Negotiation, the Key to Closing the Deal.

Once you begin to find the deals, the key to actually closing them is the ability to negotiate. It all starts by making offers. If the sellers are really motivated to sell, you need to understand their motivation. In most cases, these sellers are moving the property to solve a problem. Your job is to help them solve that problem, and tailor your offer accordingly. I have bought several properties by keying into what the seller really wants, like money to move or a flexible move date. If you can help them solve their problem, they will be grateful to you and may concede on a term or price that you thought unattainable. You buy at steep discounts and the seller is happy about it. That is what creative real estate investing is all about. Many sellers, particularly distressed sellers, have other 'hot buttons' besides top dollar for their property.

1. Don't Feel Guilty! This is especially true if you are negotiating with a financial institution. Remember, you are helping them solve a problem. Whether that problem is financial or otherwise, you are offering a solution that will benefit the seller. You are not taking advantage of them or their situation. You are trying to make it better in a way that will benefit both of you. If it won't benefit the seller, or if they don't want to do it, they won't accept your offer. If they do accept your offer, it is because they wanted to. That's all there is to it.

2. Be Confident and Know Your Position If you feel confident about your offer, it puts you in a position of strength. Collect the critical information you need to formulate an offer (See my other guides on cold calling). By collecting this information up-front, you can create two or three possible buying scenarios before you even meet with the seller for the first time. On the other hand, if you are unsure, and you let it show, it puts the seller in a position of strength. If you are strong and sure of yourself, they are more likely to offer concessions in order to make the deal work. After all, you are the expert and you are hitting their need. At the same time, know your limits. Establish your breaking point beforehand so you know when it is time to walk away. And don't be afraid to do so!

Know before-hand what you can pay for a property. Don’t second guess yourself. I can’t tell you how many times I walked away from a deal, only to have the seller call back a week or even a month later and offer me a better price then what I originally walked from. Remember all deals are fluid. The seller’s situation is constantly changing. Follow up is critical here since the majority of deals are done through follow up. Also, know what concessions you want and what you are willing to give. If you can be flexible in some areas, it may encourage the seller to be flexible as well. But again, know your limits. Walk into a negotiation asking for something that you are willing to give away. If you get it, great but be willing to concede it. For example, ask for the appliances but give them to the seller if they move the close date for you. You get the picture. This is where creativity can really pay off. I got a beautiful antique piano one time, just because I asked for it. It turned out the seller was worried about moving it and I ended up with a nice piano for my kids. You never know the answer until you ask the question.

3. Know the Market. This rule is critical. If you don't know the market in that area, how can you tell if you are really getting a good deal? If you are buying a rental property, know the rental rates for other properties of that type in that area. Are the rents below market value? Are they above? Those numbers make a difference in the potential resale price as well as the price you are willing to pay. Remember, you make your money when you buy, so take the time to buy right. If you are using a CMA from the selling agent to figure your exit value, get another opinion. You may be better served to get a broker's opinion of value (BPO) or a CMA from an agent not connected to the transaction.

4. The Asking Price is Always Too High. No matter what they are asking, this is a fixed negotiating rule. The first price is always too high, just as your first offer will always be too low for them. Enough said.

5. Close the Deal Now. Be ready to conclude the deal, write the offer, and pay the terms now, not in four or six weeks. Secure private capital so you can make all cash offers or go into a deal with an approval letter in hand from your lender. It shows them you are serious. By the same token, be willing to walk away now if the terms do not meet your criteria. I like to make all cash offers that close quickly as soon as title work is done with a short three-day inspection period. But you need to know your seller. Banks love all cash and fast. They want the property off the books. By contrast, a large family may panic and refuse the offer because they can’t move that fast. Know your seller's hot buttons. However, if you close the deal, be sure to have a 'weasel clause' in the contract (no more than one is necessary, in our opinion). These clauses are the ones that will let you out of the deal at a later date if you decide that something is wrong, or your inspection turns up something you didn't expect. Here are some sample clauses:


You look like a 'seminar investor' if you start adding a bunch of contingencies, rather than an experienced professional. Real estate is complicated enough without throwing in a bunch of contingencies. You either want the deal or you don't. And while you certainly want a well-trained eye looking for wood rot and leaky roofs, you don't want to get stuck in analysis paralysis.

