After weeks, or maybe months of searching you’ve finally found that diamond in the rough property that’s perfect for your real estate investment plans. Negotiations for the final sale price is the next step. However, there are some points for new real estate investors to consider before actual negotiations begin.
Research. One important step in the negotiation process is to do as much research beforehand as possible. Take your time and thoroughly investigate the surrounding neighborhood, as well as the potential investment property.
Be alert for any future plans that could seriously alter the surrounding property values. For example, if future construction is planned for a superhighway to cut through the neighborhood, it would lower property values for the whole area.
More information means more negotiating power.
If the home inspection reveals a badly rotted roof structure, this can be a valuable bargaining tool to negotiate a lower price. This is especially true if there are no other buyers interested in the property.
Homeowners or financial institutions can be convinced to reduce the price if expensive items, such as a roof, need urgent replacement or repair. Also, if the property has been on the market for a long time, or there has been considerable neglect, a lower selling price can usually be negotiated.
Remember, that most of your information about the property will come after you get the property under contract. Keep in mind the 70/30 rule.
70% of your negotiation should happen after you get the property under contract.
30% will happen up front.
Your mission may not be to just lower the price, use your negotiating strategy to quite possibly get better overall terms. You might find that as a way you can supercharge your return on your real estate investment.
Shop. Get several estimates on the cost of repairs from contractors. Then use these costs to determine the potential profit to be made from the real estate deal. Again, take your time and make sure all facts and figures are correct before negotiations begin.
Knowing the price for repairs and other costs ahead of time will help an investor to estimate a budget and set the ceiling price for the property purchase. Make sure all inspections are carefully done. Any repair costs from overlooked damage discovered after closing the deal will reduce the investor’s overall profits.
Relax. Whether or not the deal is being handled by a real estate agent, a property investor should not let their ego become involved in a real estate deal during negotiations. It’s important to try and remain cool and calm as possible in front of other people.
Remember this is a business deal and a property investor should always act in a professional manner to obtain the best results. The last thing an investor needs to do is become angry and ruin the chances of closing the deal in a satisfactory manner.
Numbers. Another factor where caution is urged is the danger of becoming emotionally attached to the property that’s for sale. Being emotionally involved will render the investor vulnerable to overpaying on a property purchase because their emotions prevented rational thinking.
Focus on the business end of the deal and try not to dwell on how much you ‘want’ to own that particular piece of real estate.
Above all, be mentally and emotionally prepared to walk away from a real estate deal where negotiations fail and the price of the property is too high or the terms are just not right.
The investor should forgo the whole deal if not offered a fair price and terms that will allow a good profit margin. Numbers are the key.
“Remember, money has nothing to do with happiness, success has everything to do with failure and life is as simple as you make it.” – John Dessauer
Wow! That’s a very informative post on negotiating your first property deal! Thank you for sharing these 4 tips Edna!
Glad you liked it Jelena.
I have a brother-in-law that has been very successful as a real estate investor. I’m trying to see if I can also get my foot in the door and start investing in rentals and real estate. I like your points about how you need to do your research and relax before and while you are negotiating a deal. Being able to stay factual and know when to walk away from a deal seem like essential skills to learn to make sure that you get a great return on your investment.