Episode #3: Why Thoughtful Real Estate Entrepreneurs Buy Property Directly From Sellers
Thoughtful Real Estate Entrepreneurs insist on buying properties directly from Sellers…rather than through agents. In this episode, host Jeff explains why. The focus for Thoughtful Real Estate Entrepreneurs is creating agreement with Sellers, by crafting and delivering thoughtful purchase proposals that are as perfectly crafted and tailored to the Seller’s needs as possible. It’s impossible to accomplish this without knowing your audience extremely well, and having a high-definition picture of who they are and what they are trying to accomplish. Jeff provides a real-life example of a deal he did where these principles were in play and resulted in an excellent outcome for both Seller and Buyer.
Links and References in the Episode
Free PDF Guide: 5 Critical Mistakes That Make Most Real Estate Investors Accidentally Lowbrow
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Full Episode Transcript
This is Jeff from the Thoughtful Real Estate Entrepreneur, welcome to episode number three of Sleaze-Free Real Estate Investing a show for those of us who have never really felt that we buy houses around in this show we take a stand against what we call the lower approach the mainstream guru seminar distressed seller approach that ends up giving real estate investors and slimy reputation. Instead, we discussed the strategies and tactics and philosophies that we call the thoughtful way, and enlightened approach to real estate entrepreneurship that focuses on constantly sharpening the sophisticated real estate entrepreneurs, three most critical capabilities, those are number one seller relations skills. Number two, deal architecture skills and number three opportunity vision.
What all three of these capabilities are successfully and fully emotion, you can make an excellent living today, and you can also be building, long term wealth, while creating value for everyone that you touch on today’s show notes can be found at www.thoughtfulre.com/e3.
Please do yourself and do us a big favor by just taking a second and hitting the subscribe button in your podcast app.
In the last episode we discuss the difference between real estate investing and real estate entrepreneurship, which is a very fundamental and kind of foundational concept so if you haven’t listened to that episode yet please go back and go ahead and do that. In today’s main course we’re going to be talking about another fundamental idea and that is why, TREEs, TREEs are Thoughtful Real Estate Entrepreneurs TRT TREEs work directly with sellers, rather than buying properties through agents. But first, as always, we’re going to have a little bit of food for thought.
After all, Thoughtful Real Estate Entrepreneurs like us TREEs. We like to feed our minds with things to think about thinking is one of the things that we do best, and here’s what we’re thinking on today.
Today’s Food for Thought is about the strategic importance of rest. Now, I learned. Originally from the good people at Strategic Coach which is a fantastic coaching group coaching program for entrepreneurs that I’ve been a part of for several years and I first learned from them. The concept that they call three days in a free day is 24 hours from midnight to midnight you know what you’re not doing any kind of work whatsoever. You’re not checking email you’re not responding to text messages about business you’re not reading industry publication or anything like that.
And a free day is extremely strategically important and for one reason here but I think is just an important twist on how we tend to think about three days like the same weekend or vacations. We tend to think as a society that vacation days or just days off weekends are a reward for having done well it worked hard in the previous day so Saturday and Sunday, feel like the end of the week, where you work hard, Monday through Friday, Saturday and Sunday as a reward. But, free days as Strategic Coach teaches us are actually not a reward for your previous hard work, they are a prerequisite to you being at your best in the future. So the good Saturday and Sunday and the freedom of course doesn’t have to be saturday or sunday can be any day. But a good Saturday and Sunday three day stretch there is what’s going to allow you to come back refreshed and full of creative energy and mental energy to be able to do your very best next week. Now, this idea of free days is probably more really relevant for entrepreneurs and it is for other people who are getting the traditional work environment but when you’re out there, and you sort of eat what you kill, so to speak. If you you know the only results are are are the ones that you create yourself, it’s super important from a strategic perspective that you give yourself the benefit of free days, so that you can always continue to renew yourself recharge your batteries in a way that you can come back to solving problems for yourself and for others and that’s kind of how we make money is by creating value and solving problems for others, have your best energy to do that. I was just on vacation for the last three weeks in fact, and the importance of that vacation is, it’s hard to even stated because when I left I had a million things on my mind and things stressing me out and problems that needed to be solved by just no longer have the mental energy after several months of not really having vacations are very many three days at all. But now I come back and recharge and I have that mental energy their capacity to to tackle things, and be at my best and begin by best as what I deserve and and frankly it’s what the world services what us listeners to serve.
