule because they sense that you are not desperate or needy for their rent.
5. Keep Your Overhead Low
Just like cash reserves, a low personal and business overhead can give you confidence in all of your business negotiations. When you have a massive overhead to pay each month, you really have fewer options. You have to do more deals, you have to sell more properties, you have to get top rent.
On the other hand, when your overhead is low, you always have the default of doing nothing or of doing less. This has amazing negotiating power because so many other people can not afford to do nothing.
Financial flexibility is the ultimate bargaining chip in business and life. This is another reason to focus on my favorite topics, getting closer to destination financial independence and to winning the two financial games as soon as possible.
Do you have examples of successful “walk-away” negotiations?
I have only scratched the surface on negotiation in this article. I look forward to sharing more with you in the near future.
I’d love to hear your examples of negotiations that went well because you wanted it less than the other person. They could be buying, selling, leasing, borrowing, or even non-real estate negotiations. Please share them in the comment section below.