The “Secret Sauce” for Shopping for Rental Properties BELOW Market Worth

Ashley:
Negotiating underlies so many elements of actual property.

Tony:
Studying how one can negotiate can rework the way you shut offers and make offers work in your technique. Good negotiators aren’t good

J:
Salespeople. They are surely folks which might be simply good at constructing relationships, rapport and gathering data, getting that information is energy.

Ashley:
That is the Actual Property Rookie podcast. And I’m Ashley Kehr.

Tony:
And I’m Tony J Robinson, and we need to give a really, very heat welcome to none apart from J Scott. Jay, thanks for becoming a member of us right now, man.

J:
Hey, thanks. I like being on the present with you guys, so thanks for having me again.

Ashley:
Yeah, Jay, why don’t you begin off with telling us just a little bit about your expertise with negotiation?

J:
Yeah, so I’ve been negotiating for a very long time. I began out within the company world. I did tech for some time, really spent a lot of my profession at Microsoft they usually despatched us to some actually good negotiation programs when it got here to enterprise negotiation. So I sort of bought my begin lengthy earlier than actual property after which 2008 jumped into actual property. We flipped about 500 homes. So once you try this, you may have a couple of thousand negotiations. You may have a negotiation on the purchase aspect, you may have a negotiation on the promote aspect that doesn’t embody the hundreds of negotiations with contractors and brokers and attorneys and title firms and appraisers and all people else concerned within the transactions. So yeah, I spotted early on that having the ability to negotiate properly actually could make a giant distinction in your backside line. Even when imply, in the event you save 100 {dollars} on a transaction and also you’re doing 20 or 30 transactions a 12 months that provides as much as hundreds or tens of hundreds of {dollars} over a profession, you possibly can actually make or lose tens of millions of {dollars} by being negotiator or conversely, not being negotiator

Ashley:
For rookies which might be simply beginning out possibly moreover simply buying a deal, who’re another those who for our rookie traders, ought to primarily be centered on studying how one can negotiate with?

J:
Yeah, so in relation to negotiation and all of the stuff I’m going to speak about right now for essentially the most half is relevant to purchasing actual property, promoting actual property, negotiating with contractors, negotiating with different distributors that you just’re going to make use of and even negotiating outdoors of actual property. These are simply common negotiation methods, strategies, no matter you need to name them that’s going to make you a greater negotiator. The factor that each negotiation basically boils all the way down to, properly, two issues that each negotiation basically boils all the way down to. Primary is rapport. So having rapport with the individual or folks on the opposite aspect of the transaction and two data, there’s a saying that he who has essentially the most data goes to win the negotiation, and I discovered that that’s very a lot true. Data is energy, and the extra data you may get, the higher you’re going to carry out in that negotiation by way of giving the opposite occasion what they need and also you getting what you need. So we are able to speak about these, nevertheless it mainly boils all the way down to rapport and knowledge and there’s lots of methods outdoors of that, however these are the 2 huge ones.

Tony:
Jay, let me ask one factor simply to sort of set the desk. I don’t need to lose half of our viewers right here earlier than we even get began, however in your perspective, do you are feeling that it’s essential to be an extrovert to be good at negotiation?

J:
That’s a fantastic query and I in all probability ought to have began with that. I began negotiating once more within the company world, however on the time I did, it was actually, actually tough for me. I’m an introvert. I’m a former engineer. I spent my first profession as an engineer. I don’t like speaking to folks I don’t like I doing a podcast like this. I’m used to doing it and I’m sort of placing on a courageous face and performing right here just a little bit as a result of that is robust for me. I’m an introvert and speaking to folks and negotiating, and I’m not a gross sales man. Asking folks for stuff is de facto onerous for me. And so it has taken some effort and time and power to get good at it, however very a lot negotiation is sort of a muscle. The extra you employ it, the stronger it will get and the extra issues begin to come naturally. And what you understand is sweet negotiators aren’t good salespeople. They are surely folks which might be simply good at constructing relationships, rapport and gathering data. Getting that information is energy, and so it doesn’t matter in the event you’re an extrovert, it doesn’t matter in the event you’re an introvert, so long as you’re good at constructing relationships and so long as you’re good at gathering data.

Ashley:
Jay, let’s get into it then. What are a few of the issues {that a} rookie investor ought to do throughout a negotiation? What are a few of the techniques?

