Property investors often seal their fate at the point of purchasing their assets. How thorough the research you undertake prior to acquisition is of course paramount to a successful outcome, as is how well you negotiate the transaction and contract terms.
If you can talk $10,000 off a property’s asking price for instance, not only will you immediately save $10,000, you’ll also reduce all associated purchasing costs like stamp duty and borrowing fees. And let’s not forget the interest savings over the term of your mortgage.
Flow on effects work both ways when it comes to how much you pay for property addition to your investment portfolio. Over-capitalise by paying well above the property’s intrinsic value and you’ll have to wait perhaps two to three years for the asset’s value to catch the market.
This, of course, is not ideal for the investor hoping to harness the magic of compounding to make his or her money work harder.
Pay below the property’s market value however, and you create immediate gains and equity, giving you a financial kick-start.
Some investors have the skills to negotiate well, building their confidence with each new purchase and in turn, their investment portfolios. Others fail to understand the unspoken rules involved in negotiating, and slowly begin to think the real estate game just isn’t for them as they lose confidence.
The good news is that virtually anyone can be a good negotiator, because we all spend every day of our life negotiating. It’s a simple problem solving process.
Think about ordering from a restaurant menu and deliberating over the beef dish or the chicken dish. This is a form of negotiation…weighing up the option or options before you and then determining your desired outcome in that moment.
Moreover, becoming a skilled real estate negotiator means employing logic and reason over emotion and desire. In other words, if you know beef will give you heartburn, even though you really want a steak, then perhaps it’s best to go with the chicken.
Chicken and beef aside…here are 8 tips to set you on the path to becoming a property player (top notch negotiator)…fo’ real!
- Knowledge is power
Learn as much as you possibly can about the property you’re considering, including the seller’s motivation for wanting to part with it wherever possible.
While you might never find out everything from the vendor’s agent (they work for the vendor after all), savvy negotiators are skilled at ‘scratching the surface’ to find any insight, no matter how tiny, that could assist with their negotiation strategy.
This isn’t about taking advantage of someone’s circumstances; it’s about finding a mutual solution that will work in to answer both of your respective needs.
- Get comfortable with what you don’t know.
You’ll never be entirely privy to a vendor’s reasoning for selling their property. And that’s okay. Remember, there are many other avenues of information you can wander down before signing on the dotted line.
Don’t be afraid to make your offer subject to having the contract and property thoroughly checked over by your solicitor. Importantly, you must be comfortable and confident that the price you’re prepared to pay is the right price for you.
- Set your limit and stick to it.
Once you have all available information at hand and are ready to start the parlay process in earnest, set and work to your upper most budgetary limit. Determine whether it’s best to lead with your ‘first and final’ offer, or start low and leave yourself some wiggle room.
- Be prepared to compromise.
It’s not about you winning. It’s about everyone winning, or at least walking away with the sense that they haven’t been stitched up entirely.
Don’t dig your heels in out of pride or to achieve some type of competitive edge. Show empathy for the other party by seeking a way to compromise so that you make your gain their gain too.
- It’s not just the price that’s negotiable.
A fantastic way to negotiate is by building giveaway concessions into your initial proposal. Lengthier settlement terms for instance, are something you could later compromise on, particularly if you know the vendor is after a quick, no-mess sale.
- Lead with the facts.
After conducting thorough due diligence and having the property comprehensively checked over by the appropriate professional building and pest inspectors, you might find some extra ammunition in your negotiation cache.
If any work is required to bring the premises back into the twenty first century or issues are uncovered that you’re prepared to tackle as the new owner, make sure you list these along with the approximate cost of repair/replacement. These items can provide sufficient justification to go in low and play a bit of hardball.
- Don’t take it personally.
None of us like to be told ‘no’. Even if we’ve heard it a thousand times, it doesn’t make it any easier the next time, particularly if we’ve become emotionally invested in our negotiations.
If the other party responds with an immediate rebuttal, don’t give up on the entire deal in the first instance. In property, no doesn’t always mean no.
- Be prepared to lose.
When ‘no’ does indeed mean the end of your negotiations however, and it’s obvious that there’s simply no more room to move in order to make the deal work, then it’s time to realise it just wasn’t meant to be. Always remember, another deal is waiting to be done, just around the corner.