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Friday, March 2, 2012

When It Gets to 'Yes', It's Not About the Money...

The REO market and trustee’s sales are where everyone seems to be playing these days, but I have always followed the rule "Do what nobody else is doing." Also, I enjoy talking to people-sellers and helping to solve their difficult real estate problems. I specialize in buying subject to existing mortgages or using purchase money financing (structuring a terms offer). Most of the properties I buy are in some state of disrepair and I love the major fixers. I really enjoy the challenge of turning a pre-condemned property into a big fat check. Where the city and neighbors only see blight, I see profits!

The one thing that I have learned in dealing with thousands of vacant or tenant occupied property sellers is that just because the owners do not live in the area and the property is not producing income or not producing consistent income, it doesn’t necessarily mean there is a deal to be made. Almost daily, I get suspect leads from new investors asking me to help them negotiate a deal, but in reality they are just badgering a non-motivated seller to death trying to create a deal out of nothing. You all have heard that old saying, "you can't squeeze blood from a stone." Well, you can't squeeze equity from a non-deal either.

A vacant, free & clear house typically means the owners purchased it many, many years ago and because of Prop 13 (here in California) they now pay very little taxes every year. To many people, paying a few hundred a year in taxes is much more convenient than dealing with a tenant for the income. They still get the depreciation write off! Where I come into play is when we have the same situation, but there is some other element which some investors call the hot button or motivation, but my preferred term which was given to me by my friend and fellow investor Rick Harmon, is the catalyst. Just like a chemical reaction, nothing happens until a catalyst is present. A seller will not part with a house in a down market unless there is a catalyst precipitating an event or situation which cannot be easily solved by the owners such as major repairs, need for quick cash or income, relief from management, code enforcement issues, or the need to sell and feeling embarrassed about the current condition.

When the catalyst is present it still does not ensure a deal. I need to get the seller to recognize that I have the solution to their problem and that I am the best choice. In negotiation, the other party has to believe you have the power to harm or to help them. When pre-screening sellers, look for the catalyst from the moment you make contact. Ask questions and listen. If there is no catalyst, make your offer and move on. The upside to this situation is that life happens to us all and I would put this seller on a consistent follow up program. A stale lead today can turn out to be very profitable in the near future. The favorite saying in our office is, "Time and circumstances changes all seller's minds."