J:
Yeah. Effectively, first let’s discuss just a little bit about why negotiation is so vital in actual property. And I discussed that negotiation is sort of common and we’ll use it in all the pieces we do. However in relation to shopping for and promoting actual property, there’s a number of issues that make negotiation and good negotiation far more vital than lots of issues that we’re going to do. Primary, the sum of money concerned once you’re shopping for or promoting a home, you’re spending what’s probably the most important funding of your life. Extra importantly, the individual on the opposite aspect of the transaction is probably negotiating with the most important sum of money they’ve ever negotiated with. And they also’re clearly going to be extra on guard. They’re going to be extra conscious of the negotiation and extra severe in regards to the negotiation than in the event that they have been negotiating a trinket in a retailer.
So the sum of money concerned simply makes all people just a little bit extra on edge, all people just a little bit extra astute and attuned to what’s occurring. Quantity two is simply the timeline. If I stroll right into a automobile dealership, I’d spend a number of hours, possibly even I come again for over the course of a pair days to barter a automobile, or I am going right into a retailer out of the country and I negotiate over a trinket or some product. These negotiations final minutes or hours, possibly at most a day or two. However in relation to actual property, we’re speaking a couple of negotiation that lasts actually 30, 60, even 90 days if we’re doing a giant transaction, which implies there’s lots that may go fallacious. Simply since you and I come to an settlement right now doesn’t imply that certainly one of us isn’t going to vary our thoughts per week from now, or some circumstance goes to occur per week from now that causes us to must renegotiate.
And so once more, constructing that relationship, having that rapport, constructing belief between the events is tremendous vital as a result of we’re speaking about actually weeks or months of holding the negotiation collectively. Quantity three, I simply talked about the renegotiation factors in actual property. We have now lots of completely different conditions the place we may have to come back again to the desk even after we’ve come to an settlement. So for example, we get our inspection report again and we discover that the inspection comes again with some issues that we’re not pleased about. Effectively, we’d have some contingencies that enable us to now reopen negotiation and negotiate repairs or negotiate value concessions. If that negotiation and that unique settlement wasn’t sturdy, it’s simple for the negotiation to crumble at that time. Numerous causes we could have to renegotiate. And if we don’t have a robust relationship with the opposite occasion, it’s very simple for the negotiations to crumble throughout the first, second, third, or fourth negotiation within the course of.
After which lastly, there’s this, realistically, there are going to be a number of intermediaries in each actual property transaction. It will be nice if all the pieces concerned simply the customer or vendor, however lots of actual property negotiations and transactions contain brokers, not only one agent, however possibly an agent on each side, title attorneys or title brokers, attorneys, lenders, appraisers, inspectors, all of those folks sort of on one aspect or the opposite which might be going to affect the negotiation. And so in relation to actual property negotiations, it’s much more difficult. It’s lots longer course of, much more issues can go fallacious, and because of this it’s so vital to be good at negotiating actual property. Now, that didn’t reply your query. Your query was what are some methods and techniques we are able to use? Effectively, I discussed the primary, and the primary actually is the power to construct rapport.
If I’m going to persuade any individual to do the most important transaction of their life, the very best priced negotiation of their life, I’m going to need them to belief me When any individual trusts me. It’s lots simpler to come back to an settlement than when any individual sort of seems at me like an adversary. And too typically after we go right into a negotiation, we take this perspective, I imply, we watch The Apprentice or we watch no matter TV present talks about these excessive value company negotiations, and we see these sharks coming collectively and utilizing these methods to outwit one another. In actuality, the perfect negotiations are two those who belief one another and like one another and wish the opposite individual to get deal on the similar time that they get deal. We don’t have to be using these complicated methods or these hard-nosed techniques that try to trick the opposite aspect or attempt to undermine the opposite aspect.
Ultimately, what we would like is we would like the 2 sides to come back collectively and mutually attempt to discover options to the issues. And so how can we try this? We construct a relationship, we discuss to the opposite aspect. We don’t go in on day one with the, okay, right here’s my supply. You go in on day one with, Hey, inform me about your self. Inform me about your loved ones. Inform me about why you’re promoting this home. Inform me what you’re going to do subsequent. My spouse, who I actually, she’s the one which ought to be doing this present proper now as a result of she wrote the guide with me, the guide on negotiating actual property. And in our enterprise, she does lots of the negotiation. She is going to by no means present up at a vendor’s home or assembly a purchaser with out espresso, with out donuts, with out bagels, simply mainly one thing to construct that relationship, construct that rapport, and open up the strains of communication.
And it is perhaps a half hour, an hour, three hours earlier than it goes from sitting down and having a cup of espresso to truly speaking in regards to the negotiation. As a result of once more, it’s all about constructing a relationship in order that by the point you do begin speaking about cash, the opposite aspect’s like, I like this individual. I belief this individual. I’m okay doing this cope with this individual. I’m okay with this individual getting a half million {dollars} for his or her property, or them giving me a half million {dollars} for my property as a result of I like them. And so once more, constructing rapport data is the second piece that I talked about. And data is vital as a result of in relation to actual property, too many individuals suppose that everyone needs the identical factor. And that is a part of the rationale why most actual property negotiations fail. If I make a proposal on 100 properties tomorrow, it’s doubtless that 95% of them aren’t going to go wherever.
And the rationale for that’s as a result of each side doubtless have the identical targets, and that objective is cash. If Ashley, I’m negotiating a cope with you and all you care about is getting essentially the most cash, and as a purchaser all I care about is getting the perfect deal and paying the least sum of money, we’re by no means going to come back to an settlement. There’s no means that you may obtain essentially the most cash and I pays the least cash on the similar time. And so the best way these negotiations work, the profitable ones, is we work out what’s it moreover cash that the opposite individual needs. And there’s not at all times that the opposite aspect needs one thing apart from cash. As an investor, lots of occasions it truly is simply in regards to the cash, however in lots of instances, we are able to discover one thing apart from cash that motivates the opposite aspect. And if we are able to discover that factor fairly often, we are able to get a greater deal as a result of the opposite aspect’s keen to surrender cash to get that factor that they actually need or that they actually need.

