When buying houses from sellers, the name of the game is negotiation. Negotiation is the highest paid job you can get.
Determining a seller’s needs is where it begins, and meeting those needs is where it ends. Negotiation is a learned skill. Anyone can do it, but it takes practice and knowledge of whatever product you’re negotiating for. The fact that you can negotiate price and terms is what separates real estate from all other investments. Just try negotiating a no-interest loan with minimal money down to purchase gold, stocks, mutual funds or bonds. Only real estate allows you to make large profits on seller-held financing.
Consider this transaction:
I acquired a house recently for $450,000 with a $50,000 down payment. The balance due of $400,000 was payable whenever I sold it, with an additional 20 percent of my net profit to the seller. Without going into all the details, he needed some money now and was able to wait for the balance. Funny thing, he had a full price cash offer of $450,000 to close in 5 days from another investor, but he chose my offer over my competition.
It was the rapport my personal assistant developed up front with him that allowed us to be in this position. Of course, we needed something besides our good looks to get him to do it, so I appealed to his sense of greed.
He was emotionally tied to the house, and it would take more than $125,000 in rehab costs to really “mack daddy” it out. So we hooked him on how we could transform the home he loved into a palace. Of course, the 20 percent kicker of our net profit really got his attention.
When a seller holds a mortgage, the negotiation just begins.
A funny thing happened after the closing. The seller was having family issues and really wanted his money sooner. He was no longer patient. This happened right around the time we got an offer prior to the completion of the rehab.
So we negotiated a lower payoff of $375,000 on the remaining balance of the $400,000 note and the seller agreed to remove the 20 percent of the net profit.
The offer we received to sell this house was for $550,000 and the selling commission was only 2.5 percent. The rehab was less than $15,000 at that point.
Here are some pictures of the house in the condition in which we sold it:
I’ve acquired hundreds of houses over the last 35 years with seller held financing. The negotiation never stops when you’re paying a seller that held a mortgage for you. Every year before Christmas we send every mortgage holder a note stating that we just came into some money and we offer to buy out all next year’s payments at a 30 percent discount and/or the remaining balance at an even steeper discount.
Most people don’t anticipate some kind of financial hardship or need for their money in the future. Rarely have we ever paid a seller the full amount owed on a seller held note.
Let me make something really clear: If you got an investor who lends you money for a purchase and they hold a mortgage on the property – you would never offer them a discount!
In fact, you should pay them early and then a little more in order to do business with them over and over again.
Negotiate everything.
0 Comments