6. Put All Offers in Writing. Never leave anything to memory when you make an
offer. It needs to be in writing. Nobody enforces verbal real estate agreements in the real world. It's ok to discuss concepts when you are face-to-face with the seller, but once you reach an agreement, write it down. Regardless of how good your memory or theirs is, it is never perfect. When you put the offer in writing, they know you are serious. Include the earnest money or option fee with the offer to make it binding. You need some kind of consideration, monetary or otherwise, to make the contract binding. You also need a proper description of the property and a specified closing date. It's a good idea to use a Realtor-approved form, adapted for your state. You should be able to get one from a local title company or attorney. Everything you have done up to this point is practice. Nothing really means anything until you take the next step, making the offer. This is the key to the whole business. It all begins when you make the offer. Whether you offer all cash, cash to new loan, split funding, seller financing, or combinations of these
will greatly depend on your exit strategy for the property.

Once I have tied a property up to purchase, I always have a 3-day inspection period. It is within these three days that I determine if I even want to
buy the property. A lot of times I don't even look at a property to buy until I get an accepted offer. This saves time, so I am not looking at properties I don't want to buy. Sometimes I make 40 offers that get eight counter offers. Of those eight, I counter back and get maybe two or three accepted. That way, I only have to look at those two or three properties. If you are looking at a large complex, or if you have serious structural concerns, you may want to specify a longer  inspection period. During the inspection period, I determine what the after repaired value will be. I try to be realistic here. It is easy to put in some blue sky, especially when you need a deal.  It is important to take a few minutes and compute realistic repair and improvement costs, along with your profit potential. I urge you to be realistic, and pad your costs by a few thousand dollars. Also, make sure you factor in your holding time and buying and selling costs, along with any money cost you might have in doing the deal. Write your cost estimates down don't guess, and don't estimate in your head. However, as you get better at buying  properties, you will be able to walk through and estimate repairs within a few thousand dollars in a matter of minutes. If you have a big enough profit built into the deal, it won't matter if you are off a bit or you have some unexpected expenses. Remember: you make your money when you buy. If you buy a property right, you can always resell it for a profit. Many investors don't realize this. They think they make it when they sell, and will pay too much for a property just because they want a deal.


Violate this rule and you will pay for it. If your only exit strategy is to "Retail" a property for all cash, (meaning the buyer needs to get a new loan and have a down payment, and you need to get full retail value for the property) and you only have a $10,000 profit built in, I can almost guarantee that you will not be in this business for long. One of the hardest things to do over and over is to have to retail properties for all cash because you failed to structure other exit strategies. It's not to say it can't be done. Many investors do extremely well with this technique. But it's a tough road to walk day in and day out. They have taken time to develop, or implement systems for getting properties bought, remodeled and sold in a timely fashion.

Do I Wholesale For Quick Cash? The answer to this first question tells you what track you need to run on. For instance, if you plan to wholesale the property, is there enough profit-margin in the deal so an investor can make 15-25 percent profit? If there isn't, you may not find any buyers. You need to consider the profit margin for the current market you are in. In a hotter market, you may be able to offer it for closer to its retail value, and still sell it. However, in a really slow market, a 25 percent profit may not be enough. These figures fluctuate by area, so be familiar with your market. When wholesaling property, less is more. The first thing I do is a trash out. I have made close to $30,000 on a deal just by hauling out the trash. It consistently makes $10,000 or more on an entry-level house. Of all the things people do to improve a property, the first impression counts the most. Haul out all the trash and do a clean up on the yard. It is money well spent. After I complete this, I then re-determine what I want to do with the property. Wholesaling is by far the easiest to do. To attract wholesale Buyers you may want to run some ads like:



Running these type of ads will attract other investors and you can build a buyers list. Eventually you may not even have to run the ads if you have a good list of investors to call on. I wholesale property when I want to turn it fast for a quick $2-$10K profit. Most wholesale buyers are cash buyers who are looking for  properties they can fix up and retail. I know a lot of investors who specialize in this. You can also assign your purchase contract for an assignment fee and move on to the next deal, with-out ever doing any work. This is a great strategy if you are good at finding deals. But be wary of investors that have to go through the conventional financing process. You could end up losing all your profit in carrying costs. For example, if you are only trying to make $5,000 and you end up waiting 60 days to get your money, you would have been better off retailing the property. When drafting your initial offer you can sometimes insert the clause “and or assigns” after your name or business entity as the purchaser. Most banks won’t allow an assignment, but you can try. You look like a seminar investor making offers this way, but unless a seller excludes an assignment you can legally assign a contract.

Is it Better to Use Retailing for Maximum Profit? Fixing up and retailing properties to an owner occupant for full market value is by far the most popular strategy for making money in real estate investing. It also carries with it some of the greatest risks for new investors. I have seen, time and time again, new investors spending way too much money doing foolish improvements that really won't net them any more cash at the closing table. Worse yet, new investors can get in way over their heads doing extensive rehabilitation and then run out of money. They end up losing the property in foreclosure because they don’t know how to complete the project. If you are going to concentrate on the retail market, there is a definite strategy to the repairs needed and the return you can expect. You always want to start with the most visible aspects first. What will attract people to the home? Start at the out-side and work in, but just don't go overboard. Keep it simple, but nice. I worte a guide called 'Making repairs' and it  gives some guidelines and information on how to do repairs right.

Build in "Terms" on Exit Strategies When you build some flexibility into a deal, like paying the buyers closing costs, or carrying a second mortgage for 10-20 percent, and you can still make a decent profit, you won't get caught sitting on property you can't sell. The more flexible you are on "terms", the more options that are available to you, and the easier it is to sell. However, you don't want to take back seconds on every deal. You will be giving away hard earned profit for no reason. If you have done your job and made the property nice, you will have qualified people competing to buy it. (In another section we talk about different financing options available today for buyers.) The approach you take wholesaling and retailing will be determined by the volume of deals you are doing, the amount of equity you have, and whether you are doing real estate investing full or part-time.

One of the biggest deciding factors on your exit strategy will be the type of financing you entered into in the purchase. Do you have to pay off your underlying purchase loan fast (6 months or less), or do you have long term financing in place? Do you make monthly payments, or is interest accruing on your purchase loan until the property is resold? Can you "Wrap it," "Lease-option it," "Seller finance," or "Carry a contract?" All of these options and tools are available to you as a creative investor. Knowing and learning when and how to apply these strategies, and others will make you a ton of money over time.

Closing Checklist Once an offer has been accepted, you have a lot of work to do. Time is important in this business, so we provide a convenient set of checklists to help you along (see the end of this section). Be Able to Sell Fast: When you are wholesaling and retailing, you want to find a property, secure it, and resell it (or flip it), all in a very short period of time. The faster you flip, the more money you will save in interest costs. I have been in a lot of deals where, if I would have followed my own advice and moved the property quickly, I would have made money. Instead, some-times I had too many deals going on and was slow in completing my rehabilitation. Selling the property took longer than it should have. Other times I had to pay default interest because I lost my focus. A profitable deal turned into a losing deal because of losing my focus.

If you are going to be successful, you need to process and evaluate lots of leads, both for buying and selling. As important as it is to network when you are looking for deals, it is just as important to network when it comes time to sell. Over time, you may build a network of buyers, or people will come to you looking for property. As your buying network builds, it becomes easier to move properties quickly. Initially, you may want to rely on Realtors and Brokers to help you move properties. However, you lose 6-7 percent when you do so.