Tony:
Jerry, what a refreshing tackle negotiation as a result of I believe for lots of people once they hear negotiation, they do suppose sort of old skool gross sales techniques, excessive stress conditions, however the best way that you just’re taking a J the place it’s a concentrate on, Hey, what are your motivations? What are you making an attempt to get out of this and the way can we strategy this? So it’s a win for each of us. I believe it’s such a refreshing take and it takes away a few of that stress that rookies would possibly really feel when they consider negotiating.

J:
Yeah, I believe certainly one of my favourite tales about negotiate, in all probability again in 2010 or 2011, my spouse and I, one Sunday morning, we get a name from our closing legal professional who mentioned, my spouse and I have been strolling round our neighborhood they usually’re doing this property sale. Apparently a lady died in the home they usually’re promoting a bunch of stuff, and I don’t know in the event that they’re trying to promote the home or not, however simply wished to let you recognize that there’s a home in our neighborhood that they’re doing an property sale and I don’t know what’s occurring. And so my spouse and I have been like, properly, we have been mates with our legal professional and we mentioned, we haven’t seen you guys shortly. We’re going to come back up and say hello, however we’re additionally going to make use of it, a chance to cease by the home and see what we are able to find out about it.
So we get to the home, my spouse finds the girl that’s working the property sale. It seems it was the daughter of the girl that handed away who owned the home. And my spouse is speaking to her and mainly mentioned, Hey, are you trying to promote this home After some time? She mentioned, are you planning to promote the home? And the girl was like, possibly in some unspecified time in the future, however I’m not prepared to consider that but. And my spouse’s like, no downside. Simply let you recognize we’re traders. For those who’re ever fascinated with promoting or I’m an agent, I’m a dealer. For those who simply need data or if there’s something I will help you with simply sincerely making an attempt to be good, simply let me know. And the one was like, thanks. I actually recognize that. They exchanged data. A pair months later, I believe my spouse dropped a card in her mailbox, didn’t hear something in return, we added her to our Christmas card listing. It was about 18 months later that apparently my spouse simply despatched her a Christmas card, and it was someplace across the two 12 months anniversary that the girl’s mom had died. And my spouse was identical to, I hope you’re doing okay at this tough time.
Simply merry Christmas and simply left it. At that time, we had resigned ourselves. This girl’s not going to promote the home. We weren’t trying to purchase the home at this level, my spouse had simply made a good friend and was being good. And a pair weeks later, the cellphone rings and it’s the girl. And he or she’s like, it’s been two years since my mother died. You’re actually the one one which reached out and even talked about it to me and requested how I used to be doing, and I don’t even know you. And I simply thought it was the sweetest factor, and it made me understand that it’s in all probability time for me to promote this home. Are you continue to fascinated with shopping for it? And we ended up shopping for that home, and my spouse and that girl ended up being mates for a very long time, nevertheless it actually was, we have been not within the mindset of it is a negotiation that we’re making an attempt to get deal on this home was at this level, we have now a relationship with this individual. We’re sustaining that relationship. And simply naturally out of that relationship got here this chance. And so what we discovered is the perfect alternatives that we’ve gotten over time have simply come from these relationships the place there was no expectation that we have been making an attempt to purchase one thing or promote one thing.

Tony:
What an unimaginable story, Jay. And I believe it simply goes to indicate that once you put the connection over the income, good issues are likely to occur. So I like listening to that story. So we’re going to take a fast brief break right here, and after we get again, we’re going to ask Jay what he’s doing in right now’s market to have a aggressive edge when negotiating offers. Now whereas we’re on the brief break, we would like you guys to move over to your BiggerPockets profile, go to your settings and activate notifications for the Rookie e-newsletter. Sure, that’s proper. We now have a weekly e-newsletter devoted to rookies to present you extra data on investing in actual property. We’ll be proper again after this fast break. Alright guys, we’re again from our brief break with Jay Scott once more, the writer of the guide on Negotiating Actual Property from BiggerPockets. You could find his guide at biggerpockets.com/bookstore. So Jay, what are a few of the issues that Ricky’s might do right now to actually sharpen their negotiation expertise? We all know that after we’re underwriting properties, we are able to observe by simply analyzing a bunch of offers. What’s the equal to that in negotiating actual property? How will you observe to try to get higher?

