Negotiation

With three great investment properties within reach, the biggest questions are:

1. Do I go after Leads #1 or #2 which are freshly rehabbed properties from a turnkey company?

OR...

2. Do I go after Lead #3 which was found by my agent?

First, let's take a closer look at each property:

LEAD #1
Price: $84,900
Built: 1967
Beds: 4
Baths: 3
Square Feet: 1,360
Newly rehabbed
RENT: $950

LEAD #2
Price: $82,900
Built: 1946
Beds: 3
Baths: 2
Square Feet: 1,134
Newly rehabbed
RENT: $925

LEAD #3
Listed: $95,000 (negotiable because it's on the MLS)
Built: 1950
Beds: 2
Baths: 1
Square Feet: 1,430
​Not rehabbed
RENT: $1,000

Soooo...what am I thinking? All properties meet my acquisition budget (under $100K), all properties meet the 1% rule (they each bring in at least 1% of the acquisition price in rent), and they're all brick ranches (I like brick in the Indianapolis weather).

Ultimately, my decision came down to buying in the best neighborhood. And that = LEAD #3.

Lead #3 also has the newest roof (which would be a large capital expense in the future), it brings in the most rental income, and it has the best chance of appreciation (being in the best neighborhood). On top of that...it's a wildcard...with 1,400+ square feet, there's enough room to add a 3rd bedroom if I decide to put a little money into it. This would greatly force appreciation.

So, LEAD #3 it is!

Now, on to my FIRST EVER offer and negotiation. If you remember, I bought My First Property through a turnkey company so there was no real negotiation or offer. I basically just said..."I'LL TAKE IT" and closed.

Running numbers again, I'll tell you right now, the maximum price I could offer for Lead #3 was $87,000. It's important to know your max price before heading into a negotiation. Then, stay strict to your maximum and don't go over! Don't get emotionally tied to the investment. It's all about the numbers!

Now...I get it...my maximum price of $87,000 is a solid $20,000 under their initial asking price of $107,000. Not the best offer...and I probably have a slim chance of even engaging the seller. But, they recently dropped the price to $95,000, so maybe I have a chance??

There are two basic negotiation tactics to understand when submitting an offer:

1. Submit your highest/best immediately, hope the seller accepts, and be happy with the ROI.
2. Submit under your highest and best, and try to negotiate the best ROI possible.

For this property, I knew I wanted to give my offer a fighting chance, but I also wanted to give myself a little wiggle room to go up.

I offered $86,000.

And being pretty naive to all of this, I actually felt pretty confident with that. Other terms I included: 30 day close and 15 day inspection (with an additional 10 days of discovery).

Surprisingly. They countered at $87,900.

Wow, we're close here. They came down A LOT more than I expected. So I went straight to my highest and best at $87,000, fully confident we'd come to an agreement.

​Drum roll please....DONE.

They accepted at $87,000. A few electronic signatures here, a few electronic initials there, and we've got a deal!

WOW...now it's real.

And...crap...now I'm really Jumping Into unknown territory. Financing, an appraisal, an inspection...I've never done this before...

Takeaways
-Really know your numbers going into the negotiation phase. You have to understand what your max price will be before submitting an offer.
-There are a couple negotiation strategies to consider: Offer your highest and max up front, or offer lower and work your way up.
​
-Tyler

Next Post: Due Diligence