Working With Investors

Services for Real Estate Pros

As any seasoned investor can tell you, the most difficult part of investing can be the part where they must convince a seller to think creatively. Most sellers start out with a simple premise in mind - sell the property in the
traditional manner. To make matters worse, most Realtors do not provide sellers with any other option, primarily because the traditional method is the one they are most familiar with. If you are a Realtor, it becomes your job to learn how a seller can sell creatively.

An investor's offer may include the RIGHT TO BE PRESENT clause, to insure that he can be there to talk with the seller. While most Realtors discourage this with homebuyers, you should note that investors are a different breed, and should meet with the seller whenever possible. This is because only the investor can explain his offer properly.

The investor should start out not by presenting creativity, but by presenting a desire to give the greatest benefit to the seller. A professional investor will let the seller know that, as an investor,  they have a need to make sure the seller's needs are satisfied - anything less, and word will get around and the investor won't be an investor
for long. This is in direct opposition to the stance of Joe Homebuyer, whose only desire is to benefit himself.

The best way for the investor to make sure the seller wins is to know what his actual needs are. As a real estate investing consultant, I emphasize that, while most sellers believe they know what they need, many are not aware of the benefits and/or consequences that can come about when selling a home. I would then give an example (usually one that is based on the type of creativity I am interested in using for that property).

Let's say the seller is a retired "empty-nester", and he just wants to sell the big family home that no longer has any mortgage on it (you discover these things by getting the seller talking, even before you bring up
the subject of creativity). You have decided that you would like to use a Contract for Deed or some other strategy that allows you to make payments directly to the seller. You might then tell the seller that, depending on his tax
situation and any exclusions he might be entitled to, getting a large lump sum at closing could incur a terrible tax situation in which he could lose a lot of the proceeds. In such cases, it might be better to take payments for a period of time, reducing the tax liability and spreading it out over a period of time. In yet another case, the seller might be planning to invest some of his proceeds into CD's, to supplement his Social (in)Security benefits. The investor would point out that by taking payments for a period of time, he supplements his income and he does not have to wait for CD's to mature in order to collect- his payments come in monthly, automatically. The more the investor (and Realtor) knows about the seller's actual needs and situation, the more the investor can benefit him with an offer designed to suit his specific needs. In doing this, you have just succeeded in getting him to accept the benefits of creative thinking, and you may have well
earned his trust. And that, my friend, is the biggest hurdle.

An investor planning to offer an option would describe how an option can provide certain benefits that some sellers need. For example, if the inestor is planning to double escrow the property, he could point out that the property need not comes off the market, even if your option is exclusive. You can point out that you will be fixing up the place (if it is vacant) in order to create a profit for your efforts. Hence, if the investor fails to exercise the option, the seller now has a more valuable property to sell. Or, it can be pointed out that, with all the money and work the investor is investing, he certainly is not about to walk away
from it - that he will, indeed, come to closing.

The secret lies in three things:

1) Investor must gain the seller's trust, by letting him know that meeting his best interests is also in the investor's  best interests. This is a major reason to be present when the offer is presented.

2) Know the benefits of the creative techniques, and know which of those will benefit your seller, and how they will benefit him.

3) Know what the seller needs and wants.

This last point is important, and not as simple as it might first appear.The investor needs to learn how to listen to what the seller means when he is saying what he wants. This is extremely important for success. For example, the seller might say he plans on investing some of the proceeds into CD's. Sounds simple enough. But that is not what he is really saying. He is actually saying that he wants to supplement his income, or he wants to make money with his cash. The investor's job, then, is to show him that he can earn more cash from holding a second mortgage than by investing in CD's. If he is retired, he wants to supplement his income. So the investor would show him that, while a CD can only be collected on every 6 months, a second mortgage pays regularly, every month. And while a CD only earns 3-4% interest in the best of economies (MUCH less now), a second mortgage can earn 6-7% interest, or more. And if safety is the issue, point out that the second mortgage is backed by real estate.

The point is, the investor needs to ask questions, and listen intently, which is why he must be present during negotiations. And don't just listen to what he is saying - listen to what he is meaning. Only then does the task of getting what benefits everyone become much easier, because you can then show him how to get what he wants.

Make a habit of doing the following and you will find that the most difficult part of investing is not so difficult at all:

PRACTICE - I stand out on my porch in the evening, coffee in hand, and I imagine I am talking with a seller. I try to imagine any objection he may come up with, and try to find a way to turn it around. I seek out benefits to the seller, and practice describing them in simple terms. Then, when I face a seller who makes any of those objections, I can come back with an immediate reply that shows even greater benefit to the seller. In this way, he will soon feel he is dealing not only with a pro, but with someone who has given serious thought to filling the needs of the seller.

If, as a Realtor you have a need or desire for a deeper understanding of investors and the strategies they use, you may want to check out "The Simple Man's Guide to Real Estate Investing."

Comments (2)

Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

Welcome to Activerain and I hope you are learning a lot and if you ever need any assistance, don't hesitate to check out my blog, email me, call me, I will be glad to help you in any way possible. Also, check out the main page of Activerain and look for the Activerain University tab, there are lots of educational webinars to help you build your business.

Oct 29, 2012 12:25 PM

Thanks for the welcome, Todd. On the verge of retirement, however, I am not looking to build a business. Just sharing some of my experience. But thanks again.


Oct 29, 2012 01:09 PM