J:
So primary, negotiate all the pieces. This was in all probability the most important lesson I discovered once I took that top value negotiating course that Microsoft paid for once I was working there. Our homework project, it was a multi-day class, and our homework project each day was mainly go cease someplace after the category and negotiate whether or not that’s McDonald’s, that’s Goal, someplace the place you by no means think about you may probably negotiate one thing and go in and try to negotiate one thing. Like in the event you’ve by no means walked into McDonald’s and tried to barter down the value of a Huge Mac, it actually forces you to get out of your consolation zone and also you will not be profitable. However what you understand is that no one’s going to take out a gun and shoot you only for suggesting that you just would possibly get a reduction on one thing and it makes you comfy with the thought of studying to ask.

Ashley:
I’m terrified already pondering of that.

J:
Lemme let you know one thing, I’m nonetheless afraid of pondering it, however I’ll do it now as a result of I’ve performed it earlier than and I’ve performed it sufficient occasions simply to observe and simply to indicate different those who it really works in relation to simply constructing that confidence that it takes to have the ability to ask for what you need. However in all probability the most important lesson I’ve discovered over time on this enterprise is that too typically we don’t get issues as a result of we simply are too scared to ask for them. And oftentimes individuals are pleased to say sure, and even when they’re not pleased to say sure, oftentimes folks will say sure simply out of obligation as a result of they owe you one thing or as a result of they’re too uncomfortable saying no. And I’m not saying we must always essentially make the most of folks, however I’ve no downside asking any individual one thing. And if they arrive again to me they usually say, Hey, yeah, I suppose I’ll try this.
And I do know that they’re little uncomfortable, however they’re doing it simply because I requested, nice. If I hadn’t have requested, they wouldn’t have performed it. And so the very first thing that I’d say to all people is don’t be afraid to ask. I do know folks that may go and take a look at 100 homes and make affords on 5 of them as a result of the opposite 95, they really feel like I’d have to supply so low that I’m not going to insult them. Effectively go insult them. What’s the worst that may occur? Go supply 25% of the listing value on this home. The worst that’s going to occur is that they’re going to say no. And lemme let you know one thing. You do {that a} hundred or 200 or 500 occasions, it solely takes one individual to come back again and say, properly, possibly we are able to make this work and it’ll make all these occasions they mentioned no value it since you’ll make sufficient cash on that one deal. So the most important piece of recommendation I’ve to all people is get used to asking, get used to throwing it on the market as a result of the worst any individual can say isn’t any. And extra typically than you count on, they’re going to say sure or they’re going to open up a negotiation.

Ashley:
And there’s additionally going to be that one individual pleased that you just threw in that low ball supply. I’ve a property now that’s been sitting for 2 months. It’s had a ton of showings, however zero affords. Actually. If somebody provided me a low value, I’d promote it. It’s been a vacant property, we by no means did something with it and go forward and make a proposal. I’ll in all probability say sure and I can be pleased about it though it’s means lower than what it’s listed at.

J:
Yeah, Ashley, you and I have been speaking about this earlier than the present began, a narrative that I’ve instructed earlier than. I inform it within the guide, and I believe it’s a very vital story of a home that we have been and the girl that we went to speak to and she or he wished to promote the home, we made a proposal, it was a low supply and she or he didn’t need to take it. And we requested if anyone else had provided on the home and she or he was like, yeah, we’ve had lots of people take a look at it, lots of people make affords. And we’re like, properly, has anyone provided near what you need? Yeah, a pair folks have provided near what we would like. And we began digging in like, properly, if individuals are providing the sum of money you need, why haven’t you agreed to promote it to them?
And after actually digging in and asking open-ended questions and making an attempt to get to the foundation of what was occurring, what we discovered was this girl had lived on this home for about 70 years. She was born in the home, she grew up in the home, her children grew up in the home, her grandkids grew up in the home, and she or he was lastly, after some 70 years of residing on this home prepared to maneuver. She didn’t know how one can transfer. She didn’t know the method of getting her stuff from the place it was in that home to the place she wished to maneuver, which was in along with her children in one other state. And as soon as we realized that, we realized this has nothing to do with the cash. She’s pleased to promote this home to us for properly beneath what she’s asking if we are able to clear up her actual downside, which is her concern of making an attempt to determine how one can transfer.
And on the finish of the day, what we instructed her was, look, we’ll care for this for you. We’ll rent a good firm. We’ll allow you to decide the corporate to rent. We can have them come. They’ll pack up your stuff. They’ll put it in a truck, they’ll drive the truck to your child’s home, they’ll unload it on the opposite aspect. You don’t have anything that you just’ll have to do. And after we mentioned that her response was, oh, properly yeah, let’s do that, as a result of we had solved her actual downside. Her actual downside wasn’t that we weren’t providing sufficient cash. Her actual downside was she was scared to undergo this means of shifting. And so as soon as we bought to the idea of what the issue was, we knew we might clear up that downside. And that’s how actual property negotiations or any negotiations are profitable, you determine what downside the opposite aspect has apart from cash and also you clear up that downside. And if you are able to do that, you possibly can usually get the factor you need for much less cash than you in any other case might.

