Never be the Motivated Guy in the DealPosted on March 9, 2011 by
A few days back, Brad flew in from Virginia to discuss his real estate investing business. He’s an experienced investor who, for the past three years, has been having a really tough time keeping his head above water.
Brad owns 17 single-family homes, 2 duplexes and a 26-unit apartment building. He wanted me to look over his portfolio to find out what he’s doing wrong and what he can do to become more profitable.
Over the years, I’ve had the opportunity to meet with a lot of investors, study their portfolios and discuss ways they can do better. One of the biggest and most common mistakes made – by both new and experienced investors – is doing deals that should never have been done.
Let’s go back to Brad. After we looked over his portfolio and crunched the numbers, we discovered that six of his properties were real money-sucking stinkers. We focused on these.
As Brad talked, a common problem came to light. When negotiating with the sellers, he had been the motivated guy at the table. In other words, he wanted to buy the property more than the seller wanted to sell it. This caused him to pay too much – plus, because he got short-term institutional financing, his note terms were dangerous and his loan payments were too high.
What made Brad the motivated guy in the deal? In 2005, he got a line of credit from a local bank. He wanted to use up every dime of credit before his banker turned off the spigot. He rushed out, found some so-so deals and jumped in with both feet. It was all fine until the real estate bubble popped.
Folks, when buying a property, DON’T be the motivated guy in the deal.
Think of it this way: The Titanic is sinking. There are thousands of people bobbing in the cold, dark water. Along comes one guy in a row boat. He yells out, “Seats for sale!” Question: Who is in the better negotiating position – the guy in the boat selling seats or the folks in the water about to sink?
Here’s an exercise for you – and it will blow your mind! The next time you get a call from a motivated seller about a house that you REALLY don’t want, meet with the seller anyway. Make your offer from the point of view that you wouldn’t buy the property in a million years.
Making offers on properties you don’t want will teach you how to make solid offers on the properties that you do want. Just remember to be the guy in the row boat…“Seats for sale! Seats for sale!”