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Sometimes, we work with Sellers who are very open to the conversation about selling us their properties, but who may not be sure exactly how to make a decision. This can leave them ambivalent and unsure about how to proceed. In this episode, Jeff describes a simple but powerful two-step framework for helping a Seller to get clarity on their own situations and options, so that they can make the best possible decision.
Episode Transcript
Sometimes we meet a seller who is very open to having a conversation with us. But sometimes they’re just a little bit unclear of how to navigate their decision making process. Maybe they’re not 100% sure exactly what they want to accomplish. Or they’re just seeing different pros and cons. And they’re just having a little bit of trouble deciding, kind of, what the right thing to do is. Well, in this episode, I want to talk with you about a very, very simple but clear and powerful framework, a two step process that we can use to help present information to these types of sellers in a way that will give them clarity and help them make the best decision for them. And we’ll help make our proposal to them seem very attractive in terms of achieving what they want ultimately with the sale of their property. So Let’s cue up the theme song. Let’s jump right in.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Thank you very much for joining me for another episode of Racking Up Rentals. Show notes for this episode can be found at www.thoughtfulre.com/e190. Please do us a big favor by hitting that subscribe button in your podcast app, it does make a big difference in helping other fellow thoughtful real estate entrepreneurs who are searching for a community in a message like this to find it. Alright, so onward with today’s episode.
So many years ago, I bought a property. I guess maybe that’s the spoiler alert, I did end up buying the property. But this was a little tiny house in a neighborhood that was just adjacent and basically the same neighborhood really, as the very first house I ever bought, the first house that my wife Jessica and I ever lived in and we still had as a rental. And this is just this little tiny house with a husband and wife who owned it. And they’re very, very nice people. And you know, I started going through my normal process of working with them and understanding kind of what’s going on in their world, what they might want to accomplish. While they’re thinking about selling it turns out, they actually lived pretty close to this property previously, but had recently moved about six or seven miles south. So it wasn’t quite as close as it used to be. And they were just feeling like maybe as they are in retirement, it was time to not be, you know, owning and managing this particular property anymore.
So I started, you know, kind of diagnosing the whole situation and really discovered that they were really perfect candidates for seller financing that I felt like that was really going to solve their situation really, really well. And if obviously, that would be something that would really work well for us. And so I sat down with them in their house at their, at their dining room table, which I’ve now said that many, many times including, again, spoiler alert, even very recently, and made my proposal to them. And they said, Okay, well let us put our heads together, we have a financial adviser so we’re going to call him and talk with him about it. And then we’ll get back to you. And so they a couple days later called me back. And then they said, you know, we talked to our financial advisor, and he just really doesn’t think that the seller financing is the best thing for us. And so thank you for the offer. But we were gonna have to decline. And I hung up and I said to myself, gosh, this, this doesn’t make any sense. And so I waited maybe a day or so and I called back and I said, Hey, would it be okay, if I come back to your house and sit again at your dining room table because I respectfully disagree with what your financial advisor suggested to you and recommend it and I’d like to just explain my thoughts. Now you don’t have to change your mind. But I do think this is worthy of just another few minutes together so that you feel super confident you made the right decision, whatever that is.
At the end of May I come back by and just share my thoughts and they said Sure, no problem. So I went back by the next day and had this conversation with him. So I’m going to put a pin in this and circle back to the end of the story in a few minutes, but I want to talk about the principles here of what we’re going to talk about overall. Like I said, in the intro, sometimes you have a seller who is a little bit wishy washy about understanding exactly what they want to accomplish, you know, they know that something just doesn’t feel right to them anymore about owning this property at this time in their life, but it’s not really, really clear for them to say, here’s exactly what we’re selling. And here’s exactly what we want life to look like afterwards, they just sort of know, like, just feels like this is over, I think we kind of want to move on. And that’s great. But that ambivalence or sort of lack of real precise clarity about, you know, what they’re trying to accomplish can be challenging to work with, because it’s difficult to frame a proposal around specifically getting them where they’re trying to go, when they aren’t 100% clear about where they’re trying to go and exactly what their own kind of framework for making this decision is. And so in this process, I think we can do is we can employ a very, very simple two step framework that I want to outline for you here.
