When you’re trying to put a deal together, you can’t be an idiot. You have to be smart with the way you’re working with the seller. You have to be reasonable, and you have to be a strong negotiator. If you’re lacking these negotiation skills or the ability to work with the seller, then you won’t win any deals.
You have to be somewhat reasonable and compromise so that you can actually win deals. If you’re going knock the price down on the seller then they’re going to be apprehensive about choosing you. Especially in today’s market, you won’t win if you’re unreasonably tough. You have to be careful and make sure you’re doing things with the seller in mind. So don’t be stupid, make the right decisions and be reasonable when you put deals together or under contract.
The Due Diligence Period
You still have a due diligence period where you can go over the property and look through the rent roll, financials and do your visual due diligence. You can do your walk arounds and review the units. Look at the basements, the curb appeal, and look at how well the building is constructed. If you find any deficiencies, you have time. You don’t have to negotiate everything up front. However, you have a due diligence period you should take advantage of to make sure everything checks out.
But be reasonable when you put deals together so you can win. If you’re going to be negative and push, you’re going to close the door on a lot of good deals. It’s really important to be reasonable when you put deals together with the seller so you can win.
If The Sellers Unreasonable…
In real estate, if you’re working with a seller that’s unreasonable, you just have to move on. There have been tons of times where I run into sellers of properties and they want 10x more than their property is actually worth, which is fine if it doesn’t work out with your economics or the deal just doesn’t make sense for what you’re trying to do with the property. Then all you have to do is just move on. You don’t have to keep working on the project if you know it’s not going to work. You should have a gut feeling of whether it’s going to be successful and that’s something you’ll build up with time if you’re not experienced investing into real estate.
Soon you’ll be able to determine whether a deal is going to work almost before you even get started. That’s what’s really powerful about investing into real estate and figuring out what deals work for you and what deals don’t, because in the future when you’re making new decisions it’s going to be a lot easier, faster and smoother for you. But don’t worry about the seller if they’re trying to ask for too much money for the property because there are many different properties out there. You just have to find different deals and look for the structure that’s going to work for you.
Mutually Beneficial Deals…
You’ll have to put deals together that are going to be mutually beneficial. If it’s only benefitting one side of the table, then it’s not going to be a great deal and it’s not going to work out in the long run. So don’t dwell on deals that aren’t going to work. Put them aside and move on to the next one. There’ve also been times where I’ve put numbers together on a deal and I thought it was too expensive. Then three years later, I’m looking through some of the old projects that I’ve passed on and we figure that the numbers start working again.
You never know in the future when you might have a different feeling about a project or you just underwrite deals better and it makes more sense. You never know, maybe the deal will work better in the future if no one ends up purchasing the property. Pick what is going to work best for you. You know what kind of deals you’re looking for. Stay consistent and in your lane and figure out the best deals that are going to make the most sense.
Going Back To Deals You’ve Passed On
I remember three years ago we were working on a $5 million deal and it just seemed too expensive at the time. It was for an apartment portfolio in our local home town and it was difficult to make the numbers work. We didn’t have the foresight to see that the project could achieve a certain level of success. Now three years later, after passing on the opportunity, the deal was still available and we ended up putting it under contract.
We went through and purchased the property but it took time to figure it out and see where the market was going to go. Once we figured it out, we were able to renovate the property and then raise the rents $425 per unit. We spent about $10,000 to $12,000 per unit to get that increase of $425 per month, which was a huge benefit to the property. It was a great return on investment and it’s really tough to find deals like that. I feel like we probably paid a little bit more than what the property was worth, but we’re able to capture our equity and get the realized improved value of the property once we complete all of the renovations. It’s going to work out to be a really good project and a good return on investment.
Don’t Be Afraid To Ask Questions
Lastly, don’t be afraid to ask questions even if somebody says no they’re not going to accept something. It’s not a big deal, at least you asked. Anything you don’t ask for is not going to come to fruition. You have to make sure that you’re always asking questions. You never know what people are going to say. They might agree to things that you never thought they would.
For example, maybe you have a reduction in price. We did this on one of our deals where we asked the seller to deduct $30,000 for some of the roofs that were in bad shape. They weren’t terrible but we thought, you know, let’s try and see if they’ll deduct some of the roofs because they were getting older and it would be nice to have that capital to reinvest into the property. Oddly enough the seller agreed to it and we got the deduction. But if we didn’t ask the question we wouldn’t have been able to have a credit of $30,000 on the purchase price to replace the roof. It never hurts to ask a question while you’re negotiating and going through your due diligence at the property.
Overall, be reasonable when you put deals together. You’ll be better off for it.
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