The Science of Flipping - Episode 50 – Negotiating by the Numbers | Real Estate Investing Podcast

Episode Date: October 15, 2014

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. What is up, guys? Welcome to the Science of Flipping Podcast. This is episode 50. We made it. It seems like it's been forever and I love putting these podcasts out for you. So this number 50 is definitely a momentous moment for me. I hope you guys have thoroughly been enjoying all of our podcasts here. I know we've had on several special guests and I know I try to give you everything I got week in and week out. And you guys are being able to watch

the Motivational Monday videos that you can also see on YouTube, as well as the Think Tank Thursday videos, which you can also see on YouTube. So thank you, thank you, thank you for being loyal listeners. I greatly appreciate it. And this is episode 50 of the Science of Flipping podcast.

I am your host, Justin Colby. If this is your first time here at the Science of Flipping podcast, please get over to the website, thescienceofflipping.com and download your free ebook. It is the 15 most costly mistakes you can make in today's real estate market. You know, the real estate market at any given moment can change and these are the mistakes that myself, colleagues, friends, other investors have all kind of compiled

as the typical mistakes that are made within real estate investing. So make sure to get it. It is absolutely free over at the scienceofflipping.com. If this is your first time, this podcast is all about creating systems, implementing systems in a structure in your business so that you are not working in your business, but you are working on your business. And what that means is you can be anywhere. I don't care if you're in Venezuela, Canada, Mexico, or simply at the comfort of your own couch, you could be working on your business from anywhere rather than working in your

business, the day-to-day minutia. And so that's the idea about what this podcast is all about, is to help teach systems and processes so that you can build a true business to run rather than your quote-unquote business running you. That's the importance here. Guys, if you've been listening to this podcast and you like what I'm saying and you feel like you're just at a point that you got to get to the next level, if you have any interest in consulting with me, talking to me about taking the next steps, possible coaching experiences, email me directly at info at the science of flipping dot com. And I will personally email you back and set up a time to talk. Again, info at thescienceofflipping.com or simply go to the website, thescienceofflipping.com and there's a coaching tab. If you have any interest in me coaching you, consulting you, taking you to the next level,

I'm happy to talk about that with you and see if I could be of great help and if it would be a good Fit so that is that guys. Let's just jump right in. This is my 50th episode of the science of flipping and I'm telling you what this is my favorite subject I'm about to talk to you guys about and it's all about negotiating with the seller and Specifically, it's about negotiating with the seller by the numbers. There's a lot of different negotiation tactics, but this episode, I wanted to give you by the numbers style of negotiating so that you can feel very, very comfortable when dealing with sellers and their rebuttals. And you can show them why working with us or you as an investor is a better route than

listing it on the MLS with the realtor, right? That's the idea of this episode. And I just want to jump right into it. So first and foremost, let's just use the example that your marketing worked, a seller has called you, and you've built enough rapport with that seller that you know that they're willing to sell and that it's time to go see the property. Meet them face to face, really build rapport, and possibly give them an offer. So first and foremost, you make that meeting and there's a couple things that you must have when you go to that meeting. One, you need three of the lowest comps in that area and you need them printed out. If you don't have access to MLS, get someone to print them out for you, a realtor, or go to realtor.com or go to Trulia or Zillow or Redfin or any of the other sites that can give you sold comparables. Most all those sites can do

that for you. Make sure you print out three of the lowest comparables. You also will need to bring a blank contract. I want you to bring a blank contract. I also want you to bring a pre-filled out contract. The reason why I want that is because I want you to bring a pre-filled out contract. And the reason why I want that is because I want you to already have a number walking into that meeting that you're willing to offer that seller. I want that already be known. I want you to already run the numbers, run the comps, analyze the deal, and know exactly what you would be willing to offer that seller. And make it your most aggressive offer, meaning the lowest number as possible that you feel like still could warrant the seller accepting

it. Now, the reason why you have a pre-filled out one with your lowest offer that you're willing to make without obviously being disrespectful or pissing someone off, and if they don't like that number, obviously obviously then you have your blank offer or your blank contract so that you can write in the number if you're somewhat close or if the sellers just maybe looking for an extra couple thousand dollars and you know you can make that work now you have your blank purchase contract that you can fill out you know right there on the spot right