So, don’t let your free days in your rest days get bumped they are actually not a nice to have reward for your previous performance. They are a prerequisite for your. You’re doing a great job in the future so don’t let them get bumped, do not let them get displaced.
That is today’s food for thought.
And that means now we’re moving on to the main course for today’s episode and the main course for today’s episode is why, for real estate entrepreneurs TREEs work directly with sellers to buy properties, as opposed to working through real estate agents to buy properties. Now, it’s funny, this is it. So, this is so fundamental this this concept right here. And I’m glad that we’re getting to a year in Episode Number three, because it is just like the foundation upon which so much other stuff is built that we’re going to be talking about, and even this topic itself isn’t something you just we’re just not going to knock it out here.
In one episode we’re going to be kind of walking around this topic in so many different ways. Over the course of many episodes now and in the future we’re going to be triangulating this topic from a lot of different angles in the future but today we want to kind of kick off the discussion to a Thoughtful Real Estate Entrepreneur.
This idea of working directly with sellers is so absolutely intrinsic, and it’s so hard wired into how we operate that it’s actually it’s almost difficult and awkward to step back and realize that you need to explain it to even figure out how to explain it, it’d be like asking somebody you know why they breathe or how they breathe you just sort of, when it’s up ordinance such an ingrained habit.
In a way of thinking. It’s just you just take it for granted.
But this is just what Thoughtful Real Estate Entrepreneurs do because once you start doing this, this way. Anything else kind of starts to seem a little bit nuts and we’ll, we’ll get to that here in just a few minutes. Now first of all a few important disclaimer scape. Please hear me when I say that this is not to say that real estate agents are bad. This is not to say that real estate agents, don’t do a good job.
In fact, many of my software real estate entrepreneur friends and peers have real estate licenses themselves, and they do a great job with it so the existence of a real estate license is not relevant to this topic. Many of you guys listening today might have real estate licenses, as well. There is certainly a very important place for real estate agents in the world, even in my own world.
I mean for the mainstream buyer the person who buys a primary residence and maybe one rental property over seven or eight years. Absolutely. That’s what makes by far the most sense.
And even as a professional real estate entrepreneur. I often so almost always sell my properties through agents, and I’ve got my reasons for that and which we’ll talk about those when the time comes to. So this is not a podcast about how agents are inferior, but rather, this is a podcast episode about how working directly with sellers is superior to working through any type of other intermediary. Because, first and foremost, as a Thoughtful Real Estate Entrepreneur I am a buyer of real estate, I am a seller real estate occasionally but I am first and foremost, and every day. I am a buyer of real estate. And I don’t do that through agents and what we’re saying here is that when you are a Thoughtful Real Estate Entrepreneur, buying property is your main thing. And if it’s your main thing you can’t really be outsourcing that, and you can’t really be keeping yourself at arm’s length from the people that you are going to be trying to do business with.
So here’s, here’s my overview. I think the simplest way to put this to start off and to give you a 60,000 foot perspective on this is that when you’re buying property with agents involved.
Real estate transactions are about real estate.
But when you’re working directly with a seller to buy a property.
They’re about people.
And that is a key, key distinction.
When you think about that extrapolate that out a little bit it’s almost like we’re not really talking about two different ways to buy real estate world was talking about two completely different games are we playing the real estate transaction game, or are we playing the people game that leads to real estate transactions it’s almost like two totally different games that you can’t compare apples to apples.
I often when I’m talking to sellers, and if it comes up you know the idea of of working with an agent or without an agent. One thing I often give them is this visual, And I want you to picture this picture of a music studio or recording booth, and there’s an audio engineer, sitting in front of a giant mixing board, and that music studio and the mixing board has got, you know 1000 dials on it, dials and buttons and all sorts of things you look at it, you’re like wow what is all that. How does anybody keep track of all that. Well, in this metaphor.
Those dials represent all of the many many different things that can be adjusted tweaked customized and whatnot. In a real estate transaction. There are so many things that you can make little adjustments on. But when they’re selling a property through an agent. It’s almost like that whole mixing board just gets boiled down to like a big board with one huge crude dial in the middle, called press and to change that dial you know you got to grab it with both hands and in a big sort of of noxious manner twisted, so you could have 1000 different little dials one of which would be price and lots of other things. Or you could just have one big huge crude one. And I think that that when you think about through that lens is just kind of crazy and then what’s the likelihood of being able to adjust the perfect mix in that audio booth. When there’s only one big giant dial to work with and not all of the smaller things to to consider as well.