Tony:
Jay, I believe the most important problem or false impression that Ricky’s have is that they don’t perceive the ability of trying to find a no in negotiations. They’re so afraid of listening to the phrase know that they shut themselves off to alternatives. And I used to be actually simply speaking with some rookie traders, I believe it was earlier this week, however they arrive to me, they mentioned, Tony, we’ve been searching for offers. We will’t discover any good offers, and right here’s a property that we’d like, however they’re simply asking an excessive amount of. I mentioned, properly simply supply no matter quantity makes essentially the most sense for you. Who cares what they’re asking for? Simply supply it your quantity. The itemizing value was half one million bucks. They provided at $400,000. The sellers countered, I believe at 4 70. The consumers recounted, I believe at like 4 20, the vendor recounted 4 35 and now they’re underneath contracted 4 35. The one means that they get there may be if they’ve the braveness to submit a proposal that’s so low that the vendor goes to reject it within the first place. However so many individuals have been afraid of that first. No, they by no means get there.

J:
And the loopy factor is that consumers in all probability sitting there pondering, wow, I ought to have began at three 50 and I in all probability might have gotten it for 400 though. And in order that’s a part of the difficulty that lots of us have isn’t just that we’re scared to barter, however after we do negotiate, we’re frightened of insulting the opposite aspect. I typically get requested the query, if I’m going to make a proposal on a property, the place do I begin? How do I decide that first quantity? And my reply is, you must decide the quantity that’s as little as doable that received’t have the opposite aspect stroll away. If any individual’s promoting one thing for $500,000, and I believe if I supply them $300,000, they’re going to stroll away. But when I supply them $301,000, they’re going to be insulted, however they’re going to begin to negotiate, then $301,000 is my beginning place. I need that quantity the place I don’t care in the event that they’re insulted so long as they don’t stroll away. And it may be tough to search out that quantity. However let me provide you with a secret. That is how you discover what that quantity typically is. You determine how a lot they owe on their mortgage,
You determine that quantity that in the event you pay them this quantity, they received’t have to come back to the closing desk with any cash out of pocket. Usually, that’s the lowest level the place you’ll in all probability nonetheless insult them, however they’re not going to stroll away since you haven’t requested them to truly put up any extra cash to promote this property. And so one of many issues that we do after we’re trying to purchase a property is we do as a lot analysis as we probably can to try to work out how a lot they owe on the property. And lots of occasions that simply entails going and looking out in public information saying they bought a property 4 years in the past at 7% rate of interest at this amortization. And then you definitely stick that in a calculator and also you say, okay, right now they in all probability owe 8,000 lower than that. That’s my beginning quantity. And also you’d be shocked the variety of sellers that we make a proposal to, they usually’re like, wow, that’s mainly precisely what I owe on the property. And I’m identical to, oh, wow, that’s superb. However that’s typically that lowest quantity you can begin with the place they is perhaps insulted, however they’re not going to stroll away. And that’s the quantity that I need

Ashley:
With that discovering the mortgage quantity or estimating it, there’s sources too, like prop stream.com is one the place they’ll really estimate it for you primarily based on once they bought their mortgage, what number of years it’s been, what their month-to-month fee is simply too. So you need to use completely different web sites like that to assist together with the county information.

J:
And you may simply ask the vendor. I imply, it’s not unreasonable to say, Hey, seems such as you’ve been on this home for 15 years and the way a lot they purchased it for, as a result of you possibly can in all probability look on Zillow or in public information to see what they purchased it for, and also you simply say, have you ever refinanced all of it within the final 15 years? If they are saying no, properly, they in all probability purchased it for 80% of, or they bought a mortgage for 80% of no matter they purchased it for. And you may work out what the rate of interest was 15 years in the past and you’ll ballpark it your self. You’ll be able to usually get fairly shut. However yeah, there are many instruments on the market that may assist you to with that as properly. However

Tony:
Yeah, I believe the vital factor of what you’ve mentioned right here, which I don’t need to get misplaced in our rookies, is that being curious as you’re going by means of the negotiation section might be one of the vital issues that you may concentrate on. Much more so than like, Hey, what’s the one approach to actually persuade somebody? It’s identical to in the event you can ask questions and take heed to responses and ask extra open and knit questions and get deeper into their motivations, that’s how you actually construct a few of that connection and that rapport and provides your self a chance to barter in the precise means.