so I want you to have those three things. Those are three must-haves when you're meeting with the seller. Now, on previous podcasts, I've taught you all about how when you get there and how to be respectful and shake the seller with a firm handshake. Don't be a limp noodle with your handshake. There's nothing worse than that. Make sure you're looking the seller right in the eyes. Make sure you give them the respect to look them in the eyes when you meet them. And then it's back to building rapport. It's back to doing what the most important part

of this whole thing is, and that is build rapport with the seller. I can't tell you how many times I've gone to a seller and we really weren't quite around the numbers that would work for the seller and work for me, but I just hung around long enough. I talked about the things that they cared long enough. I talked about their children, their family. We built rapport and it got to a point where the seller says, listen, the numbers aren't exactly right, but I really like you and I want you to be the person that buys the house from me. Let's strike a deal. Let's figure this out. When the

seller says that to you, you have them. You know they want to sell. You know they're motivated and you know they like you. So they're going to be a little bit more flexible with you than maybe someone they don't even know. It's all about building rapport, right? So again, on previous podcasts, I go all into that. So right now, let's stick to the topic at hand, which is negotiating by the numbers. So again, you're at the property, you're walking the property with the seller, and obviously you're pointing out the things that need repair, right? Maybe they have a pool that is all busted up and gross and has no water in it. Maybe their AC needs replacing. Maybe the roof is old. Maybe

the entire house is original, right? Out here in Phoenix, most houses are, well, not most houses, but there's a good majority of houses that were built in the 50s and 60s. And obviously, the style then is not what the style would be now. So obviously, you're walking the home and pointing out these things, talking about, OK, you know, I'm likely going to have to redo this and update this. And I'll redo the kitchen. And maybe I'll take this wall down and make it like new, right? Maybe make it like the new homes, at least to be in competition with the new home. So you're pointing these things out and they're starting to already understand,

okay, he's going to have to put a lot of money into this, right? So he's obviously not going to pay top dollar because it wouldn't make sense. So as you're doing that, they're already subconsciously or consciously understanding that you're going to come So as you're doing that, they're already subconsciously or consciously understanding that you're going to come in, you're going to buy a home at a certain number, and you're going to put in 20, 30, 40, 50, $60,000 into the home because you're pointing things out and you're doing it in a respectful manner. Okay. You are doing it in a respectful manner, but you know, you're saying, Hey, this kitchen, you know, when was the last time you updated? Oh, it's all original. Well, what I would likely do as an investor is if we can come to terms on the number, I'll probably redo this entire kitchen. It'll

probably cost me $12,000 to $17,000 to do this whole kitchen. When was the last time you did the roof? Oh, it's been about 25 years. Well, I'm probably likely going to have to do a new roof. It'll probably cost me roughly another 10 grand, right? So you're talking to them about what you're going to do the home. You're talking about certain numbers. So it's already getting them prepared for when you start talking to them about the real numbers, the purchase price, what you're willing to pay in the negotiating by the numbers works like this

alright mister seller you know we've walked the home I think you have a beautiful home I really appreciate that this is a home that you know you raise your kids in and your kids raised their kids in and you know it's a very family home I can feel the love and warmth that has been throughout this home over the years. And I really want to sit down with you. Why don't we go to the living room and let's just talk out a deal. See if we can put something together here. As I've been talking to you, obviously as an investor, my job is to come in and make this like new, right? So I would be trying to compete with new home builders, right? So new kitchen, new floor, new paint, new roof. That's what I would do as an investor. So obviously

it's got to make sense for both of us. Understand, right? Mr. Seller, you understand what I'm trying to do. I'm just trying to be open and honest with you. Well, now let me talk to you simply about what your other choices would be. Obviously is, um,. Obviously, most people think, oh, I could list it with a realtor or my neighbor's a realtor and they told me I could get this. Well, Mr. Seller, let me talk to you a little bit about what I'd be willing to offer, why you would really want to work with me, and why it makes sense. First and foremost, I'm an investor, so I close with cash. I also close very quickly if that's something you are interested in. If you don't want to make your next month's mortgage

