One of the key principles of real estate investing is: The profit in a deal is made at the time of purchase, not at the time of sale.
That means, with very few exceptions, investors need to acquire below-market properties in order to “build in” margins for themselves. Whether you wholesale, flip, or rent, your ability to earn money is dependent on getting deals that are priced lower than average. (I’ve talked about this extensively in FMSN about making data-driven offers.)
Newer investors want to know:
- Why would a homeowner accept anything less than what the market is willing to pay?
- And: How do I make a below-market offer confidently without having them laugh me out of their living room?
Here are 4 steps to confidently make below-market offers that sellers actually love…
Step 1. Uncover The Problem
There’s a reason that motivated sellers are motivated. Those reasons probably include some combination of the following:
- The seller is in some kind of distress (financial distress, divorce, etc.) and can’t afford or doesn’t want the house anymore
- The seller is a hands-on landlord and is sick and tired of the frustrations of managing tenants
- The seller can’t manage the time, effort, or expense of keeping up the property (which is often the case with older homeowners, or in a probate situation)
There are other reasons but these are often the biggest and most painful. Sellers may share the pain with you when you first connect with them.
At this point, inexperienced investors will immediately leap to offering a (below-market) price for the property but there’s a critical step they need to go through first…
Step 2. Get The Seller To Tell You The “Cost” Of The Problem
This is crucial. Before you present any kind of solution, you need to explore the problem deeper. You do this for two reasons:
1. Exploring the problem deeper allows you to uncover any other motivations for selling that weren’t mentioned earlier
2. More importantly, exploring the problem deeper reminds the seller of the personal cost of the problem; by sharing with you, they come face to face with the massive headache that their house is causing them
Both are important but that second reason is a game-changer. Once the seller has shared the challenge of their home ownership problem, then you can move on to the third step:
Step 3. Present A Solution
Now that the seller has realized the extent of their problem, you can offer a solution.
Notice the words I use: “Offer a solution.” Too many investors rush the seller by making an offer to buy far too early in the relationship. But if you’ve sat with the seller and explored their pain then you do something profoundly different: You don’t make an offer to buy… you make an offer to solve their problem.
- If a seller is facing distress, you can offer to help by taking the property off their hands so they can put this headache behind them and get on with their lives
- If a seller is frustrated at the work of a landlord, you can offer to help by taking the property off their hands so they can get their lives back
- If a seller can’t manage the property, you can offer to help by taking the property off their hands, so they can focus their resources on the things that matter to them
By making your offer this way, your mindset is very different, your offer seems more valuable, and sellers can connect your solution to their problem.
Step 4. Reinforce How It Solves Their Problem
Once you’ve made your offer, don’t stop there (most investors do). Go back through the pain points that the seller shared and show them how your solution solves each pain point: when you give them money, it will help them cover their money problems; when you buy their house, it will help to take care of the effort of maintaining the property.
This step is all about reinforcing the value that your solution provides. It moves the conversation from money (and from the seller thinking about whether they’d get the same amount by selling with an agent) to the more important reality of helping the seller solve their problem quickly and simply.
Next time you’re talking to a seller, use this simple 4-step approach to confidently make below-market offers. You’ll see that it changes the conversation and helps to position you as someone who has the seller’s best interests at heart. And when that happens, everybody benefits.