This is Part 3 of a 7 part series designed to help real estate investors grow their acquisition skills to build successful long-term businesses.
Part 1… asks the burning question – are you an Investor or a Stooge?
Part 2 focuses on building an investment strategy from a new angle as an Expert Community Resource.
This article will show you how to negotiate in a way that wins, every time.
What if I told you that there was a real estate negotiation strategy that was incredibly effective, and yet almost no one uses it?
In fact, it’s so underestimated by the business community in general that most executives dismiss it… and then lose valuable deals, employees and clients… and in the worst cases, their jobs. But those executives often have huge “golden parachute” safety nets that guarantee them millions of dollars – even when they’ve done a terrible job.
Unfortunately, as a real estate investor… there is no golden parachute to save you.
If you mess it up, you have to suffer the consequences.
So why take risks with half-baked “strategies” that fail?
I’m going to tell you about a strategy that works every time, for every deal.
It’s about acquisitions – how to get just the right piece of property to grow your investment portfolio.
But first, a key truth that most people – even seasoned investors – often fail to realize:
Money isn’t made when you sell – it’s made when you buy.
I can hear you saying it now – What? Huh? No one makes money from buying… you make money when you turn over the property, when you get the big fat check! Not when you walk into a closing with the big fat check to give over to the seller!
Dead wrong.
Listen, you make money when you acquire a property that’s under market value. I’d take any sellable property at 80% of market value…. Because I instantly have 20% equity! Even if I have to bring 20% in cash to the closing… I’ve already made my money back. Take a look at this example:
Let’s say I can buy 123 Grove Street at $160,000 – and it’s worth $200,000.
Even if I have to bring 20% to the closing, that’s $32,000 – and my equity at the time of purchase is $40,000. So I’m making $8k when I purchase from $32k – that’s a 125% return on investment, folks… beyond better performance than the stock market.
Plus, I can unload that property as fast as I want without losing any money… which gives me a lot of flexibility in trades, refinances, or other ways to creatively make use of that property and its equity.
Wait – I can hear you saying it now – that’s all well and good to make money from discounted properties, but how do I get property for 80% of market value?
That’s where the Ninja Negotiation takes place.
I’m going to tell you about a strategy that is completely unexpected, never used by most investors, and wins every time. Let me be clear – winning every time doesn’t mean that you purchase every property. In fact:
Winning means knowing when to walk away.
So how do you know when to walk away? You’ve gotta know your market inside and out, and you have to be crystal clear about how each purchase matches your investment strategy. It’s cliché, but true….
Knowledge is power.
Local market knowledge is critical to the successful implementation of the strategy I’m about to share. If you don’t have the discipline or focus to do your homework and learn your market inside and out, you’ll get hosed. Hung out to dry. Taken for a ride. Real estate is a tough business, and anyone who tells you different is trying to sell you something.
Look, you have to always consider the source of information that you’re getting. Did you know that the National Association of Realtors is one of the largest lobbying groups in the country? They are also an enormous PR engine. They craft lots of the stories about real estate that you read in major publications…. And they help shift legislation that impacts real estate. These days they seem to be taking the side of banks… who are not necessarily your friends.
Don’t think I’m getting off topic here… I wanted to point out that most of what you read in major media is in-line with the interests of the people who own big companies. That’s not always a bad thing, and I’m not trying to tell you about some grand conspiracy here.
I want to tell you that a critical, overlooked secret to negotiation is really understanding on a fundamental level how value is created… because when you know how value is really created, you can recreate it… in your favor.
Huh?
“Recreate” value?
As anyone who has been in the business for a while knows, if you ask 10 different “experts” what a property is worth, you’ll often get 10 different answers.
That doesn’t mean that they’re giving the wrong answer… just that there may be more than one right answer. Everyone has a perception on value. The idea that “the market” has an exact dollar figure for a specific piece of property is bullshit, pure and simple. It’s worth what you can sell it for, and that depends a lot on your sales and marketing skills.
Poorly marketed property can be a great deal in disguise.
If a great property is poorly marketed, it’s hard for other buyers to find. Please understand – great marketing doesn’t necessarily mean fancy brochures, expensive signs and a video tour. Marketing is about reaching people who want to buy what you’ve got to sell… and helping them to see the value, create urgency, and more.
If an owner (or broker) is doing a crappy job of showing the value of the property, and you’re looking to buy, that works in your favor.
But let’s step back for just a minute…
Do you know the core skill that’s needed to understand how a seller is valuing a property? Most people won’t have guessed it by now, because it’s almost never discussed in real estate… and yet it’s one of the most important negotiation skills.
Empathy is essential to understand another person’s motives.
You have to be able to understand how someone else is thinking and feeling in order to know how they’re valuing a property.
Developing your empathy skills will help you to win at every negotiation – because each negotiation is different. If you want to win, you have to know who you’re dealing with. Of course, the best players are like poker champions or hostage negotiators – they’re almost impossible to read, and they purposefully send out false signals.
But most sellers of distressed property are not poker champions or hostage negotiators. They’re folks who are in an incredibly tough position. They’re looking for help with a huge problem. They want to find someone who they can trust.
Kindness is the most overlooked negotiation strategy.
It sounds so simple and childlike that some of you will think I’m naïve. And that’s ok – those of you who want to try it out yourself will experience some incredible results. If you wanna be a jerk to people, watch and see how many deals you win.
Listen, I can’t tell you how many times I’ve been able to spend a couple of hours with a property owner listening to that person’s life story… and then pay less for the property than other offers on the table just because they liked me more than the folks who were all business.
Real estate is entirely emotional.
Don’t believe me?
Think about where the prices come from… it’s all based on feel.
How does a neighborhood feel? Does it make you scared or safe? Are there fun things to do? Is it stable? How would a 2-hour commute feel? Would the kids do well at these schools? Are there people we like nearby, or will we feel like outcasts?
Think commercial real estate is different than residential?
How will our clients feel when they see our offices? Will our employees be proud to walk in the doors? Does this reflect our corporate culture? Does it give the right impression?
Yeah, of course – price, space, and location make a huge difference. There’s all types of practical considerations that impact any purchase or sale of property… but at the core, you’ll find emotional motivations.
Greed and love are the two biggest real estate motivators.
So before you make any offers on a property, get to know as much as possible about the person or people on the other side of the table. Beyond just simple questions like “why are you selling”, act casual and make conversation. Ask people about their family, their occupations, what they do for fun, and their dreams in life. Find the right balance so people don’t feel interrogated… asking a casual “oh, why’s that?” or “tell me more” will help people feel free to open up to you. Once you get good at this, you’ll find that people will reveal all sorts of incredible information to you.
But one final word of caution…
If you want trust, you must be trustworthy.
Empathy is easy to abuse, because it’s so incredibly powerful. At the core of every person there is a longing for real, genuine connection with other people – that’s called love. Sure, you can take advantage of people to get good deals on property, and you can even make lots of money doing that… but you’ll find out that you’ll get the reputation you deserve.
If you act with pride, honor and integrity, your reputation will grow in the community as someone with whom everyone wants to do business. You don’t have to pay retail for a property to help people feel good – you just have to say, “I’m not comfortable paying over X for this place, but my goodness Ms. T, you sure have such a wonderful home and family.”
Kindness is free, and the rewards are huge.
Coming next… Using empathy to craft an approach to negotiation with specific tips on how to work the transaction towards your ideal price.