In the deals workshop, one of the things that we talk about, as we’re talking about deal analysis is, we call this this is the part of the process, we call solving the deal, and you can only solve the deal after you’ve solved the person. Well, when we talk about this deal analysis in solving the deal, we have what we call the empathetic noi. Okay? That probably sounds funny to you. What is the empathetic noi? Well, basically it means what does the seller think that they’re getting from this property right now, right, you and I, we can create our own analysis, pro forma of a rental property that says, you know, here are the gross rents, here’s any additional income from laundry or whatever, here’s our various expenses, hard expenses, like property taxes, insurance, utilities, garbage, we might be paying for whatever, we have some sort of soft cost allocation types of things like vacancy rate, and maybe a management allocation, possibly things along those lines. And so we know what we think the actual net operating income of the property is, we’re going to save something in reserves for some vacancy and some turnover costs and CAPEX maybe and stuff like that. But almost certainly, almost certainly the seller is not looking at it like that the seller is not in a position where they’re thinking about reserves, in all likelihood for, you know, a turnover, they’re not thinking about vacancy, because they’re keeping their rents so low, there’s no vacancy. They’re not thinking about those types of things. They’re just looking at hard expenses, right? hard costs, they know for sure, in arguably that they pay X dollars a year in property taxes, they know inarguably that they pay X dollars for a water bill or an insurance bill or whatever. So they’re empathetic NOI is what they think that this property does for them each month.
So that brings us to our simple two step framework. And it sort of works just like this. Step one is establish in the conversation with them exactly what the property is doing for them now. And then step two, is to present for them. Here’s what the property could be doing for you. So this framework is very, very simple, but very powerful. We’re talking about people who are kind of floating and not anchored down to one particular way of making a decision.
So here’s what we’re simply doing. We’re saying, Okay, guys, let’s do this. Let’s agree on what this property is doing for you now. And then let’s talk about what it could be doing for you. And you can see if you think the latter is better. So we’re going to establish what the property is doing for them now, which means we’re going to understand, what is their current experience with this property, financially and otherwise, right, the property, what is it doing for you now? Well, every month you think you’re getting at the end of the month, $250 of cash flow, right? That’s your perception that we might perceive they’re actually getting less than that, because again, we’re doing our performance differently. But they think they’re getting $250 a month in cash flow. They feel like they’re having a once a month maintenance call. And they feel like they’re having an experience where it’s hard for them to take a trip because they’re wondering about something that might happen while they’re gone. So this is establishing a benchmark and objective benchmark that they agree to and we agree to, here’s what this property is doing for you.
Now, in other words, here’s how you’re benefiting today, right now from the ownership of this property. So now by establishing this benchmark, it sets us up very nicely to say if I can show you a proposal, where you will be benefiting more differently. then you are right now, then that’s certainly a proposal that you should consider because it’s objectively better once we just identified what it’s doing for you now and how you’re benefiting from that to what it could be doing for for you, and how you could be benefiting from that.
So Now secondly, we’re going to present our simple version of here’s what this property could be doing for you, here’s how you could be benefiting from it. And now, if we are proposing, well, anything but especially seller financing, we are comparing what they will be receiving an income to what they’re receiving in noi. Now, we’ll be comparing what their management situation or responsibility or feeling is, to what it could be, if they were to accept our proposal.
In many ways, what we’re really talking about here is we’re taking people who are having a hard time deciding how to make a decision. And we’re giving them away to decide how to make a decision. We’re giving them some structure. In other words, we’re saying, All right, well, I understand you know, you’re, you’re considering lots of different things. And maybe you’re not sure what decision to make. But let’s let’s just decide this, you can evaluate where you’re at now, what this property is doing for you, now, you can evaluate what it could be doing for you. And that’s probably a good way to make a decision. If you think the latter is better than the former, then there you go, now you’ve got a good way to feel confident that you’re making a decision that is in your best interest.