J:
There’s an individual in the actual property world, his identify is Pete Fordo, and lots of youthful people or newer people within the enterprise in all probability have by no means heard of him, however for anyone that’s been round for some time, he was, let’s see, what’s the perfect analogy? He was the Grant Cardone or the Brandon Turner of the Seventies actual property. Everyone knew who he was. He was the individual all people listened to and all people would go to his seminars and watch him converse. And he’s nonetheless round, doesn’t reside too removed from me, however he was sort of just like the king of artistic deal making for the final 30, 40, 50 years. And he has a saying when he walks right into a home, he’ll go searching, get a giant smile on his face and say, why would you be promoting a property as good as this? Principally sending the message to the opposite aspect that that is nice.
That is superior. Why would anyone need to be eliminating this? You’re now opening the door to the opposite aspect, mainly telling you their life story, however in a means that you just didn’t insult them saying, oh yeah, okay, nice. Why are you promoting? No one needs to listen to, why are you promoting, however why are you promoting a phenomenal home like this? Oh, properly, thanks for saying that. Let me let you know what’s occurring. And so lots of people use that as a joke now once they see Pete, why would you promote a phenomenal home like this? However the actuality is, in case you have no higher opening line, it’s a improbable one.

Tony:
Now Jay, we’ve bought to take our final app break right here and Ricky’s, earlier than we do, we need to just be sure you guys have the chance to get the perfect low cost on BP Con 2025 tickets in Las Vegas. Look, even Jay’s negotiating techniques received’t get you something cheaper than what the costs are at proper now. So head over to get biggerpockets.com/convention to safe your tickets to come back study with like-minded traders, and we’ll be proper again after this. All proper guys, welcome again. We’re right here with Jay. So Jay, one factor that I need to simply drill down on actually rapidly in sort of a tactical sense for the rookies, how precisely can I discover the motivations of the vendor? I do know we talked about curiosity. I do know we talked about sort of peeling again these layers, however possibly what particular questions can I ask to higher perceive what’s really driving this individual to promote their residence?

Ashley:
And Jay too, in the event you might sort of contact on in the event you’re not even in touch with the vendor, in the event you’re utilizing an agent, what are a few of the methods to sort of determine this out too by means of any individual else?

J:
So let me begin with the primary query as a result of the second, Ashley’s query’s just a little bit more durable, however let me begin, Tony together with your query. For those who’re speaking on to the vendor, and after you have that rapport, and also you’re not going to insult them with this query, my favourite query is actually saying, what do you intend to do with the cash that you just’re going to get out of your sale? Which is a a lot completely different query than the place are you shifting or what’s your subsequent home going to be? Since you’re going to get lots of completely different solutions that you just may not count on. It is perhaps, properly, my daughter’s getting married subsequent month, and I don’t know if you recognize something about weddings, however they’re fairly costly now. Okay, they’re planning to make use of that cash for a marriage. Or possibly they’re utilizing that cash to place their little one by means of school, or possibly they are saying, haven’t fairly figured it out.
We’re going to lease for a number of months, and so in all probability simply going to throw it in a financial savings account for a number of months till we work out the place we need to transfer. Effectively, all of the sudden now you recognize that they don’t have anything higher to do with that cash, and possibly you’ve now opened up the door to a vendor financing supply. Oh, nice, you’re going to throw that right into a financial savings account making 1%. What if I might assist you to make seven or 8% on that cash? Would that be one thing that’s engaging to you? And in the event that they go, oh, wow, I could make seven or 8% on my cash. Yeah, let’s speak about it. And now you’ve probably opened up the chance for a vendor financing deal. So yeah, so asking the query, what do you intend to do with the cash is an effective way to determine what their motivation is as a result of that’s mainly going to let you know precisely what they want the cash for.

Ashley:
Jay, once you ask that, how many individuals have mentioned to you, that’s none of what you are promoting?

J:
I’ve had a number of. I’m not going to lie. However that is the rationale why constructing that relationship first is de facto vital as a result of that query can come off lots otherwise in the event you’re speaking to any individual that you just’re in an adversarial negotiation with and any individual who you’ve despatched the message, I’m right here making an attempt that can assist you. You’re making an attempt to promote your home, I’m making an attempt to purchase your home. Let’s work out how one can make this work as a result of I do know you don’t need to be right here any longer than you need to, and I actually would love to purchase this home. So I imply, what do you intend to make use of the cash for when if we are able to get this deal performed? That didn’t sound as dangerous as, okay, guidelines, what are you planning to make use of the cash for an, you mentioned

Ashley:
It’s solely been a number of that you just’re not offending nearly all of folks once you’re

J:
Precisely. And most people which have mainly refused to reply that query, they haven’t been impolite about it as a result of the best way I ask it isn’t in a means that’s accusatory or being impolite within the first place. Once more, it’s a part of that complete dialogue, Hey, I do know you need to promote. I’d actually love to purchase. Are you able to give me an concept of what do you intend to do with the cash? And actually if it comes off that means, it doesn’t sound dangerous and it’s not going to set off a destructive response.

Ashley:
So now what’s the perfect strategy if you’re utilizing an actual property agent or going by means of any individual else, and even worse, you may have two brokers. You’re telling your agent, they’re telling the opposite agent and the agent, and also you’re mainly paying phone by means of this complete course of. What’s sort of the perfect technique there?

