One of my clients that I work with personally just closed on a deal that to me epitomizes the art of closing. So I thought that I would write a short mini-series of articles for you detailing what happened and the lessons learned which will benefit you in your future deals.
Selling a deal begins with buying correctly. You must know your numbers. If you want to sell all your deals, start from the end and work backwards. As a wholesaler, who is your customer? Investor Buyers (usually). What do they want? Profit! Plain and simple. You could be offering the most beautiful house and property, but if they can’t make money on it – they don’t want it. Period.
The first step therefore, is to determine the right price to sell to your investors who are made up of rehabbers and landlords. Follow a formula that builds in profit for rehabbers and cash flow and Return on Investment (ROI) for landlords. From there subtract out your fee and you now know the most that you can pay for the property.
Here’s an important concept for you: what the seller is asking is totally irrelevant to the price of the house. What I mean is this: when you typically buy a house that you are going to live in, you start with the asking price and offer something below that and negotiate from there. The larger your discount, the better you feel about your purchase.
As an investor, the asking price is irrelevant. You determine what you can pay and doing well on a deal means purchasing below THAT number – not the asking price. See the difference?
For example…the seller is asking $150,000 and you purchase for $120,000…great deal right. You got a $30,000 discount. Well what if the most you can sell this house for is $100,000? Your deal now stinks, right?
My Client had determined the right price to pay which was well below the Seller’s asking price. So how did he get her to sign? Simple: By understanding her motivation and solving her problem. She had a bad tenant in the house who had recently moved out and left a mess. She had inherited the house along with her brother, and this was just getting to be a problem for her. She now had to pay the mortgage every month. The property taxes were behind. She had to pay the utilities. It was costing her money and she couldn’t sell it in its current condition and her brother wasn’t helping with anything.
At first my Client was uneasy about making the low offer since she wanted so much more. What I explained to him was that if she would only accept her number, it wasn’t a deal for him anyway. It’s not about getting the house under contract – it’s about getting it at the right price.
He made an offer below what he thought he could pay and definitely below her asking. He positioned it as solving her problem. She would not have to make any repairs – he’d buy it AS IS. She did not have to pay any fees or commissions. And he could close in 30 days and told her she would be done and wouldn’t have to worry about the house anymore and she would walk away with some cash.
She jumped at the offer, but could not sign without discussing with her brother (who lives out of town). And just as I predicted (because the out-of-town siblings who never help are always the obstacle) the brother wanted $5,000 more. Since the price was still below my Client’s max price he was inclined to give it to her. I suggested that he stand firm. For two reasons: (1) if he increases his offer by $5,000 that easily, they’ll want more; and (2) I knew she was very motivated and it was just the brother being greedy.
Guess what she did? She signed at the original price!
So a couple of lessons here…
• Know the numbers before you start negotiating.
• Start your negotiating from your max number not from the seller’s asking price
• Spend the time to get to know the seller’s real underlying motivation to sell
• Do not assume what a seller will or will not do – make the offer
• If you have to adjust your offer price, do so in small increments – not huge increases
Now that we have the house under contract, we’ll talk about getting it sold in Part 2.
Expect abundance,
Lou Castillo
P.S. Want to become one of my personal Clients and work together for a year? Send me an email at Lou@InvestorRiches.com and we’ll set up a time to talk and see how I can help you grow your real estate investing company.