payment, I can close cash and quickly. Another thing that is a great benefit is the number that I give you is a number that goes into your pocket. You do not have to pay for closing costs. You do not have to pay for closing concessions, meaning most end buyers, if you list on the MLS, will ask for 3% closing concessions to go towards their loan. You will not have to reduce your price because no one's paying retail anymore. If you list on the MLS, no one's going to give you that exact offer. They're always going to ask about 5% off of what that number is. You

won't have to reduce your price. You won't have to repair your home. Most importantly, you won't have to pay 6% commission. There will be no money out of pocket for you. Now, what does that look like, Mr. Seller? Well, again, typically the industry is 6% commissions when you sell your home. Usually, most homeowners will need to put at least 1% of the selling price into repairing their home. As we just spoke, if you list your property, usually the offers come in roughly about 5,000 or I'm sorry, 5% under what the list price was.

And so there's no closing costs, right? So there's no money out of pocket from you. Most closing costs are roughly 2% to 3%. So you're saving all that money, Mr. Seller. I'm a cash investor. I close quick. So the number that we can agree upon goes directly in your pocket. You do not need to spend 6% for commissions, 3% for closing, 5% off what you would

list it for, 1% out of pocket to repair your home. There is no money out of pocket for you. So right now, based on the comps that I have given you and I'm showing here, it looks like your home is really worth $200,000. Because I'm an investor and I need to make some sort of a profit here, I'm not trying to get rich, but understand I am in business. If you wanted to go list this home at $200,000, Mr. Investor, you're taking 6% off top for the commission. You're taking 3% off top for closing costs. You're taking 5% just based off of no one's paying retail right now. No one's going to give you a full price offer. So you're going to reduce it by anywhere from three to 5% off of what you're

listed it. And you're probably going to have to come out of pocket for a very minimum of 1% of repairs. Mr. Seller with me, there's none of that. There's no headache. It's just me. It's a cash deal. And the entire transaction is held over a title, Fidelity National Title or security or North American, whoever you might use, right? Or if you're on the East Coast, you're using closing lawyers, right? So it's insured by this multi-billion dollar company. In fact, Mr. Seller, here's my title agent right here. Her name is Teresa. If you'd like to call her, feel free. I want to make sure you understand that I do good business. All of that money and my earnest money deposit and

the contracts all get handled over by title so again going with me is a quick cash close I can close and as little as 14 to 17 days you're not gonna have any money out of pocket no no commissions no closing costs no nothing so I really believe when I give you this offer of $170,000, Mr. Seller, I feel like this is an absolute fair deal for you because that's $170,000 in your pocket. What do you say, Mr. Seller? Do you feel like there's a good reason to go with me? And most often, guys, the seller says, you know,

the main reason I haven't sold my home is because I didn't want to deal with all this. I didn't want to put money into the home before I sold it. I don't have any money to repair my home. You know, I knew if I listed it, I was going to have repairs. I knew I was going to have commissions. And it just was a hassle. You know, you seem like making this easy. I feel like you're making it very service-oriented, and I really appreciate that.

Most often than not, that's the type of response that you're going to get back from your seller because you painted a great picture of the hassle and the numbers attributed to selling their home retail or on the MLS or with a listing agent. You look like a gift to them because your cash, you close quick, no money out of pocket, right? And you're service oriented. So again, that is closing with the numbers. You review all those numbers with them and they start to really realize that offer that you're giving them is actually a very big win for them. So that's closing with the numbers. That's negotiating by the numbers. This is my favorite part. I love strategizing and figuring out what

the numbers are going to look like. So when I present it, I'm on point, right? You want to know all this before you get in front of the seller. There's nothing worse than getting in front of the seller and then pulling out a yellow piece of paper and saying, all right, well, so what are we thinking here? And kind of fumbling through what the numbers would look like. Do not do that. Be prepared before you even meet with the seller. That's the way you're going to be able to get that deal with negotiating by the numbers. So that is podcast episode 50 from the Science of Flipping, guys.

Again, I give you all I have each and every week. If you are interested in working directly with me or my team on a coaching basis, please email me at info at thescienceofflipping or just go to the website thescienceofflipping.com and fill out the coaching tab. And I will make sure I'm back here next week for episode number 51, guys. So awesome stuff. I am excited.

I am going to get back to doing what I do. It's a beautiful day here in Scottsdale, Arizona. And I'll see you guys next week. Peace.