J:
And that may be actually, actually tough. It’s really one of many the explanation why I at all times suggest that in the event you’re going to do that enterprise full-time over an extended time period, take into account getting your actual property license or having a partner get an actual property license or having a companion get an actual property license as a result of it actually does provide you with much more management. Everyone thinks that getting an actual property license is nice since you make more cash. I don’t must pay the three% on the gross sales aspect, or I get 3% once I purchase. The truth is that my spouse is a dealer, I’m licensed, and we nonetheless pay any individual to listing our properties and we nonetheless pay any individual to symbolize us after we’re shopping for a property. We don’t care in regards to the 3% on the purchase aspect or the promote aspect, however the truth that we’re licensed implies that we are able to discuss to the opposite agent ourself, we are able to discuss to the inspector, we are able to discuss to the appraiser, we are able to discuss to the lender.
And there’s nothing fallacious with that as a result of we’re licensed, we’re representing ourselves. Shopping for or promoting this property doesn’t imply we essentially can discuss to the vendor if they’ve an agent. And I do know folks disagree right here. I’ve no subject with going to the vendor’s agent and saying, Hey, do you thoughts if I’ve a cellphone name together with your vendor or on the opposite aspect? Do you thoughts if I’ve a cellphone name together with your purchaser? Numerous occasions they’re going to say, no, I’m not comfy with that. Typically they’ll say, properly, let me ask my vendor or my purchaser. Typically they’ll say, I’m okay with that so long as I’m there. And you need to be just a little bit extra cautious with what that dialog entails. Once more, you don’t need it to sound such as you’re negotiating straight, but when they are saying sure in any capability, it provides you the chance to ask these questions.
Even when they are saying no, nothing fallacious with saying to the agent, Hey, are you able to give me an concept of why they’re promoting now? Looks as if a bizarre time to be promoting on this market, and we’re simply curious what their motivation is. A great agent’s going to say, I’m not going to ask and I don’t care. However loads of brokers on the market can be like, I’ll ask. I’ll let you recognize what they are saying. So once more, can’t damage to ask. The opposite factor is I’ve seen lots of people who will write letters to the vendor or to the customer, and most of these occasions, these letters undergo. Now in a sizzling market, all people’s writing letters, Hey, my household would like to reside in your home. We’ve bought three children. One goes to this college, one performs the piano, please decide us. Okay? I imply, in the event you’re doing a type of issues, you’re in all probability not going to get picked.
However I imply, there are alternatives so that you can mainly ship a letter saying, Hey, let me let you know just a little bit extra about what we’re going to do together with your property. Let me let you know just a little bit about how we will help you. If there’s some explicit downside that you just’re trying to clear up and cash’s not going to resolve it, come again and let’s speak about it. Once more, it’s opening up the strains of communications. And lots of occasions you are able to do that even with one other agent obtainable by simply saying, Hey, are you able to go this letter on to your vendor, to your purchaser? And lots of occasions they may.

Ashley:
I really had any individual write me a card asking to purchase a duplex, and on the time, I had owned it in my private identify, and it was proper sort of when the rookie podcast began and the individual mentioned, we love the podcast. So are you interested by promoting your duplex? And it was an image of him and his girlfriend and their canine, and I ended up assembly them a number of years later at a BiggerPockets convention. But it surely was a memorable second that if I have been to promote, I’d keep in mind them. Out of the texts I get, the chilly calls I get from factor was that non-public contact.

J:
For those who bought two equal affords and certainly one of them was for a half, a p.c much less, a thousand {dollars} much less, $2,000 much less, however any individual despatched a observe like that, you’d in all probability take their supply though they have been much less. So one thing like that may actually make a distinction. And that goes again to what I used to be saying initially, it’s constructing rapport, it’s constructing belief, it’s constructing a relationship. It’s making you are feeling like we’re not simply two adversaries in a negotiation. We’re two folks which might be making an attempt to assist one another clear up our issues.

Ashley:
So Jake, sort of a follow-up query right here so far as that being certainly one of your methods, a private contact, what are some issues that you’re doing to have a aggressive edge going into the 2025 market?

