Let’s start negotiating a deal. This is one of my favorite topics. Because I firmly believe that everything in life is a sale and a negotiation.
I have an 8-year-old girl, but even when I’m awake, it feels like everything is negotiating with her. The other day I was sold to what she was up to. I wanted her to go to bed at a reasonable time, but she won the negotiation.
So let’s move on and work on it.
In one of my previous transactions, a $ 2 million worth of refurbishment was incorporated into the underwriting. The deal also made a $ 1 million mistake when negotiating with the seller at the front end. Yes, it’s a $ 1 million mistake.
I was too aggressive about rent. I felt I could raise an average of $ 200 per unit. That’s why it’s good to have a second eye to build a team and dig deeper to rent a comp. They are familiar with the aspects of property management and therefore have more experience than I do in understanding the market. And so it was decided that my rent was $ 75 and was too aggressive.
Consider $ 75 for 156 units x 12 months. It’s a big volatility in terms of income, and that’s how we decided what the offer would be to the seller on the other side. So there is that mistake.
But it came down to negotiations. There, we found that they were well motivated and we had a good relationship. And I would like to talk about how it was actually established by building that relationship.
Building relationships as a real estate investor
One of the important things I always want to do is actually meet the seller of the property, not make it a transaction base.
I met them in their office where their community managers usually work. ESince this is a community of 156 units, everyone really works in terms of staying on top of things. Therefore, you can get an economy of these scales. Not only can there be multiple maintenance technicians on site, but there can also be community managers living on site. You can really get boots on the ground.
With small assets, the property cannot keep anyone actually on the scene. That was possible, but it can be very difficult from a financial point of view.
So I ended up meeting the sellers in their office, understanding them, building relationships and relationships, and sitting down, not just making it a deal. One of the little hacks I use all the time is to always have a thank-you note to the other person.
Our charges on rent were determined to be too aggressive when I ended up making an oral offer to them for $ 7 million, we had to actually withdraw it and offer close to $ 6 million. So they verbally accepted $ 7 million and then we had to go back $ 1 million. It was a very difficult conversation.
However, I was still able to sign a contract and submit the LOI first. This is an intent to elaborate on everything contained in the contract, as it makes the contract much more robust. THey, I agreed to the terms we had, and that’s when we signed the deal and started the rest of the due diligence.
Everything is negotiable as a real estate investor
The important thing I really want to talk about is to understand that everything is negotiation. Let’s say someone throws a price at you. You don’t have to look at it in a straight line. Let’s say something happens and you want to lower your purchase price. You can be a little more creative.If the purchase price is, for example, $ 6 millionIf they stick to it, you can ask the seller if they can throw in to replace the roof or repair the parking lot.
Being so creative shows that you are flexible from that side and willing to work with them. Because it’s how things are perceived in negotiations, and it’s also leverage.
We had leverage in the transaction because the finance they provided was not the best. We had a T12, a profit and loss for the last 12 months, and a roll of rent. However, there were many holes in the details that could be used as leverage. We were also able to avoid previous mistakes by using all property related refurbishments and postponed maintenance.
I’m still making mistakes and I’m sharing it with you. That way, I can avoid the potholes and mistakes I have experienced and recreate my success.
Again, I was able to use all that leverage to lower the purchase price. I submitted the LOI. There were some terms before and after. And finally, they agreed. At that point, we created a purchase agreement. This was even more powerful, including all the conditions, the end time frame, the feasible period, and all the good stuff.
Have you ever had to recover quickly from a transaction miscalculation?
Please let us know in the comments.