Let’s start with what we are all familiar with: buying a home for yourself.
Even if you are not a real estate investor, there is probably a pretty good chance you have purchased a home for your personal use. That type of real estate purchase is very different from the real estate purchase you make as a real estate investor.
Let’s distinguish between the two types of purchases so you can better understand why as an investor you are going to see a very different landscape when purchasing a real estate investment directly from a seller compared to purchasing your own personal home.
When you purchase your own home – let’s all admit it – as a buyer it is all about you and the house you are going to buy. There is nothing wrong with that. It’s the nature of the transaction, the nature of the purchase, and the nature of your objective as a homebuyer.
When you are purchasing your own home it is all about you and the house you are buying.
You know the size of house you want. You know the number of square feet you want, the number of bedrooms and bathrooms. Whether you want a pool? A certain school district or neighborhood? All very tangible characteristics that relate to the house and to you, the buyer.
It is also all about the price. When it comes to shopping, unfortunately most of us have a very defined and limited budget. We have a certain amount of money we can afford to put down and we have a pre-approved loan amount. Together those two things indicate what we can spend in total on a house. So as a buyer of your personal home, it is all about the price.
Finally, it is very impersonal to a degree when you are purchasing a home of your own off the MLS in partnership with your Realtor. There is a strong likelihood you will never meet the seller of that house. You may not cross paths with the seller or even know his or her name. There is a high likelihood you are never going to know why that person is selling or what is important to him or her. It will be very impersonal and disconnected.
This is a key point that really differentiates the real estate transaction you may be used to as a personal homebuyer compared to the real estate transactions you may do as a part-time real estate investor.
Buying for investment purposes vs. buying for personal purposes
Foremost, when you are buying an investment property directly from a seller for investment purposes, it is not about you the buyer any more. It is not necessarily about that house any more. It is all about the seller.
It is all about your ability to provide a solution for that seller, and it is not about the house.
In my experience as a real estate investor here in Dallas and a HomeVestors franchisee, every time I am approaching that house and literally walking up the sidewalk to ring that bell for a seller who has called me to come see the house and make an offer, I know as I approach that front door what is interesting and compelling to me is rarely the brick and mortar structure of the house that is staring me in the face.
When you are buying an investment property directly from the seller for investment purposes, it is not about you the buyer anymore. It is all about the seller.
What is interesting to me is what I am going to find inside. What is that seller’s situation? What is his or her motivation? What is the problem, dilemma or challenge that is causing this person to seek a solution that involves selling that house?
For example, when a seller calls you directly as a real estate investor to purchase his or her home, it is very likely it is not about the house. It could be, for instance, a divorce situation where the house has to be sold. Even though it is the house they love, the house they built, maybe even the house they completely paid for, the situation dictates the sale of the house. There could be an illness in the family. Or perhaps it is no longer possible financially to afford the house. Or, maybe it is no longer possible to physically maintain the house.
There could be a job loss, another unfortunate situation that causes many to sell their homes for financial reasons.
Quite often in our business, a death in the family has caused the sale of the family home. There could be a distant relative who contacts you from far away who is responsible for liquidating an estate and selling that house that is left unoccupied due to the recent loss of the owner or relative.
It could be a rental gone bad. I get many, many calls from landlords who just want to get rid of the house. It’s not because it is a bad house, it is because they have had a bad experience as a landlord.
Or, it could simply be – and this is incredibly common – the repairs and the maintenance of the house have just become overwhelming. The seller still loves the house and has been there for years and raised a family, but the situation is that the person can no longer keep up with the repairs and the maintenance of the property, whether for financial or physical reasons. It is not about the house, it is about the situation. And it is about the person and the problem or challenge he or she has.
All these different scenarios are what make you, a real estate investor, a viable solution for the seller. You can purchase homes “as is.” You can purchase homes quickly. You can purchase homes without financing or repair contingencies.
And you can purchase homes privately. You have the ability to purchase a home where a sign never goes in the yard, showings never take place, and online photos of the house never occur. A private sale is about a seller who is selling not because of the house, but because of the situation. And you as a real estate investor provide a solution to that situation. And that situation may require a high level of privacy.
There are many examples of how it is not about the house. You have to identify, understand and solve the situation in order to be a successful investor, provide a valuable service and purchase properties for your investment business.
A key example from my experience is that you are going to find in this theme of “it is not about the house, it’s about the situation,” that quite often it is not the highest price that gets the house.
When you are purchasing homes off the MLS on the retail market with your Realtor for a home you can move into with your family, it is quite often a bidding war, and the highest price gets the house.
It’s not about the house it is about the seller
It is very different in the world of the real estate investor. It is not the highest price that gets the house. I can speak from personal experience that on numerous occasions my purchase price was not the highest offer on the house. But I was still able to purchase the house nonetheless because I provided the solution for the seller that he or she was confident addressed the problem.
Selling their house was just part of the solution.
Getting the highest offer was not a requirement of the solution. The seller may have been more focused on someone who was going to be able to execute the transaction with a high level of privacy as we mentioned above. Or, someone who would execute the transaction quickly. Maybe I was able to close a week earlier than someone else, even though I was buying at a lower price, and that timeliness solved the situation.
It is about your solution as a real estate investor and your ability to understand your seller’s needs.
I have purchased many homes, and I know other investors have, where sellers actually brought money to the closing table. That means our offers were below their mortgage payoff. But once again you provided a solution that solved that seller’s problem and he or she rationalized it as worth it. You were able to solve that person’s situation and meet his or her objective.
Here is what your solution as a real estate investor has to look like
- You have to demonstrate and display integrity when dealing directly with that seller. You have to be able to gain the person’s confidence that you are going to do what you say and provide the solution that solves the particular scenario. You have to convince the seller you will do exactly what you say and demonstrate a high level of integrity.
- You have to demonstrate honesty. You have to show that by being candid and transparent that you have nothing to hide and no ulterior motive other to solve the situation and purchase that home as part of solving that situation.
- You have to be empathetic. You have to come up with unique and creative ways to solve their scenarios – perhaps you are going to buy the house and lease it back to the seller. Perhaps you are going to have to close extremely quickly to get the seller out before the next mortgage payment. Or you may even need to clean out the house after the person leaves.
These are all things that demonstrate your empathy and your understanding of what is important to the seller. As a buyer, you have to go the extra yard to provide the solution to purchase the home and solve the person’s dilemma.
I will tell you 80 percent of the discussion I have with sellers when I am in the living room is about their situation and about them. Only 20 percent of it is about the house. That just goes to show what is important, and what our role as investors is – to cater to the seller to solve that person’s situation and address his or her needs. Purchasing the home is simply a byproduct of that.
In closing, remember it is not about the house. It is all about the seller. It is all about the solution you provide the seller. The house is simply part of that solution. And you as a part-time real estate investor are simply the provider of that solution.
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