Everybody knows that the key to success in real estate is to buy low & sell high.
Sounds pretty simple on the surface, right?
Let's be honest… in order to buy low – you'll have to send a lot of low offers to a lot of people (offers that have the potential to anger and offend a lot of sellers).
For many new investors, this can be a MAJOR stumbling block, because nobody wants to insult or disappoint people. Luckily, this kind of mental agony is completely unnecessary and it can be easily eliminated with a few simple changes in one's perspective.
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 they're in a tight spot and they need to sell now?
I've heard some folks argue that sending low offers like this is sleazy or unethical (as if we're somehow “taking advantage of vulnerable people in their time of need”) but in my opinion, this is absolute nonsense and I'd like to explain why it's a completely misguided perspective. With any luck, I'll help you develop the right mindset for making low offers without the dreaded guilt trip.
Understanding Your Role As An Investor
If you're talking to the right kinds of sellers (i.e. – that small segment of our society that is more-than-happy to sell their property 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 tight spot and they need money right now. Essentially, they need someone to bail them out and they've drawn the conclusion that YOU must be that person.
But here's the thing – it's not your job to bail them out. You didn't cause this person's tragic misfortune and let's be honest – it was never your responsibility to swoop in and save the day.
Even though these “financial bailouts” will occasionally be the by-product 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. This is LITERALLY the definition of what an investor does!
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.
Are you an investor or not?
If you're serious about this, you only need to do two things:
The only trick is – everyone has a different set of “minimum viable price” that they're willing to accept and the only way you'll figure out those numbers is to make some offers.
What is “Value”?
The funny thing about value is, it comes in many different forms. The word means different things to different people.
To some, value comes in the form of money.
To others, value is found in the alleviation from pain.
Some people find great value in the elimination of a problem.
And others place a high value on things that are easy or convenient.
I've worked with many sellers who were happy to accept my ridiculously low offers. Why? Because they didn't care about money, period! What they valued was the fact that I was able to eliminate an annoying problem in their life AND make the process very easy for them. Their property had become a major nuisance and by offering to remove that nuisance, I was giving them all the value they could ever hope for!
Even though the money would matter a great deal to ME, not every property owner cares about the same things. Everybody has a different set of problems to deal with, and many motivated sellers have a completely different perspective on money than most people do. Some people are in desperate need of an “easy button”, and it pays to be the one who can offer this kind of solution!
On the same coin… it's important to recognize that when you send our a lot of low offers – many people won't agree with your value proposition and they'll simply say “No” to you. That's okay too.
Your proposed solution to their problem (aka – the terms of your offer) won't always be the right fit for everybody, and the seller has every right to turn you down (and in many cases, they will – believe me). If a seller isn't getting what they need from the deal, it's their responsibility to say “No” to you – and you certainly can't fault them for it.
The goal of an investor is to find the sellers who want the kind of value they can offer. These are the kinds of property owners who are willing to give away large portions of free equity in their property (and this usually happens when the people are apathetic and want the property out of their lives) and let's get one thing straight – these deals won't happen without the seller's full, written consent.
When a seller is dealing with their own personal problems or financial difficulties – remember that these are their problems, not yours. You cannot make business decisions based on circumstances 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. It's their responsibility to decide whether or not it meets their needs.
The only time an investor will ever feel “guilt” during the offer-making process is when they're making unwarranted assumptions about the seller (which has a nasty side-effect of throwing emotions into a decision that ought to be completely unemotional). In most cases, there is only one thing we can know with certainty… we know the price that WE are willing to pay, and this is all a reasonable investor can base their decision on.
Making an offer is the simple act of doing the math and then presenting your opportunity to the seller. If the seller doesn't like your offer – that doesn't mean you made the wrong offer (in fact, it may even be proof that you're making the right kinds of offers).
You aren't a mind-reader. You're giving people the numbers that work for you and the only way to know what any seller is willing to accept is to test the boundaries.
In the end, it all boils down to 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.
The moment we start making offers that we think the seller will like, we start making some very dangerous 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 literally changing our business model and moving towards a destination will eventually hurt us.
Many businesses have crashed and burned because they failed to stick to these simple principles. Don't add your name to that unfortunate 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. It's only human to feel sorry for someone in a difficult situation but don't lose sight of the fact that it's not your problem. You didn't create the situation they're in and 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. They're not under any obligation to accept your offer, you're just giving them one option 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 is 100% arbitrary until the contract is accepted 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 desperate situation is unfortunate, but it's still not my problem. Not to mention, if their property really is worth what they think it is, they shouldn't have any problems finding a buyer who will pay their full asking price in the next week. If they're really correct about their property's market value, then 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
Let's get another thing straight – there is no such thing as “guaranteed value” in real estate (that is, not until AFTER money has changed hands). A property is only worth the amount that someone is willing to pay for it – any other assessmentis nothing more than pure speculation. Even if your property is appraised at $300,000, this number still isn't a guarantee that anyone will actually pay $300,000 for the property.
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 valuations work.
Fact #4: A Seller Is Under No Obligation To Accept Your Offer
There's one simple reason why I'm always comfortable 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 can 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 stop wasting time and 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, when I send out enough offers, 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 are apathetic. They just don't care.
Let's be honest, if someone did care about their property – they could easily sell it for WAY more than I'm offering them. Any local Realtor would be happy to help them out!
But they won't.
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, it's usually safe to assume that you're giving them a better solution than anyone else has before you. Think about it – why would they accept your offer if they had better options elsewhere?
If a Seller says “No” to your offer – more power to them! Remember, you're not forcing them to do anything, you're just presenting them with an opportunity (however good or bad it might be) and at the end of the day, they have more control over their destiny than you do.
A Good Deal Will Always Be Mutually Beneficial
In the end, the only transactions you'll end up doing are the ones that both parties have determined to be mutually beneficial.
In order for a deal to get done, both the buyer and the seller have to accept it. If the buyer doesn't like it, they won't send the offer. If the seller doesn't like it, they won't accept it. It's that simple!
Sure – an investor could always offer more (that is, if they don't really care about abiding by their established business model) but if an investor isn't concerned about making a profit, why are they doing in this business in the first place?
Some people are more concerned with helping people through charity and giving and I think that's awesome… but there are MUCH better ways to help people than through some misguided attempted at running a “business”.
Think about it – if someone is criticizing you for the kinds of offers you're sending to a seller, why aren't THEY sending this seller a better offer? If they can't (or won't) put their money where their mouth is – what position are they in to tell you how to run your business?
Sending low offers can be a real mind game for a lot of investors – but 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.