As an entrepreneur in real estate investing, I’m constantly out in the world talking with owners (soon to be sellers!) of properties I want to buy. At some point that conversation has to turn from just talk into something more definitive. How that transition happens, and when that transition happens is for another post, but once that transition does happen, it’s on us to put something in front of the seller for their consideration.
Of course, there’s common language for this in the real estate investing world–we call these “offers.” Many people say that the more offers you make, the better you’ll do. I’d like to take a moment and offer a slightly different perspective on this, for your consideration. I’m going to go out on a limb here and say something controversial:
You should stop making offers.
Before you revolt, allow me to explain.
I want to encourage you to make “proposals,” not “offers.” Does this seem like po-TAY-toh vs. poh-TAH-toh to you? Does it seem like splitting hairs, and semantics? It’s not, I can assure you. Let’s dissect.
What Are Offers?
- Myopic and Self-Centered–it’s you telling them what will work for YOU.
- Impersonal and Transactional–it’s all business, numbers, etc, rather than relationship or connection
- Lacking Context–devoid of perspective of what the other person is trying to accomplish
- Created Rationally–it’s the brain looking at numbers on a spreadsheet
- Blasted-Out Commodities–anybody can create an offer, and they can just be distributed en masse without presentation
What Are Proposals?
- Hand-Crafted Custom–no two proposals are alike, because no two sellers and their situations are alike
- Thoughtful and Personal–they are created by you as a human, for another human
- Goal-Oriented and Strategic–they are designed to help a person accomplish a specific objective
- Consultative, and Presented with Rationale–because they are thoughtful, the thought-process behind them must be shared as part of the presentation
The Prerequisite of Making Proposals
In order to make proposals instead of offers, you have to approach the whole conversation differently, right from Day 1. Why? Because to craft a proposal, you have to truly and empathetically understand the other person, what they are trying to accomplish, and–this is the important part–why they are trying to accomplish that. In other words, you have to:
- Build rapport so that they open up to you
- Ask good questions–conversationally pose questions that will allow you insight into what they are really trying to accomplish with this potential property sale
- Listen…really hear what they are saying, and remember it
Your ultimate proposal will be framed in the context of these insights about your seller (not YOUR real estate investing goals); you will be presenting a proposal to them that you genuinely feel addresses their objectives and motivations.
How The Conversation Goes When Presenting a Proposal
When you present a proposal–rather than an offer–the conversation goes very differently. Here’s an outline of how my proposal presentations normally play out:
Me: Thank you for giving me the opportunity to share my proposal with you. I have an idea here that I think will get you where you’re trying to go.
Seller: Great, I’m excited to hear it.
Me: Before I share the specifics with you, I want to start by recapping my understanding of your goals with this. I want to double-check that I’ve understood correctly, because it’s important to me that my proposal is really hitting the target.
Seller: That sounds great.
Me: Ok–what I believe I heard from you is that primarily, you’re ready to move on from the business of managing this property, and spend your time elsewhere. You’d like to use some of your proceeds to take a trip to Europe, and pay off your car. Beyond that, your goal is to take the remaining proceeds and invest them for income you can use for your day-to-day living expenses. Before I go any further, let me ask you two questions: 1) have I understood those correctly, and 2) is there anything I inadvertently left out?
Seller: No, I think you understood those all very well; I can’t think of anything you forgot. Wow, I’m impressed that you understand my situation so well.
Me: Excellent! OK, great–I was pretty sure I had understood correctly, but wanted to double-check. The last thing I want to do is present off-the-mark ideas to you. So, with those goals in mind, here’s what I propose, that I think will work well for your objectives:
- I’ll buy the property from you, for a purchase price of $300,000.
- I’ll give you a downpayment of $45,000. Now, let me tell you how I arrived at that: your outstanding loan balance is right about $20,000, and your car loan has $8,000 left to go. That leaves you $12,000 for your Europe trip. I think $12k may be a touch more than you need, but I too share your love of European trips, and I want to make sure you’ve got enough cushion in your budget so that you don’t even give it a second thought about buying that extra croissant.
- Now, this leaves $255,000 that I still owe you. I propose I give you a promissory note for this balance. I’d like to pay you 4.5% interest on this note, and make monthly payments to you. I know how important income is to you, and my fear is that if you get your proceeds and walk down to the bank to open a CD (or something else conservative and income-oriented), you’re only going to be getting around 1-1.5%. This interest rate is 3x what you’ll get from the bank, so this plan will buy you a lot more groceries each month. And from my own personal perspective, it’s a fair rate that I can afford to pay. In 10 years, I’ll make a balloon payment of all the outstanding principal balance.
OK, phew! That’s enough of me talking for a while. Tell me, how does this idea seem to resonate with you right off the bat?
Can You See The Difference?
Hopefully you can see how unbelievably different this approach is from making an offer. In this example dialog, I effectively said: “you shared your goals with me, and here’s what I’ve hand-crafted specifically with those goals in mind.” It changes the conversation dramatically, focuses on them and their needs (rather than you and your real estate investing needs), and builds their confidence in you because you’ve been so thoughtful and understanding. And frankly, it’s much harder for them to just say “no”–after all, they’ve confirmed their goals and have acknowledged that you’ve understood them. They can certainly provide feedback on how to make your proposal even better, but it’s hard for them to just say “no” without looking silly, since they’ve already confirmed that you’re on-target.
Want More Success in Real Estate Investing? Start Making Proposals
I encourage you to adjust your real estate investing strategy from “offers” to “proposals” right away–it’s an absolute game changer. Does it take a little more effort and energy to engage your seller in a deeper conversation, listen, remember, understand them, and then hand-craft a solution for them and sit down to present it? Yes, it’s absolutely more work. But I can tell you from experience that it works much better, and–at least for me–feels a lot more authentic to me and my self-image as a genuine, sincere kind of guy.