So in order to do a deal, a deal of any type not just real estate but in order to do a deal. You need agreement, right, to get a deal done, you need agreement between the buyer and the seller. I don’t think too many people would argue, probably with that assertion. and the word that we use to describe that process of trying to find agreement is the word negotiation. So negotiation is about creating agreement and again I think that’s probably not something most people would object to or argue with. But while most people would probably accept that premise that negotiation is about creating that agreement.
Most people would have a different definition of what negotiation is and how it works. And most people typically feel that negotiation, kind of goes like this. both parties come to the table. They say what it is they want, and then negotiation is the process of the discussion. The debate, and the compromise until both parties, you know, either get what they want, or they decide that they can live with the outcome, and they both feel it’s quote fair.
That’s what most people feel like negotiation is. And there are different words that and the expressions people use like meet in the middle or, you know, sacrificing this and compromising, but that’s more or less what most people think of when they think of negotiation, but as a Thoughtful Real Estate Entrepreneur, this is a critical distinction. Your job is not to come to the table and state what it is you want, and then represented and defended to your seller. That’s not your job, your job is to lead facilitate and Shepherd a conversation towards agreement that your job is to lead facilitate and Shepherd, a conversation towards agreement that, in that sense, I didn’t say anything about saying what you want, stating what you want defending it. I’m saying your job is to lead a conversation shepherding it towards agreement. And you do that by working really, really hard to get to know what would be agreeable to the seller. If you want to create agreement, you have to understand what would be agreeable to the seller. And then you have to craft a proposal, and I’m very careful and deliberate about using the word proposal offer crafting a proposal that sense what you believe, would be agreeable to that so based on what you’ve learned.
Okay, so your job is to leave and Shepherd the conversation to agreement and you do that by getting to know what would be agreeable to that seller and then crafting a proposal that you feel fits into that.
So, if you have to figure out what would be agreeable to them.
Then you have to be able to understand and see the picture, completely and clear. Okay.
So, I’ve always felt like buying property through an agent or tried to buy property through an agent is like watching a movie it low resolution.
It’s pixelated, it looks like it’s coming in from about 500 miles over the rabbit years, in a way, it’s black and white, and you’re squinting at the screen.
Like you think you know what’s going on, maybe in the picture. But in truth, you can barely make out like the main shape so you might not realize just how unclear your vision is, but you can’t really see it low res pixelated black and white, and you’re kind of squinting at it. but if you’re working directly with sellers. That’s like watching the same movie, and 4k HD high def. And you can see all the details. Not too long ago, my wife and I got a different TV. And when I first turned on, soccer games My favorite thing to do and wash. I thought oh my gosh, I didn’t realize that it was really possible to be able to see the players jerseys and the bolts of their jerseys from on TV, the way that I’m seeing them. Now, because my TV was upgraded as much higher resolution. I remember what my brother got glasses he was in high school, and I remember hearing that he said something to the effect of, you know, I never realized it was possible to see the leaves on a tree. So clearly or see both sides of the leaves on the tree. He didn’t even know what he was missing until he got the glasses. And then he realized all the missing before. And that’s kind of what it’s like. If your point of references you’ve been working through agents to buy real estate in the past, starting to work directly with sellers, is that same kind of experience, you start to see the picture and high def, and you didn’t even realize that it was possible to see that before.
And then of course you know you have the field, telephone effect. Often when you’re working with realtors because if you’re the buyer you have a realtor and the seller. They’ve got a realtor. Now, you know, it becomes, it becomes a pretty literal game of telephone, and we all learned in elementary school. You know how that goes. Things get lost in translation. Pretty darn quickly.
In my experience by large, the world view of agents, is that they don’t really need to know why they’re seller wants what they want.
In fact, sometimes they, they, they think it’s none of their business almost as a badge of honor. It’s like, I don’t care what my why my seller wants a big one. I just know that one it’s my job to get it.
