The Art of Patience in Real Estate Investing
by James Miller
I have a friend who is working on buying his first property. Besides looking for his own personal residence, he wants it to be a good investment. He is looking for a deal.
He is looking at a REO (Bank Owned) property that has been siting for a while. The condition was pretty rough, so the bank decided to put about $5000 into it to replace carpet and paint the place. A surprisingly good move on the banks part.
The fun part for me is that I see a lot of what I felt and did when I was looking for my firs investment property. I see his excitement and energy. I also see how he is too close to the deal and starting to justify things.
Today he called me and told me that they are only off by $1400 in price, and that he is feeling a lot of temptation to call up the broker and tell him that he will accept the banks last offer.
I preempted my next statement by telling him that it really comes down to how badly he and his girlfriend want the property. Since they are also looking at if for a residence, there can be some emotion involved. And I would hate to see him lose the property if he really wanted it.
As I had walked through the property for him, I then followed up with these two thoughts:
“It is a good deal, but not a great deal.”
“Banks are a lot more flexible than they let on.”
He had told me that the lender claimed that under no circumstances can they come down that extra $1400, they are already at their bottom dollar.
If this was an individual, I may be more inclined to believe it, but in reality nobody understands the time value of money more than a lender. They have to know that the longer they sit on a property, the more it is costing them. When given the choice between a $1400 hit and waiting another six months before getting a seller, I have to believe that the bank will eventually cave in.
There is always the chance that my friend will miss out, that some other investor or individual will decide on buying the property at that price, but if you can position yourself so that you are ok with any outcome, you will always do all right.
Patience is the real key to buying, especially when starting out, where everything looks like a deal and you are so hungry to start investing , you can barely stand it.
Here are the basic steps to placing an offer on a property so that you can rest at night.
1) You need to quickly evaluate a property as best you can.
2) Set the price/ terms you are willing to buy it for
3) Negotiate to do better than the Price and terms
4) Be ok if you get an accepted offer, and willing to walk away if you don’t
I also noticed that my friend was commenting on how his Realtor was pretty close with him and he felt comfortable that he was looking out for his best interest.
He then later told me how the Realtor had commented that $1,400 was only going to be an extra X number of dollars per month on a payment.
This is a common technique that is used to sell. Taking a number that seems large and breaking it into terms that seem smaller. We have all heard some advertisement that talks about how something only costs “31 cents a day” or “less than your daily cup of coffee each morning”. This technique is used to break down our barrier to a pricing objection, by making it seem to be an insignificant amount.
When I heard that the Realtor did that, I told him that he might want to be wary about whose side the Realtor was really on.
I can only imagine how the enticement of a commission in these slow times can be tempting, maybe even to the point of bending morals.