Everybody knows that the key to success in real estate is to Buy Low & Sell High.
It sounds simple enough at face value, but let’s be honest… in order to “Buy Low” – you need to send out a lot of low offers to a lot of people (offers that have the potential to anger and annoy a lot of sellers).
For many new investors, this is a MAJOR psychological battle because they’re afraid of insulting or disappointing people. They have to fight through a great deal of mental agony along the way… agony that is completely unnecessary and can easily eliminated with a simple change in thinking.
Do you ever feel guilty about sending low offers to people? Do you find it difficult to offer someone a fraction of their property’s value when you know that the seller is in a tight spot and they need to sell now?
I’ve heard some people argue that sending low offers is sleazy or unethical (as if we’re somehow “taking advantage of vulnerable people in their time of need”). In my opinion, this is absolute nonsense and I’d like to explain why this is a completely misguided perspective (for several reasons) and help you to develop the right mindset for making offers without the dreaded guilt trip.
Understanding Your Role As An Investor
If you’re talking to the right kinds of sellers (i.e. – the small segment of population that is highly-motivated and happy to sell for pennies on the dollar), you’re going to encounter at least a few sob stories along the way. A lot of property owners are motivated to sell because they’re in difficult situation and they need money now. They’re looking for someone to bail them out and (for some reason) they’re making the bold assumption that YOU must be that person!
The only problem is - it’s not your job to bail them out. Whatever the reason for this person’s tragic misfortune, it’s not your responsibility to swoop in and save the day. Even though these “financial bailouts” will occasionally be the byproduct of your business activity – don’t lose sight of the fact that your #1 goal as an investor is to buy properties with a higher monetary value than the amount of your investment. You’re investing money with the expectation of financial gain – which isliterally the definition of what an investor is.
An investor is someone who provides (or invests) money or resources for an enterprise, such as a corporation, with the expectation of financial or other gain.
In you want to call yourself an “investor”, you’ll have to find the right people and offer enough value to meet their minimum requirements. The tricky thing is – everyone has a different set of “minimum requirements”, and the only way to figure out what those are is to make an offer
What is “Value”?
The word means different things to different people because value comes in many different forms. To some, value means money. To others, value is the alleviation from pain. To others yet, there is great value in the elimination of a problem.
I’ve worked with many sellers who cared very little about the money I was offering them. Why? Because they didn’t value the money. What they valued was the fact that I was offering to eliminate their problem. Their property had become a major nuisance in their life and by offering to remove that nuisance, I was giving them all the value they could ever hope for! Even though the money mattered a great deal to me, they had a completely different perspective and my dollar figure was practically irrelevant.
On the same coin… it’s important to recognize that when you send a lot of low offers to people – a lot of them won’t see the value in your offer and that’s okay. Your proposed solution to their problem (aka – the terms of your offer) won’t always be good enough, and the seller has every right to say NO to you (and often times, they will - believe me). If a seller isn’t getting what they need from a transaction, it’s their responsibility to “No” and you should expect nothing less from them.
So with that in mind, let’s get one thing straight – when a seller is dealing with personal problems or financial difficulties – these are their problems, not yours. You shouldn’t make business decisions based on circumstances that you didn’t cause and can’t control. And let’s be honest – when you send someone a low offer, you’re not forcing them to do anything, you’re simply providing them with one possible solution to consider and it’s their responsibility to decide whether or not it provides the value they need.
The only reason an investor will feel “guilt” during the offer-making process is because they’re making unwarranted assumptions about the seller (which has a nasty side-effect of throwing emotions into a decision that should be completely unemotional).
Making an offer is the simple act of doing the math and presenting your opportunity to the seller. If the seller doesn’t like your offer - that doesn’t mean you made the wrong offer. You aren’t a mind-reader - and the only way to know what a seller is willing to accept is to test the boundaries. It’s as simple as these 3 steps:
- Come up with a number that cannot fail you.
- Show your number to the seller.
- Assess their response and act accordingly.
It’s that simple.
David Cooper Las Vegas Real Estate Buyers Group
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The moment we start sending offers that we think the seller will like, we start making some verydangerous and foolish assumptions about the person we’re negotiating with. When we make offers that compromise our profit margin (because of our own biases and assumptions), we are literallychanging our business model and moving towards a destination we don’t want to go. It’s not unlike steering a ship towards an iceberg or flying an airplane at dangerously low altitudes through a mountain range. Why on earth would someone intentionally do this kind of thing?? Only if they aren’t thinking clearly.
Many businesses have sentenced themselves to death because they failed to stick to their business model. Don’t add your name to that sad list of casualties.
