Real estate investing article: Presenting Offers & Negotiating With Sellers

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In any job, there are things that you’re going to like and things that you’re not going to like. Now that I have accepted the fact, for the time being, that real estate is what I “do” and that I currently have no backup plan (which drives me nuts), I have begun the process of ramping up my activity level.

With that increase in activity comes some interesting dynamics. It’s one thing to mail out a few offers or just sign a contract when James Orr sends it over to me on a partner deal. It’s an entirely different thing to be looking at a mailing list of over 2200 people that I am going to mail marketing pieces to this week and face the prospect of actually talking to 10-20 people that are in some sort of bind that requires them to sell their house.

I like doing marketing, I like talking to folks, I like trying to help people out. And I *LOVE* (there’s that word again!) running the numbers. I love seeing how I could possibly make a deal work by running different financing scenarios and using different creative strategies. But here’s what I don’t like: Trying to convince people that, in fact, this is how I would have to structure the deal.

See, the problem is that in a lot of markets, homes are overpriced to the point that what you can collect in monthly rent is insufficient to pay for the property. A lot of investors don’t have a problem with negative cash flow on a property because they’ve been taught over recent that it’s OK - the rapid appreciation will make you your money back. That’s NOT the right way to do it. That’s like buying stock in a corporation and, instead of receiving quarterly dividends, you pay THEM extra money every quarter so that they can balance the books and get out of the red.

So, trying to to convince people that their house is only worth a certain amount because that’s literally all that the house itself can support based on market rents is something I don’t relish. James loves the negotiating and the selling aspect of this business - I definitely do not.

Here are some examples. A property in Florida that I’m working on buying, with James as a partner, is worth about $90,000. The initial contract was for a $62,000 purchase price, but I balked at the $6,000 wholesaler fee (basically a commission to the person that found the house). So, instead of countering with the $58,000 I was willing to pay, James made up a number: $53,750, and countered with that. It was flat out rejected. To him, that’s just part of the fun and games, but for me, it’s embarrassing to make THAT lowball of an offer.

In Provo, Utah, properties within the 3 mile radius around BYU command a slight premium on their price, and here’s why. The norm for student housing in that area is 2 people to a bedroom, so there are often 6 people in a house, or eve 12 people if it’s a legally zoned up/down duplex. Here in Fort Collins, that sort of thing doesn’t fly very well, but in Provo it does. So, with each student paying, for example, $250/mo, that 3 bed/2 bath house is now collecting $1500/mo rent for 8 months a year. Vacancies during the summer are high, but average annual rents are still high enough to bolster the value of that property in the minds of investors when calculating value based on income. But, the value is inflated, because the exact same house outside of the BYU approved housing radius boundary will literally be 20-30% LESS in fair market value. It’s insanity!

As I ramp up my marketing and aim for the goal of doing one or two deals a month, every month, I’m hoping that the volume of activity will itself get me to the point where I am comfortable presenting offers and negotiating with sellers. I’m also hoping that the self-imposed pressure of trying to make a deal work out will go away, just because I’ll have more options to choose from and can afford to be more picky.

For those of you that are in the same boat, I would encourage you to do the same.

About The Author: Jassen Bowman is a Realtor and marketing consultant that specializes in working with real estate investors. As an investor himself, Jassen understands the intricacies of this dynamic field. Please visit www.real-estate.weblaunch.org to sign up for his weekly real estate investor newsletter and download a FREE copy of the full day Retire Young & Rich Via Real Estate audio seminar.

Copyright 2007 - Jassen Bowman. All Rights Reserved Worldwide.