And I do think that the agents tend to try hard not to let things get lost in translation, but the effect is that while it might not get lost in translation. They do get dumped down. And so the agent isn’t even seen their own clients perspective in HD we’re just seeing it in standard definition and best. And then when they make a phone call to, you know, your agent that agent makes a phone call to you, the definition the quality just keeps getting lower and lower it’s like if you take a photocopy if take a sheet of paper and photocopy and then you photocopies and photocopy photocopy the photocopy and keep doing that, it just gets crazier and greener and greener, to the point where after a couple times you can even read it, give you a quick example of something that struck me recently.
I was actually entertaining and conversation through a realtor somebody I know a good, a good person, inexperienced realtor. And he brought to me an opportunity with, with the seller so in this case there was only one real estate agent involved.
And I was asking him some questions to try to get the highest definition picture possible about his cellar and what she wanted and why she wanted it and how I might get the memo I needed to craft a proposal that was really going to hit the target for her.
And I asked him what she wants and he, his response was, and I quote, I think it’s three things I think it’s money, money and money, and he’s kind of a funny guy so he was being sarcastic but he was also being serious. And I stopped I thought to myself No. That is not what your seller wants money is ink and paper. Nobody wants money. People don’t want to make green ink and paper, they want what the green ink and the paper can do from them. Yeah, so the seller doesn’t want money maybe she wants to take a trip around the world with her grandkids before they go off to college and she thinks that’s the last dedicated time together, she might have with their kids before they become adults grandkids. Maybe she wants to buy her dream conversationalist and pay off her house because of some deep seated belief that it’s the dead is mad, and that that’s been our goal, all along. If you, if you don’t understand what somebody wants to do with the money that you really have no insight at all, and it, because everybody can sort of just say it comes down to money, but it’s always, always much more detail than that because nobody wants green ink and paper. They want what that green ink and paper can do for them.
So let’s say now that you do realize that that you could be seeing the picture in HD and you’re like okay that would that would be nice. But why is it that that would be that helpful. What good would it do for you, how would it be valuable to you. How would knowing, clearly what the seller wants be helpful to you.
Well, your ultimate goal as a Thoughtful Real Estate Entrepreneur is to deliver the most on target tailored proposals that seller, that you possibly can.
And the more that you know about the situation.
The details of their goals in the why behind their goals. The more Taylor of a proposal. You can put together a more tailored it is, the more it’s going to hit the target of what they’re trying to accomplish and I think the word Taylor is a really interesting one to stop and think about imagine a tailor like literally somebody makes custom clothes. Imagine a Taylor, and the Taylor has an agent, and the agent calls the clients agent who then calls the client and the client says what they want, and then tells their agent, there is called the Taylor’s agent who calls the Taylor, and what the clients agent tells the tailor’s agent back then ultimately tells the tailor Is there a size medium.
Okay, how good of a suit.
Can that tailor made for that client. If that’s the level of understanding they have like nobody took any real measurements, they just sort of said yeah you know their medium. We don’t have the DNC we don’t have the arm length or have the next size. We don’t have any of that information but Taylor is not going to do a very good job creating an awesome suit that’s going to make that buyer of the suit, very happy because they can’t talk directly to the client they can’t find out how are they going to wear the suit, what the context.
What do you like about the other since you’ve had that are created. What do you like about other people Susan you see them let me get out my tape measure and measure a few things and let’s talk about.
If you know all the dimensions, down to the eighth of an inch as a tailor. You’re going to make a much better soon. And the same thing is true in real estate as you’re creating a proposal. If you have measured the seller, so to speak.
By getting to know them getting to know their situation and goals, everything about it, you’re going to be able to put together a proposal that is so much better than it would otherwise be.
So all this to say is that to create agreement. You must know the audience that you’re trying to create an agreement with. You just can’t do it. Otherwise, you know, as we say at the end of the podcast.
Solve the person to a lot of the deal. That is so key here, you can’t unlock the deal unless you solve the person and you can’t solve the person, unless you understand who your audiences.
And you can’t understand who your audiences without communicating directly with it, you cannot do it from a distance, you cannot do it at arm’s length. So here’s what I do. Every time I’m in a situation or talking to sellers pretty frequently.
That is the main objective of my business of course is to buy property.
I’m asking myself this. Okay, I’m asking myself. How can I craft, and then present a proposition that I want the seller to agree to, in a way that best fits into the sellers existing thoughts, beliefs and opinions.
Okay. In other words, I want to deliver a proposal that’s deeply tailored to them. Okay, I’m going to repeat this sentence because this is really important and I’d like you to get this word for word. How can I craft, and then present a proposition. I want the seller to agree to in a way that best fits into their existing thoughts, beliefs and opinions.