J:
Yeah, it’s a troublesome, robust query. Sadly, as of late, lots of it’s a numbers recreation as a result of there are such a lot of folks on the market which might be competing for a similar properties, however that is the place you may have the chance to face out. I do know folks which were very profitable with door knocking as a result of once more, they’re going to be lots of people who in the event you present up at their door and any individual’s randomly knocking on their door, they’re not going to be pleased. They’ll name the police, they’ll stroll out with a gun. However there are different people who find themselves identical to they’re starred for consideration. They love the concept any individual’s knocking on their door, they’ve any individual to speak to, and that’s a private contact that you just’re not going to get from sending a letter or making a chilly name or placing up a bandit signal.
And I do know lots of people which might be very profitable with door knocking as a result of in the event you discover the precise individual, an older one that’s lonely, who’s simply searching for any individual to speak to, you could discover that needle on a haystack and have a bonus over different folks. The opposite factor is de facto simply constructing long-term relationships. So too many people, after we take into consideration a negotiation, we take into consideration a one-time factor. We expect, okay, how do I get this home with out fascinated about the truth that even when I can’t purchase your home right now, even when there’s no means this transaction’s going to work out, there’s nonetheless a ton of worth in us persevering with to construct this relationship. Tony, if I am going and also you’re promoting a home and I say, Hey, I’ll provide you with 300,000 in your $400,000 home, and also you’re like, yeah, no matter. I’m positive I can discover any individual to present me greater than 400,000.
Thanks anyway. If I stroll away and I say, no downside, I perceive I’m an investor. I understand that you just don’t have to promote to an investor. I figured I’d give it a shot, however do me a favor in the event you meet anyone or in case you have any mates that wish to promote a distressed property that they actually would profit by having an investor, let ’em know that I’m right here as a result of I’m at all times pleased to speak to ’em. And so now in your thoughts, I’ve now seated, Hey, if I ever talked to anyone that’s searching for an investor, this Jay man appeared very nice. He low-balled me, however on the finish of the day, he was sincere. He mentioned, Hey, it’s not going to work out. After which he left his card. Chances are you’ll refer me in the event you try this. I could not hear from you Tony subsequent 12 months or the 12 months after, however who is aware of, 5 years from now, you could discover any individual that I’m the right match for. And if I left that relationship on observe, if I left the door open to working collectively in some capability sooner or later, you try this sufficient occasions and there’s going to be sufficient open doorways that individuals are going to be strolling by means of ’em on a regular basis.

Tony:
Jay, this anecdote you shared sort of makes me consider one other query since you mentioned like, Hey, you provided your quantity. They mentioned no. You sort of shake your palms and stroll away. I suppose, when do you that it’s time to truly finish a negotiation? Is there a marker or some extent the place you’re like, Hey, this isn’t going wherever. How are you aware when to maintain pushing versus pulling again?

J:
And lots of occasions it’s apparent. Once more, in the event you can’t decide a motivating issue apart from cash and the bottom value that they’re going to throw out there may be increased than you possibly can pay, there’s no motive to proceed. If Tony, you mainly say to me, I don’t have to promote this home. I simply see a chance to promote as a result of it’s a fantastic market. I really feel like I can get greater than what it’s realistically value, and all I care about is making essentially the most cash, and I imagine you, I imagine there’s no different motivating components for you. At that time, I’m going to say, okay, what’s the bottom you’ll promote it to me for? And if that quantity is simply too excessive, we’re not going to come back to an settlement as a result of all we each care about is cash. And after we each need the identical factor, there’s not lots of wiggle, wiggle room.
However once more, if yow will discover one other motivating issue, if yow will discover one thing else that they care about. So possibly it’s, Hey, I’d actually like to promote my home right now, and I is perhaps keen to promote it for just a little bit much less, but when I promote you my home for lower than 400,000, I’m not going to have the ability to discover one other place to reside as a result of each different home I need to purchase goes to price me 400,000. Okay, nice. Promote it to me for 3 50 and I’ll allow you to reside right here free for the following 12 months. That offers you a 12 months to search out one other place. Possibly costs will drop, however you now have your $350,000 that you may go begin doing what you need, and also you don’t have to fret about the place to reside for the following 12 months. You don’t have to fret about shifting.
You don’t have to fret about taking your children and placing ’em in a unique college. You’d be shocked how typically the I’ll purchase your home for lower than you need to promote it for, however I’m going to allow you to reside there free of charge for some time period works. And it could in the end end in on the finish of that time period you say you don’t need to transfer, nice. I want a renter for this property. Anyway, let’s speak about you renting again the property that you just’ve been in for the final 10 years, and also you don’t have to depart in any respect. So there are alternatives to get artistic, however once more, it’s principally going to work when the difficulty isn’t just cash.

Ashley:
Effectively, Jay, thanks a lot for becoming a member of us right now to have the ability to give everybody this superb information to negotiating actual property. Are you able to let everybody know the place they’ll attain out to you and discover out extra details about you?

J:
Yeah, completely. For those who go to j scott.com, the letter J-S-C-O-T t.com, that’ll hyperlink you out to my electronic mail tackle and all the pieces else I’ve occurring and would love to listen to from you.

Ashley:
Jay additionally wrote the guide co-authored along with his spouse Carol, the guide on negotiating actual property that yow will discover within the BiggerPockets Bookstore. And likewise if you wish to study extra about negotiation techniques, we’re going to have our keynote speaker for BiggerPockets Convention this 12 months can be Chris Foss, writer of By no means Break up The Distinction. So head on over to biggerpockets.com/convention, and you can even discover Jay on the Drunk realestate Podcast too, certainly one of my favourite podcasts to take heed to. So in the event you’re fascinated with studying extra about economics, market updates and actual property investing, be certain to take a look at his podcast. I’m Ashley. And he’s Tony. And this has been an episode of Actual Property Rookie.