Negotiations are an important part of having a successful investment property. Regardless of whether you rely on your own cash, friends and family money, banks, or private hard money lenders, you want the property acquired at the lowest possible price to help maximize profits and returns.
Negotiating is not as simple as presented on real estate investment television shows. Because of time constraints, these programs provide very little airtime to the process that leads to closing the deal.
To help you as a real estate investor, here are some tips to consider when buying a fix and flip property:
1: Determine the Goals of Both Sides
Ideally, the goal is to find a win-win situation for both the seller and buyer. Sometimes the price is the one and only thing that matters to both parties. Other times, time is critical to close or perhaps ensuring that the sale will go through without a lot of hassle.
Understanding what actually matters to you and to the seller will help identify areas in which concessions can be made to help reach the final goal. For example, the seller lists the available property for $500,000 and wants to close as quickly as possible. The potential investor offers to buy for $450,000 and has proof of funds in pocket and can assure a fast closing date. Because you learned that the time to close has more value to the seller than the price, you are able to reach a win-win deal for both parties.
2: Research the Desired Property
Having an idea of how much to spend on the investment property before starting negotiations is important. If you are ill-prepared, you are at the mercy of the property seller. Guessing at a price will not lead to a successful negotiation, and more than likely puts you at a disadvantage with the seller.
Review similar properties sold in the market to back up an offer with facts. Also, learn about any restrictions that may prevent your renovation plans from materializing. Researching the market and providing facts will make your offer more credible.
3: Seek Experienced Help
Not everyone is an expert in negotiations. It is likely that when you are negotiating for a property, it will happen with the seller's agent or representative — someone who is skilled in deal-making.
To counter that experience, especially if you have little practice, consider hiring a real estate agent. While agents come with a price, their experience can save money. They are well-suited to negotiate with the seller's representative and level the playing field.
4: Face-to-Face Interaction is Important
It is a social media, text-messaging world, but that doesn’t mean you should rely on digital technologies to make a deal. If face-to-face is not possible, consider Skype or other digital video chat programs to simulate an in-person meeting.
A large part to cementing a business deal is trust, and that can be established when sitting across the table from the other party involved. In-person meetings give the parties a chance to know each other. Building rapport goes a long way.
Negotiations are part of getting the deal done. Reaching a win-win solution will not just help your bottom line but will help build solid relationships for future projects.
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