Let’s Establish Some Facts
In order to stay in the right frame of mind when sending low offers, you need to eliminate the emotions from your decision making process, so let’s make sure we’re all on the same page…
Fact #1: The Seller’s Problems Are Not Your Problem
When a seller is in a desperate situation and they need cash now, it’s quite common for them to tell you their story of hardship and tragedy. The world is FULL of people who are going through difficult situations and need help, but it’s not your problem. You didn’t create this situation for them, you didn’t cause this hardship in their life – you’re just running a business. In order for you to make money, you need to buy properties for FAR less than market value. It’s nothing personal and it has nothing to do with who they are or what their property consists of – it’s just basic math. You’re just making offers based on what the property is worth to you – that’s it! It’s not your fault that they NEED to sell now, so don’t waste your emotional energy trying to shoulder a burden that isn’t yours to bear.
Fact #2: You Don’t Owe The Seller Anything
I’ve always found it curious how some sellers will get offended by a low offer (and believe me, a lot of them will). From the perspective of an investor, it’s just a number and the reality is – this number is100% arbitrary until the contract is accempted by all parties.
With every offer I make, I am literally offering what the property is worth to me (and in most cases, it’s not worth much – because I have an infinite number of other opportunities to choose from). If someone doesn’t like my offer – that’s totally fine! I’m just being honest with them about what I’m willing to put on the line to bail them out of their problem.
One thing is certain… I’m not going to inflate my number just because they are desperate for cash. Their desperation is not my problem – and besides, if their property really is worth what they think it is, they shouldn’t have any problems whatsoever finding a buyer who will pay their full asking price in the next 24 hours. If they’re correct about their property’s market value, they don’t need me and I don’t need them! That’s the honest truth.
Fact #3: The Property’s Value is for YOU to Decide, Not Them
Let’s get another thing straight - there is no such thing as “guaranteed value” in real estate (not until AFTER money has changed hands for it). A property is only worth the amount that someone is willing to pay for it, and any other judgment of value is nothing more than an educated guess. Even if your property is appraised at $300,000, this number still means absolutely nothing if nobody is actually willing to pay $300,000 for the property.
I’ve seen some pretty heated fights erupt between bankers and borrowers over the hypothetical numbers that an appraiser came up with… and it’s all a little ridiculous if you ask me.
Whenever someone tells me what their property is worth (as if they have some all-knowing crystal ball) – I always have to chuckle, because they clearly don’t understand how real estate works.
Fact #4: A Seller Is Under No Obligation To Accept Your Offer
How am I okay with sending an offer to someone for 10% of their property’s market value? Because all they have to do is say “No” to me and we go our separate ways. I’m not forcing them to do anything… in fact, the sooner someone says “No” to me – the better (it means I can move on to the next opportunity)!
I am fully aware that my offers aren’t going to make sense for most people. I don’t expect any particular person to accept it – but I know (from experience) that statistically, there’s always someone who will eventually.
The funny thing is – most of the people who accept my offers aren’t so much “desperate” as they areapathetic. They just don’t care (because let’s be honest, if they did – they could easily sell their property for 500% more if they just listed it with a Realtor). A seller’s apathy usually becomes quite clear before the deal is done – which is yet another reason why I sleep so well at night.
Fact #5: You Are Offering Them A Better Solution Than Anyone Else Has
If a Seller says “Yes” to your offer – do you realize what this means? It means that you are giving them a better solution than anyone else has (why would they accept your offer if they had better options?).
If a Sellers says “No” to your offer – then there’s no harm, no foul! Remember, you’re not forcing them to do anything, you’re just presenting them with an opportunity – however good or bad it might be. At the end of the day, the control ultimately lies with them – remember that.
A Good Deal Will Always Be Mutually Beneficial
In the end, the only transactions you’ll end up doing are the ones that are mutually beneficial to both parties. In order for a deal to get done, both you and the seller are going accept it. If you don’t like it, you won’t send the offer. If the seller doesn’t like it, they won’t accept it. It’s that simple!
Sure – you could always offer more (that is, if you don’t really care about abiding by your business model) but if you’re not concerned about making a profit, why are you in this business in the first place? If you’re more concerned with helping people through charity and giving – I think that’s awesome… there are MUCH better ways to accomplish this than through some misguided attempted at running a business.
My opinion has always been this – if someone is critical of the kinds of offers I’m sending to a seller, why aren’t THEY sending a higher offer? If they can’t (or won’t) put their money where their mouth is – maybe they should worry about their own actions instead of condemning my business.
Sending low offers can be a real mind game for a lot of investors – but really, you don’t need to agonize over it. When you boil it down to the numbers and logic of the process – it’s pretty simple stuff.
Understand what makes a good deal and stick to your guns. When all is said and done, you’ll be glad you did.