Because if I can do that, if I can deliver a proposal to them a proposition that I want them to say yes, yesterday I can deliver it in a way that already just fits perfectly into the way they already think then guess what happens, there’s no friction.
I’m not trying to change their beliefs I’m not trying to change their thoughts. I’m putting my proposal in the context of what they already think and believe when there’s no friction, they say yes. And not only do they say yes, they often say yes, and they say thank you, they’re grateful to have had something tailored just for them because, you know, they go, Oh my gosh, this so perfectly. It’s you understood exactly what it is, I want to accomplish. One of my favorite things to do is when I’m going to present a proposal, as I like to recap, verbally recap to them. Here’s what I understood your objectives to be let me get these back to you.
And paraphrase them because I want to make sure I got it right. I want to make sure I understand the target correctly.
And so then I’ll say here’s what I understood this point, this point, this point. And it’s amazing to see the look on people’s faces when they’re like, yes. Thank you. I feel so her I feel so listened to you understood that perfectly. And that right there pre frames, everything you’re now going to say your actual proposal is already pre framed to be something that they want to say yes to because they feel like you’ve really listened to them and understood them.
So if I’m going to do this, if I’m going to craft and present a proposal to them in a way that fits with their existing thoughts, beliefs and opinions that I must collect those thoughts, beliefs and opinions in advance. Right. I can’t fit something into those thoughts, beliefs and opinions of I don’t know what they are. So I have to collect those first.
And again, you just simply cannot do a good job of doing that.
If you’re at arm’s length from somebody if you’re playing telephone from somebody, you have to be doing it directly with them and frankly, you’re also way better way better off, way, Way, way better off doing it, face to face doing it over the phone is certainly a million times better than doing it through intermediaries like agents.
But even doing it over the phone is inferior to doing it in person and so that you know go back to our TV analogy that the picture that you’re getting over the phone is in color, but it’s not HD it’s more like standard definition. So it’s better than nothing, but it’s not anywhere near what it’s like to be face to face with them. So how do you collect these insights about their thoughts, their beliefs and their opinions. Well, you do it in really in two ways that go together. You observe and you act very perceptively you when you show up at their home. You know you’re literally, physically observing what you see around here observing what you see about them about their living space about how they act how they how they walk is somebody limping because they’ve got a bad back.
What types of pictures around the wall what music might be playing is this place been remodeled in the last 40 years. Are you sitting on like what feels like your grandparents couch.
What types of cars are in the driveway and in the garage, all sorts of things and there’s a billion clues in somebody’s house that you’re observing and you’re being perceptive about if they’ve got a, you know, a picture of Ronald Reagan hanging on the wall that tells you something about them that tells you something about their thoughts, their beliefs and their opinions.
So it’s observing and being perceptive is first thing But the second thing and this is where I would suggest you focus more of your time at this point is learning to ask great questions that are designed to tease out those thoughts and beliefs and opinions for them.
It’s like opening, it’s like asking a question that opens a door for them that they can just walk right through the door and tell you what they think and feel and believe about certain things related to the deal, and even unrelated to the deal.
So I’m going to give you a real life example from my own my own world. In the last 15 months.
So about 15 months ago, I sent a letter to the owners of several small multifamily properties so like let’s say five units to eight units in my city. And one of these recipients called me back. They were the owners of the five Plex. And, again, my list was crafted by people who have five to eight unit plexus, they owned it a long time I think I put my filter on my list at like 10 years or more.
And the reason for that was I wanted a list of prospects that I was reasonably certain would have a lot of equity, because they owned it long enough that you know could have been paid down, and the market it changed a lot in those 10 plus years, and probably most importantly, people who own a property that long, are probably now looking at a capital gains issue, capital gains tax issue. They’re going to have a big game do and there’s only a couple ways that can really handle that.
I love people with capital gains problems. I feel like I was born to serve people with capital gains problems because their candidate for seller financing and I’ve become good at tailoring proposals for those types of people that solve their needs well and also kind of work for me.
So this particular property was an excellent location is a little bit of utilitarian kind of housing wasn’t particularly romantic.
In terms of the structure to make your heart go pitter patter but on the whole The location was really really good. In its neighborhood, it was on slightly busy street which probably wasn’t ideal but it was a really excellent part of town, very very high demand.
