“If both parties win at the negotiation table, someone didn’t negotiate hard enough” Donald Trump (paraphrased)
In this economy, chances are if you find a good real estate investing deal you won’t be the only one who thinks it’s a good deal. This poses both problems and opportunities. One of the biggest problems is, you will likely not be the only guy looking at a deal. And, if you find a way to be the only guy looking at a deal, you will have a serious advantage.
Move fast if you want to get the deal
In the case of my current project: the Tudor house, we knew we had a good deal but we didn’t know if we would get it. We were the first offer in after the sellers dropped the price and I was pretty sure we wouldn’t get the deal locked up. I mean, if I thought a house we found on the MLS was a good deal, someone else probably would too. But like I said last week, writing an offer never hurt anyone.
Being first in line with rather eager sellers (I didn’t know this at the time) we received a verbal confirmation on Friday for $6,000 less than their asking price with a promise that the sellers would sign things when they got back in town Monday. Well, weekends are prime shopping days and more offers came in before the sellers executed the contract.
NOT BINDING CONTRACTS
Verbal contracts aren’t binding in real estate, so the sellers informed us Monday that we were in a multiple offer situation and that we should submit our highest and best. Alright fine. Time to get serous, we bumped up our price by some random number and beat the other guy by some undisclosed amount. We were somewhere between $100 and $10,000 over whatever the next best offer was, but I will never know.
A BIDDING WAR
When you get into a bit of a bidding war, you are shooting at a moving target while blindfolded. You don’t know where the other guy(s) or the sellers are. In fact, you don’t even really know if there are other guys (in this case, there were – as I confirmed later). It’s important to know what your bottom line is for a house. After all, no one wants to do a deal to make everyone else rich. And you sure can’t make up in bulk a losing business plan, as the saying goes. So, make sure the excitement of getting the deal doesn’t overshadow the financial sensibility of having to actually do the deal. This is valid every step along the way.
Now that getting them all signed is over with, I had a whole lot of other problems to deal with. I had to figure out things like what the after repaired value likely was; who I would get to do the renovation; how long this monster would likely sit on the market once it was done. I had to find out everything the sellers weren’t telling me about the property. Of course, I didn’t know what I didn’t know, but I also had to be smart enough to find out what they likely didn’t know about the place. After all, if this house was a good deal at this price, why were they selling it in the first place?
GETTING THE CASH
And the biggest problem I had to deal with was in getting the money. I didn’t have $300,000 in a bank account – let alone the additional $120,000 I figured I would need for fixing the place.
At the time, I had four deals going in San Diego and things were pretty well allocated. But, you should never let a lack of money get in the way of making you money.
Last week, we had granite installed in the kitchen, bathrooms and other random built in cabinets. We finished painting the interior, and the three secondary bathrooms have new custom tile surrounds and new flooring all finished up. This week we should be installing the rest of the flooring and on our way to begin exterior work. So far things are on time and on budget. We have had a few hiccups along the way, but nothing major for a renovation project of this size.
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Stay tuned next Monday as Kosen will update his real estate project again here on TraderPlanet.
