STEP #8: SUCCESSFUL NEGOTIATIONS IS ALL ABOUT THE NUMBERS
Buying a rental property is pretty similar to buying a home to live in. You want a good deal, great location and you must be able to afford the monthly and annual cost. Utilize the same logic when buying a great investment property.
STARTING THE NEGOTIATION PROCESS
Some real estate agents warned me my initial offer may offend the seller. I am buying a property to grow my business, NOT make friends. The seller wants the maximum price, and I like the lowest. We simply need to negotiate, so we both win.
The most critical factors impacting the value is the location, its livable square footage, and condition. Other factors affecting value include any unfinished rooms – basement, attic, etc., water damage, old carpeting/flooring, odor, old appliances, HVAC and Roof condition, etc.
Once you decide to make an offer, the negotiation starts and is completed when you close on the property. Closing usually occurs 45 days after you sign the contract (faster if paying cash). After making an offer, you have more work to protect yourself and have zero surprises after final closure. Once you close, YOU OWN THE GOOD AND THE BAD!
EVERYTHING IS NEGOTIABLE
If you see the potential for significant repair/replacement work, hire a professional tradesperson to estimate the cost. That way, you are negotiating using actual dollars and facts. When making a low bid, inform the seller of the reasons and the price you anticipate paying to make the home rent ready. If the owner asks for $100,000, your walk-through reveals costly repairs, makes a bid, and explains why you lowered the price by ~10%.
CONTINUING THE NEGOTIATION PROCESS
From the time the seller accepts your offer, you typically have over 30 days to review the home, all documentation and inspect the property to ensure no hidden problems and the property is worth the price you offered. Your goal is ZERO unexpected cost after closing.
The home inspection is a necessary cost. The professional inspector thoroughly inspects all critical systems in the property. Once you go under contract, schedule a home inspection within 2-3 days of submitting the offer. The report informs alert you of any significant problems and cost. I provide the seller with a copy of the inspection report. Typically, these reports are long and will identify dozens of issues (many minor and cosmetic). I believe providing the list of concerns eases the pain of negotiating the price down
Rather than negotiating on the price, you might just be asking a seller to include (or remove) something from the property. If you are interested in the furniture (you may be considering Airbnb rentals), ask the seller if they are willing to include it. If there is mold or a pet smell, you negotiate to have cleaned or the carpet replaced before closing. Successful negotiation is dependent on the seller’s motivation to sell the property.
UNDERSTANDING THE MARKET AND SELLER’S MOTIVATION
Ask your agent why the seller is motivated to sell. If the seller needs to get rid of the property for financial reasons, they may be more willing to negotiate on the price. Find out if there is a mortgage on the property. Keep in mind just as you have a maximum amount you are willing to pay, the seller has a minimum amount they require or desire.
Discuss with your agent if it is a buyer’s or seller’s market. Today, many sellers do not want to place a property on the market during a pandemic. Therefore, the inventory is at record lows, making it a sellers’ market.” In a buyers’ market (higher inventory with fewer buyers), a highly motivated seller might mean you score a better deal, both in pricing and contingencies.
CONCLUSION – SUCCESSFUL NEGOTIATIONS IS ALL ABOUT THE NUMBERS
Using the datasheet, found in the previous blog: Step 7: ITS ALWAYS ABOUT THE NUMBERS, calculate the maximum you can offer and achieve your target ROI. Your initial offer should be 5-10% below this number. Go into the negotiating process, knowing when you need to walk away from the deal.
Click below previous blog: Step 7: IT’S ALWAYS ABOUT THE NUMBERS!
PREVIOUS APPLICABLE REAL ESTATE INVESTMENT BLOGS
STEP #1: BUILDING YOUR “A” REAL ESTATE TEAM!
STEP #2: IT’S ALL ABOUT THE LOCATION SILLY
STEP #3: BUYING THE BEST MONEY-MAKING INVESTMENT RENTAL PROPERTIES
STEP #4: TO FIND A GREAT INVESTMENT REAL ESTATE AGENT YOU SIMPLY NEED…
STEP #5: IS A PROPERTY MANAGER WORTH TEN PERCENT OF YOUR RENTAL INCOME?
STEP 6: YOU WANT MAX PROFIT, THEN YOU NEED A GREAT PROPERTY MANAGER
STEP #7: IT’S ALWAYS ABOUT THE NUMBERS!
To Join the Wealth Building Powers BLOG:
PLEASE SIGN UP TO FOLLOW ME BY PROVIDING YOUR E-MAIL IN THE WORDPRESS BLOG PAGE SUBSCRIBE BOX!
Thank you to my followers and readers for your likes and comments. All comments, recommendations, and feedback are welcomed and utilized to improve this blog.
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer to help others. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate, and happy to share my finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. For individual financial advice, please seek your licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.