So I get a call from the seller, we have an initial phone conversation as I do. I basically tried to get off the phone as quickly as possible with him in favor of getting together, face to face. So, I show up the next day at their house. And I’m sitting in their living room.
And I’m knowing based on what I already know about this property, I know that, ultimately, what I’m hoping to get to here is a seller financed proposal.
I’m pretty sure that these folks are going to be a good candidate for it. I’m pretty sure that there’s room to increase rents to market rents, I’m pretty sure that. Based on this, just roughly speaking, I could probably pay upwards of about a million dollars and make this deal work. So I just come in with these kind of broad parameters in my mind. But now, am I going to come right out and kind of tell them, and offer them what it is that I want, and then start kind of defending and representing it to them, and trying to compromise with them to match what it is that they want. No, no way.
Not even close. As a matter of fact, I’m not gonna say anything about what I want. And also, here’s what I did.
The first several minutes of the conversation. Nothing to do with real estate, nothing to do with this property. I’m getting to know them. I intentionally delayed talking about the real estate as long as I possibly can by asking them questions about the other stuff I see around their house and in their room. How long have you guys lived here quite gosh look here since the 60s that was the answer by the way. Holy smokes that’s a long time so you have kids of crazy raise your kids here. Oh my goodness. You must have seen a lot of change here in this you must have been one of the only houses on this particular hill that time right, we had this long nice conversation about nothing to do with this piece of property that I came to discuss with them. We built report together. I’ve got to know them, they got to know me and we decided we liked each other.
Eventually as the conversation naturally progressed, I asked them some questions about the property that I had sent them a letter about.
Careful, and targeted questions that were designed to uncover those existing beliefs thoughts and opinions. So I asked them for instance. Why is it you feel that right now is the right time to provide from this great property. Obviously it’s been a winner for you. Why, why is now the right time.
I asked them.
Let’s say you do, you know, get, get something taken care of here that you really like and feel good about what you’re going to do with your new film time.
I asked him, How is it that you would like to see all of this, come together. And through this sort of series of open ended questions, which I asked a question and just be quiet and listen to very very very carefully take excellent mental notes, here’s what they voluntarily told me.
They told me that that they knew that the tax value of this property was over a million dollars, but that they felt that was and I quote, out of sight. They thought that was kind of a ridiculous figure.
So, again, they’re not telling me what they want that they’re giving me a real important reference point of our number here instead of marker. It’s like a booking right so we know this conversation is not going anywhere.
Because they’ve already said I think I’m really it’s crazy.
They told me that they were hoping to sell property on a contract with the seller financing for two reasons to defer their capital gains and continue getting income without needing to do a 1031 exchange. So inside at this point inside only. I am just fist pumping because this is exactly what I was hoping to hear and I opened the door they walked right through the door.
They told me that the husband wasn’t in as good of a health. Good health as he had been in terms of this mobility and his hip hurt. And he didn’t want to have to do the maintenance any longer. There was a little bit of maintenance to be done.
They told me this was October by the way when, when I was sitting with them, and they told me that they wanted to close the following year, for tax purposes. So they wanted to kick their gains of it depending on the sale the property or down payment or anything into the next year which would mean that they wouldn’t have to deal with it until the April following them right so it’d be like putting it out. Another 15, or 16 months for them.
They told me that they had received another offer from the property or other property, which they had countered, and then they never heard back from the person who made the offer which they thought was really weird. And that offer was structured as a cash sale or a financed sale with a buyer.
So, I learned a ton from them, a ton of super valuable information just by asking a couple questions, and then just being quiet and listening.
I also really wanted to know if I can get it from them what it is that they had been offered that they didn’t like before. So I asked about Would you mind telling me what it is that the other buyer had offered you didn’t feel like a good fit. And the husband said, you know, we’d really like to not do that we’d rather just have your best offer to us that that’s not a surprising answer. I’ve heard that answer, a million times before. So, but in this case though I knew they encountered and so I thought to myself, why don’t I try to come at this question from a slightly different angle and see if I can get just as valuable information I said, Okay, sorry, I totally respect that. If I may ask if you wouldn’t mind telling me, would you be comfortable telling me what it is that you counter their offer at because I would like to make sure that my proposal is is on target for you as possible. So any insight you have around that.
