The scenario: You check out a property, figure out estimated repair costs, and head back to your computer. You look at comparable homes and figure out an ARV (after-repair-value). You type this numbers into your spreadsheet and you get a key key number: the maximum price you should purchase a property for.
The above number is what I am thinking about when I say?stubbornness?is a real estate investor?s best friend. Obviously, this characteristic isn?t ideal to have in many other business or life situations, but when it comes to the maximum price you should purchase a property for,?stubbornness?is truly your best friend!
This may seem obvious, but in the heat of battle, it can become easy to lose perspective. I recently wrote an article about a Facebook Stalker, and I will be using that very same real life experience to illustrate my points for ?why? you need to be stubborn, along with ?how? it is easy to start making excuses for yourself.
The Set-Up
Through my marketing, I came across a buyer who was interested in a house. Since I am a real estate agent, and figured it was a possible quick opportunity at some?commission, I met the buyer at the home to show them around. It was a house in a nice little area, in a good school district and it was very close to grocery stores,?restaurants, and entertainment.
Those were the pros, but there were cons as well . . .
First, there were two front doors on the same porch (looked very goofy). I later found out that the husband had a home office for his business, so they installed the separate door for access to the office. While it makes sense, come resell time, it was biting them in the butt.
Second, the only bathroom in the house had to be accessed ?through? a bedroom. In other words, if I wanted to get to the bathroom, I had to enter into one of the bedrooms in order to get there. This is certainly not good from a seller?s standpoint. There were a couple other minor things; however, the two above issues were more than enough to seal the deal for potential buyers who didn?t want it.
The Opportunity
From an investor standpoint, this was a no?brainer opportunity. Simply replace the door with a window, build a tiny little hallway to isolate the bathroom from the bedroom, and BOOM, the lay-out makes sense and it becomes?sell-able. Given the feedback from the real estate agent selling the home, these items were exactly what was turning people off to the home. When I showed the buyers through, the property had been on the market for 60 days already, and I knew it would sit longer.
I went home, plugged and chugged the?appropriate?numbers and then I had it? drum roll please?the all important maximum price I could pay for the property. Real estate is a numbers game, and this crucial number that my spreadsheet spit out at me is the number that will define how long you last in this business (or how long you have it as a hobby).
I got a hold of their listing agent, told her that while my buyers were not interested (due to the above mentioned items), I was interested. I then told her that I am an investor, so my number would be much lower than where her seller?s was. She of course wasn?t going to turn down and reject a simple offer, so I told her what I?d be willing to pay.
Be Stubborn #1
This is when it is easy to be stubborn. I knew the offer wouldn?t get accepted, but I was planting that seed. As expected, the offer was denied; however, the sellers did budge some on their price. While not even close to the type of ?budging? I needed, it was a reduction nonetheless, so it showed they were starting to get anxious.
I told the agent that the price was too high, but to keep my number?in case?their sellers wanted to re-entertain?my offer.
Be Stubborn #2
Fast forward three weeks and an email pops into my inbox. It was from their agent, who was wondering if I was still interested. After expressing to her that I was indeed still interested, they hit me up with an offer that was better than what their previous one had been.
What was this feeling? What was this urge? What was this little evil voice in my head? I started to find myself trying to rationalize their new offer. I mean they had just lowered the asking price on the MLS and now they were willing to give me an even cheaper price??!?! That?s a deal isn?t it? WRONG!
After slapping myself in the face and dunking my head in ice water, I replied back that while I appreciated their willingness to?negotiate, due to my estimated repairs and other costs, I still needed the house at my original offer.
Be Stubborn #3
Fast forward one month. I get a voicemail from their agent asking if I was still interested. Well of course I was! After some?corresponses? she told me that they were now willing to accept an even lower amount.
BEWARE: This is where I (and probably) you will begin to highly consider ditching your trustworthy friend:?stubbornness.
It sure was easy saying ?no thank you? that first time, but now it had been almost 2 months and they were willing to drop the price quite a bit from where we first began. Surely that makes it a good deal at this point in time ? right???
This is why I LOVE numbers. They don?t care about external variables like that. Numbers won?t let your mind?deceive?you. Numbers don?t listen to that little evil voice that is trying to turn your business into a giant headache. Numbers are our friends, and the sooner you realize that, the easier and easier it becomes to keep?stubbornness?as your friend.
Be Stubborn #4
Fast forward yet another month. We are now sitting at three months from when I offered up my original offer. What is this? A voicemail from that agent? Again, she called and was wondering if I was still interested. Why of course I am!
The offer came in, and it was ohhhhh sooooo close, BUT NOT where I needed it. My fingers had never felt so heavy as I typed out the email rejecting the offer. That little evil voice was not so subtle anymore. It was screaming at me! ?Just do the deal! What are you waiting for? You?ve been stubborn for 3 months! Quit it!?
I?m not trying to be overly dramatic, but in the heat of the moment, out of pure anxiousness to get another deal going, I so wanted to just forget about what the spreadsheet told me and listen to the voice and the emotion. I?m sure anyone who has been in the business long enough can relate to the feeling.
The Pay-Off
Maybe three hours later, I get an email. It was the agent saying the buyer?s would accept my original offer.
Did I read that right? I did!
Did I almost three hours earlier blow the deal (on my end) by accepting their final offer to me? I did!
Thank you my good friend?stubbornness, thank you!
The project went on to be a very solid deal and is one of my best yielding land contracts in the?portfolio. I?m glad I stuck to my guns and didn?t ditch my best friend.
The Lesson
#1?If you haven?t heard it, listen up as there is NO (none, nada, zilch, zero) truer statement than this: you make money when you buy.
While it may not be impossible to still make money by paying too much, you might as well head to the?pharmacy?and pick up a few boxes of Advil and?Tylenol.?You?re going to need it over the course of the project to keep it profitable.
#2? Listen to the numbers. They are unbiased and tell you the true story. They keep that little voice in the back of your head in check.
#3? It takes effort. I?ve now embraced stubbornness as my friend, but it wasn?t easy at first. Heck, if I?m still being honest, once in a while I need to stare at the numbers a bit longer just to make sure I don?t ditch my friend. It may sound easy to just keep rejecting offers, but in the moment, things can get a bit tricky with your business emotions.
Photo: Angie Garrett
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Author: Clay Huber
Clay's Website: http://huberpropertygroup.com/
Clay has written 23 articles for us.
Source: http://www.biggerpockets.com/renewsblog/2012/10/26/real-estate-investing-discipline/
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