So let me circle back to my story of this acquisition. So I show up the next day, at their house, and I sit down at the dining room table. And I say thank you for letting me come back by here. Like I mentioned, I am really glad that you’re getting input from the people who you feel like will help you make a good decision. But I kind of respectfully disagree with the conclusion that they came to. And I just want to explain why. Let’s take a look at what this property is doing for you. Right now. Right now, today you are getting about $200 a month net in cash flow, right? Because you got these rents, you got these expenses, and you have this mortgage payment. And so each month, from an income perspective, you’re getting about 200 bucks, does that sound right to you? You’re right. And they said, Yes, that sounds right to us. And I said, okay, and in terms of other things, you know, that are affecting, like your overall experience here. You live a few miles away, now you get occasional calls about this. It’s not it’s not too intense, but you’re always kind of wondering if that’s going to happen. And so basically, you’re getting $200 a month now is is your benefit. And you know, there was always this lingering thought that maybe something would come up with the property is that sound like a good summation of where you are right now?
And they said, Yes, I said, Okay, so in that case, let’s then take a look at with my proposal here, what the property could be doing for you how you could be benefiting from it. Because what I have proposed here is something that will result first of all, and after we pay off your small mortgage balance, you’re gonna get $10,000 at closing. So right off the bat, you’re going to have an extra $10,000 of liquid cash that you didn’t have before. Each month, my payment to you is going to be $450. So in other words, it’s going to be more than double what the current cash flow is that you get the $200 per month. And then lastly, but certainly not least, you’re going to have this additional $10,000 And this additional double more than double your cash flow each month, your income, you’re also not going to have any management responsibility, you’re not going to worry about any maintenance things coming up or any collections issues or anything like that. Any vacancies, nothing like that.
Now, we’ve established what the property is currently doing to benefit you. And I’ve just shared and helped you see for sure what it could be doing for you with this proposal. Does it seemed like my proposal benefits you in different and better and more ways than the property currently does? And they said, Yeah, actually, it actually does. And I said, Okay, I, I want you to make whatever decision is going to be the right one for you. And I want you to feel confident in it. And it’s totally up to you. But I think objectively, when we look at column A is here’s what the property is doing for you now and Column B, here’s what it could be doing for you. It seems to me like column B is better for you overall, but you guys decide. And they said okay, let’s think about it again. And we’ll call you back. And then the next day, they call me back and they said yep, we agree with you. We’ve told our financial advisor that we really appreciate his input we’ve considered it and we’re going to decide to sell this property to you with seller financing, and we’re excited to have our income double and to receive that little cash bump at closing of $10,000 as well.
So, in conclusion here, that the simple takeaway of this, I think, is pretty simple and pretty clear. In lots of aspects of the negotiation, simply what we’re trying to do is help the seller frame their situation as here’s what this property is doing for me. Now, here’s here are the winds I’m getting from this property on a monthly basis on an annual basis, whatever it is, and those things might include, you know, I’m getting these tax write offs and these tax benefits, I’m getting this potential for appreciation, like what do they think they’re getting, and benefiting with the property now, and let’s make sure that when we present our proposal to them, that they can compare it on those terms, and they can say, here’s what the property is doing for me now. Here’s what the property could be doing for me. And if we do our job of making sure that column B you know, the what the property could be doing for you, is better than column A, we’re gonna have a really, really high likelihood of getting the answers we want, which of course is a yes, I will sell you my property based on your proposal.
That is it for today’s episode of Racking Up Rentals. Again, show notes for today’s episode are at www.thoughtfulre.com/e190. Please do us a big favor by hitting that subscribe button would be so appreciated. And if you would rate and review this show just real quickly, doesn’t have to be long or eloquent. Just a rating there and a couple words would be super, super helpful and very appreciated.
Did you know that we have a Facebook group for Thoughtful Real Estate Entrepreneurs too? We do and you should be a part of it. It’s called Rental Portfolio Wealth Builders and we would love to have you join us there. Just go to group.thoughtfulre.com and you will be taken right to that page we can hit the Join button. If you liked this episode, please take a screenshot of that and post it to Instagram and tag us; we are @thoughtfulrealestate. I will see you in the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.
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