And he said, Okay, I understand that what we countered at 850,000. Okay, so he didn’t answer my first question about what was offered to him but he ultimately gave me more important information, which is he might as well be right yes, we would take $150,000 for this property. So I said, Okay, I understand I appreciate you sharing that information with me.
So at this point, inside I’m going. All this is all like green lights, in my mind, I already know that this deal can work for me. They’ve just voluntarily given me nearly all the information I need to make an awesome proposal to them that I personally would be very happy with to the only major element I guess I didn’t have any information on was interest rate you know what if we did do some sort of financing, what type of interest rate would expect, but from the context of this conversation. I felt like these are pretty reasonable people, these are people who are probably thinking about mobile mortgage rates as their point of reference. And so I just said okay, I can deal with not knowing that one particular element.
And the best part of this is I knew what I was ready to present my proposal to them. It was going to be entirely framed as mean giving them exactly what they asked for. It was not going to be afraid at all about what I wanted. It was going to be me saying here’s what I heard from you. And here’s how I would recommend we go about it to achieve your goals.
They would never even in this case know what it is that I wanted in the first place, and they wouldn’t even care because I made it about them. And they, they just knew that I was going to do a good job, addressing. So, at this point, I didn’t want to look over sell and so I was just bursting with excitement on the inside. So I said, You know me I have a couple hours I want to go back to my desk. I want to sharpen my pencil I want to do a little brainstorming and then come back to you in a few hours with a proposal would that be okay. And they said yes.
So I came back to their house.
A few hours later five hours later so here’s what I proposed, and here’s how I said, and I remember seeing this pretty much verbatim I said, Is it safe to assume that if I could give you the price that you had countered your other offer now. And I could structure by purchase at that price in the tax deferred way that you wanted structure with the contract.
I assume that would be a good thing for you Is that a fair understanding, and then they said, Yes, I said okay. So, in that case we have a purchase price of $850,000. I would like to recommend that with this contract structure that you suggested that I give you $85,000 down so that’s 10%. And my thought process on that is that this is just enough of a down payment, so that you know that I have skin in the game. And that I wouldn’t want to walk away from that much equity. But it’s not so much that you’re going to have unnecessarily large down payment, which means unnecessarily large tax bill on that down payment to you. That’s my thought process. Do you agree with that as well. You told me that different as much of your capital gain as possible is important. Do you think do you agree that that hits the market, they said, yes, we agree with that thought process. And I said, Okay, well let’s talk about when we might be able to get this transaction done.
I said, I know that you’re excited to get this handled soon but I also know that you’re hoping to get it closed next year, simply for tax purposes.
I gotta be honest, I’m really excited about this. Frankly, I would like to close this year, if at all possible, so I had an idea, and my thought was, for the purposes of putting, most of your game into next year.
How about I give you your down payment, which we just said would be $85,000 into chunks. I’ll give you $20,000 at closing in December. And then, like February 1 and next year I’ll give you the other 65,000. So you There’s your 85,000, but we put most of it, we’ve closed the transaction this year, but we’ve actually put most of the game that you would be paying tax on into next year. Do you think that makes sense as well. Do you agree with the rationale behind that. And they said yes, we agree with that rationale as well. I said, Okay, great. So we have an $850,000 purchase price. We have an $85,000 down payment. So we have $745,000 or we’re going to put on a promissory note, and the collateral for that promissory note will be this property that I’m buying from you.
I would like to offer and recommend that I pay you 4% that’s pretty typical mortgage rates these days and I did the mouse and I see that with this note of $745,000 at 4%, your monthly interest only payments are going to be just about what you’re currently getting from this property so you’ll sell the property, you’ll get some cash for me up front, you won’t have the responsibility yeah your income will stay effectively the same as what it is now, as the owner.
Then in 10 years will have a balloon payment, and you get the rest of it then and you can then deal with your capital gains bill at that point. Do you agree that that meets the goals that you mentioned to me and they said, Yes, we agree.
And then I said, Okay, well, I want to make sure that you don’t get cashed out early. If I need or want to sell this place before the 10 years comes because I know that you felt very carefully about your capital gains tax strategy and your income, planning, during your retirement here, and I don’t want my decisions down the road to screw up what you have planned out here so carefully. So what I’d suggest is that we write in something that gives me the flexibility to substitute the collateral on this note to a different piece of property that I own. If I want to work go to the go to sell this property so that we keep your loan in place all 10 years, and you don’t get cashed out unexpectedly and then sort of deal with those the problems that come from the unexpected cash out. Do you agree that that makes sense for your goals and I said, Yes, we do.
