Contracting

Finding an investment deal today, although not easy, is not as difficult as it once was. When financing was easy to qualify for and no doc loans were offered by all, deals were harder to come by. Many people still believe that finding the deal is the hardest part of investing. I would have to say that finding the deal is less difficult than putting it under contract. Why? Well, by the time a contract is being discussed you know you want to contract the property and the seller knows he/she wants to sell. However, how much the seller will accept and what the buyer will pay rarely matches up.

Let’s look at the seller’s point of view. First, you must identify who the seller is and what is his/her interest in the property. There are many types of sellers but the most common seller is an owner that lives in the property, an owner that inherited the property, an owner that used the property as an investment, wholesaler, and REO agents. This is important to identify immediately because it determines how you should contract a property. More importantly it will let you know how to best present a contract to make it more attractive to each seller type. The one thing that all sellers have in common is that they expect you to justify your offer. As an investor you want the property as cheap as possible to make the most profit but making sure the contract is a win-win situation will make you more money in the long run. How? That seller will become your walking billboard and may bring you more properties!

Now let’s look at the contract form your point of view, the buyer. We are going to focus on the buyer being an investor. You, the investor, would hope that the seller would just give you the property. Believe it or not but it has and will happen if you are in real estate long enough. Again, this goes back to making sure the contract you put out is a win-win for everyone involved. As a buyer you need to identify your exit strategy and be prepared to have a back up. This will determine what you can pay for a property. This will also make justifying your offer to the seller easier. The seller understands that if you are an investor you are buying to make a profit but does not want to feel like they were robbed. At the end of the day all sellers are looking for a buyer that CLOSES!!! I will take if a step further and say sellers want buyers that FUND!!! There are many deals where the buyer may close but does not fund and the deal does not happen.

We will be take a more in depth view at each type of seller so that you can be prepared and know how to approach each situation. I have been doing it long enough that I consider it common knowledge but it’s the difference between receiving and a rejection or an ACCEPTED contract.