 Remember buying your first home? You spent weeks looking
around houses trying to find that elusive perfect home; eventually,
after discarding many unsuitable houses, you found the perfect home, or
as close to it as you could find in your budget. Do you remember how it
felt to really want the home?
You put together an offer and wait; biting your nails, hoping your
offer will be accepted. You feel emotionally trapped, unable to
negotiate effectively because you want the home and you don't want to
risk losing it. You pray nobody else puts in a higher offer.
If this scenario sounds familiar, don't worry; it's very natural.
After all, buying a home is a huge decision and choosing the right one
makes an enormous difference to our daily lives. However, to profit from
investments in property, whether for our own home, or for rehabs, second
homes and rental properties, we need a purchasing strategy that allows
us to remain unemotional.
The only way to profit from property is by purchasing it at an
advantageous price. This can only be done when the seller is highly
motivated (because they will be willing to negotiate) AND when the buyer
is willing to walk away from the deal rather than paying too high a
price. When the buyer becomes emotionally involved in the outcome of the
negotiation, it becomes very difficult to walk away from an unprofitable
deal.
Remember, there are always new properties coming on the market. You
will always be able to find alternative properties that meet your
criteria because every property tends to be a compromise of one sort or
another. If you keep this in mind, it's easier to be willing to walk
away from a deal in which the seller is not willing to sell at a price
that would make the deal profitable for you.
Negotiating win/win deals that work
In any property deal, both the buyer and seller should feel like a
winner as a result of the transaction; that is to say both parties
should get something of what they want from the transaction. To achieve
this win/win scenario requires skilled negotiation as well as the right
seller. A seller that is not motivated to sell will not be willing to
negotiate an attractive price whereas a highly motivated seller may be
willing to negotiate a lower price because they still get something they
want … they sell their property.
Even though you are willing to walk away from the deal, it is
important to let the seller know you are looking to reach a win/win
scenario. You don't want your willingness to walk away from the deal to
come across as a "take-it-or-leave-it" arrogant attitude; this
would just antagonize the seller making them less willing to negotiate.
If you take the time to explain to the seller why you feel your price
is reasonable, you are more likely to win them over to your way of
thinking and to negotiate an acceptable price for both of you. For
example, if you have done rough estimates of the cost to refurbish the
home, go over these costs with the seller and explain how your offer
represents a good offer given the current condition of the property. If
it's a rental, use the income projections as a basis of calculating the
net income after running and maintenance costs to calculate an offer
price that offers a reasonable return on investment (e.g. 10 to 20% per
annum).
The key to coming out with a win/win deal is going to be the seller's
motivation.
Finding Motivated Sellers
One of the easiest ways of finding motivated sellers is by asking
your local Home
Investor Specialist to locate properties that have been on the
market for at least five or six months; these owners are typically
frustrated their property has not sold. It may have been weeks since
anybody looked at their home and they are more likely to consider offers
from prospective buyers. Even if the Seller's Real Estate Agent advises
you that they have already turned down higher offers, don't be afraid of
putting in low offers; sometimes desperate sellers will take an offer in
the sixth month that they would never have dreamed of accepting when
they first listed their home for sale.
Your Home
Investor Specialist can also look for homes for you that have had a
frequent number of price changes over the listing period. This indicates
flexibility by the seller and a lack of offer from potential buyers.
It is also worth having your specialist check to see the details
behind the property's history; how many times has it sold? How long has
the existing seller owned it? What did they pay for it? How many liens
are there against the deed? All these details help to evaluate the
ability to negotiate a good deal for both parties.
Vacant homes are also a good indicator of a motivated seller. Often
sellers that have moved on to a new home already are desperate to cash
out of their old home, especially if they have two mortgages to support.
Finding out the reason for selling can help you determine the type of
offer to make. For example, if the seller is not desperate for cash,
maybe they would be willing to provide a loan note against the property,
allowing you to make interest payments while you renovate and the full
payment when you have remodeled the home and sold it.
You can also locate motivated sellers through your local public
records. When a town puts a tax lien on a home, it indicates the seller
may be in financial difficulty. By offering to buy their home for cash
and a quick close, you may be able to help them stay solvent and your Home Investor
Specialist may be able to assist the seller in finding a new home
that is more affordable. (Keep an eye on public notices in your local
paper to find potential owners in need of assistance).
Setting The Offer Price
When considering the offer price it is critical that you ignore the
price the Seller is asking for the property. If you are considering a
rehab' home, discuss with your Home Investor Specialist the improvements you would
expect to do to the home and ask them to put together an estimated
market value based upon the resulting changes. Your Specialist will be
able to compile a market analysis of similar homes to give a good
indication of the projected price range for the renovated property. Once
you have this value, take the lower number and deduct your costs
(commissions, materials, labor and an allowance for unexpected defects
in the home) as well as your profit you want from the deal to arrive at
the optimum price you would be willing to pay for the property. The
offer price should ideally be a little below your optimum price so you
can negotiate to arrive at your optimum. (Your maximum price depends
upon the degree of confidence you have in your costs and the resulting
price the home will sell for when it is completed).
One final note: Beware of hoping the home will sell for the
upper end of the projected price range; if anything you want to list the
property for sale slightly below the market value to encourage multiple
offers and to generate excitement about the home. Remember, most homes
are sold to buyers working with Realtors, so be sure to list the home
for sale with your Home Investor Specialist so they can attract as many
buyers as possible to the property. The faster you get your profits out
of the home, the faster you can reinvest them into your next project. |
