In real estate, there’s a nice saying that goes, “money is made on the purchase, not on the sale.” That’s not entirely true since you can do a lot of things to make buyers pay top dollar as well. But with a well-timed purchase, you get to pay fewer property taxes over the life of ownership and generate a much higher compounded return due to a lower base.
The market is a wonderful place because it allows two people with opposing views swap assets at an agreed upon clearing price. But I had to keep a poker face during my transactions in the early 2000s because deep down I was thinking, I can’t believe they are selling for so cheap! Even with my latest single family home purchase in 2014, I couldn’t believe they were selling a two-level panoramic ocean view home with a double lot for 40% cheaper on a price/sqft basis than property on the eastern side of SF.
Most people are trying their best to sell you something. I like to take the opposite approach and figure out how to convince someone to sell me something they may not want to sell that I think is valuable. Here are three strategies to get people to sell you their property when they should actually hold on to it for dear life.
Three Strategies For Getting People To Sell You Their Property
1) Focus on making a connection. The seller sets the asking price so if it’s below what you are willing to pay, you’re golden if you have no competition. If you have competition, you’ve got to be a little more convincing. It’s important to tell the seller how much their home would mean to you. Talk about the children you plan to play with in the backyard. Talk about how you plan to replace the roof, regularly mow the yard, and invite your parents over to stay. Paint a lovely picture in the seller’s mind of how you plan to take good care of the property once it’s sold. Selling a home is extremely emotional, especially if you’ve lived in it for many years.
2) Focus on the end of the world. It’s much more stressful being a seller than a buyer. Buyers can simply shop around with no commitments. However, the seller is putting himself out there by listing his property online, signing a contract with a real estate agent, and allowing strangers to go through his home. The seller also knows that if they don’t sell within a certain period of time, the property goes “stale fish.” It’s embarrassing when you put yourself out there and get rejected (no sale).
As a result of so much worry and stress, using “the end of the world” strategy can really motivate your seller to offload to you. You can start off with big picture scenarios such as discussing what would happen to the property market if the stock market has a 50%+ correction like it did in 2008-2009. Then you can go on to discuss what would happen if there was a terrorist attack. Finally, you can talk about natural disasters like earthquakes, flooding, and fire wiping away their property for good.
Your goal is to paint a picture of the house being a tremendous burden and you being the savior of that burden.
3) Focus on the benefits of a simple life. Life is much simpler renting or owning fewer things. A simple life is the reason why I’m not in a rush to buy another physical property because I already have five. I can’t imagine having to deal with one more set of tenants and paying one more stinking property tax bill to a bloated city government that can’t even fix our roads. A simpler life is why I’m totally focused on real estate crowdfunding during my 2-3 year break before I jump back in the fire. If I can earn 10% – 15% a year without any hassle, I’m all for it.
The older the property seller, the more appealing a simple life free from property maintenance will be. But you can still argue about the joys of simpler living to younger property sellers too because they can definitely remember what it was like as a renter.
Once you start owning more than one property, you’re no longer focused primarily on lifestyle. Instead, you’re focusing on making returns, with some sacrifice to your lifestyle.
You Can Convince Someone Of Anything
If you make a connection with me through writing or tennis, convince me an 8+ Richter scale earthquake will hit SF in the next five years, and get me to reminisce about how awesome life was when I had zero tenants, I’d probably sell you one of my rental properties at a discount in a heartbeat. Seriously, earning money online is so much more fun and requires less hassle than generating rental cash flow. My whole revenue picture has changed since I was a 25 years old.
I strongly believe US property is undervalued compared to property prices in other developed countries. Nowhere in the world can we make so much money, have so much opportunity, and live so cheaply. We’re going to wake up 20 years from now and wish we had bought property, especially property in cities that show the highest employment growth during this time period.
For those who choose to rent, that’s OK. Just make sure you continuously invest your extra cash flow to beat inflation. You can gain exposure to boomtowns through real estate crowdfunding.
If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
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