I said great, I think, with those things in mind we can probably close in about four weeks, I would like the only thing I really need to ask you for it’s just a short contingency period to do my due diligence, do some physical inspections, take a look at your Lisa’s. I think we can close, four weeks, I’d like to give you $5,000 earnest money and take it right to the title company today without work for you, and they said yes, we agree that makes good sense.
So that was the nature of our deal.
And all of those things. All of those things are like, exactly what I would have ideally wanted to offer them in the first place, but I never even had to say what it is that I wanted.
Instead, I gathered information and insights about them from them by being face to face with them. And then I framed my proposition in a way that align with what they want it now works great for me too but the conversation was about here’s what works for Jeff, the conversation was about here’s what works for you. And if they had been selling this property through an agent. Never in a million years, would I have been able to craft something that fit them so perfectly and fit me so perfectly because I would have never had the opportunity to have the conversation really uncover below the surface what it is that they wanted to.
They wanted to accomplish why they wanted to accomplish it what things were important to them, and whatnot. So in the end, I control this but you know basically a million dollar property, getting it below market rates.
I control this million dollar property during the escrow period for all the $5,000 of earnest money. And then I owned it for only another 15,000 more for a total of $20,000 now that sure, a month or so later about six weeks later I owe them another $65,000 which of course I, I did and I took the opportunity to again be face to face with them. And to show up at their house with a check and hand it to them and say thank you and shake their hands and give them hugs and things too. But I bought this million dollar property for $850,000 and only $20,000 down, which bought me a little bit of time to arrange the other $65,000. And it better serve the seller, and their needs, around the timing of receiving their money.
The timing of receiving their money is one of those examples of the hundred little dials that’s on the mixing board. When you look at it like that.
Rather than just one big giant dial in the middle, called price.
Another one of those little dials that got adjusted for the sellers benefit.
So, in conclusion here talking about
why we are seller or why we as TREEs insist on working directly with sellers.
There’s simply no other way to do it. That works as well when you take a Thoughtful Real Estate Entrepreneurs approach, you end up with better proposals, you end up with a much higher chance of reaching agreement and getting a yes, you end up with a much higher chance of them actually not only saying yes but saying thank you. And you’ve got great vibes sort of from everybody involved, and you end up with much better deals, when you are able to get face to face and extract the insights from them that you need in order to make the best possible proposal. What I found is that the more I work directly with sellers, and I’ve been doing this for about six years with this kind of mentality, the more and more and more I do this, the more living rooms I sit in the more totally insane, that the traditional agent based intermediary way of buying, buying real estate seems to me, and then I step back and realize hey, I’m the weird one, you know, to me it seems insane to try to do this without being able to be directly with the people on the other side of the transaction. But I realized I’m the weird one. I am the non mainstream one but then again, I’m a full time professional buyer of real estate, and I have different needs, I have different ways of going about doing these things and ever, occasionally I do get tempted to make an offer on a property that’s listed, or discuss property through an agent, and just about every time I, myself, I find myself, kicking myself at the end and saying I knew, I knew that was a bad idea I did end up going anywhere I wasted a bunch of time, because I was never really able to find out everything I needed to make a great offer that we’ve got accepted for TREEs, us but for real estate entrepreneurs we just cannot fathom going out into the world, trying to make a living for ourselves and build wells and meeting to compete hard in the world. While squinting at a little red, black and white scratching image.
What an unbelievable disadvantage. That is, and there’s just really no reason for need to do that.
So before we wrap up today guys just a few important notes. We have created a free PDF guide that is available for download and it’s only for Sleaze-Free Real Estate Investing podcast listeners. It’s called “Five critical mistakes that make most real estate investors accidentally Lowbrow.” For instant access to that PDF guide, just go to pod.thoughtfulre.com. This of course is in the show notes as well which you can find at www.thoughtfulre.com/e3
Thank you so much for listening to Sleaze-Free Real Estate Investing. On the next episode, we will be discussing the three types of seller marketing that Thoughtful Real Estate Entrepreneurs can engage in the three categories reminder take a look at the show notes and until next time, this is Jeff from a real estate entrepreneur, signing off.
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