Negotiation for Real Estate Investors

It is mandatory that real estate investors must learn the art of negotiations. It is not enough to learn and master investing concepts. A slight slip up in negotiations results to significant loses on your part!

Although negotiations are almost always similar across industries, there are essential strategies widely used in real estate investing to help you meet your goals and grow your business.

Funny Money Strategy

As investors , presenting the total cost of a particular real estate investment property might be overwhelming to your potential buyers and obviously will not help you close the deal. What you need to do is to be creative in presenting the price of your real estate investments. This is where the funny money strategy comes in.

It is all about breaking down the cost of real estate investment to generate an impression that it is not really that expensive. In this negotiation strategy, you need to divert the attention of your buyers on the real cost of the and think on a long-term perspective. To some extent, talking funny money is very ridiculous way of selling. But the point is it will help you close the deal.

For instance, you're selling a real estate worth $8,000. There are at least two ways of presenting it:

1. State the actual cost of real estate investment property, $8,000, immediately or

2. Let the buyers know they are, in effect, paying only $320 a year or less than a dollar a day for this dream property because it has a 25-year life.

While both ways amount to $8,000, shifting buyer's perspective from lump sum to 25-year life creates a big difference when it comes to purchase decisions. That's the power of funny money.

Stating interest rates in percentage instead of actual dollar amount is a variation of funny money strategy. Financial institutions are guilty of this strategy. After all, a 1% monthly interest rate is more acceptable than say paying $50 per month.

Do Not Commit First

When presenting proposals or terms it is better if you get the other side to commit first. As rule for investment realtors, it is not advisable to show your cards right away.

Why? The initial offer of the other party gives you information about their parameters or the range of money they are willing to play. For all you know, their first offer may be way better than your expectations.

Pad Prices and Play Concessions Carefully

Negotiation is a give-and-take relationship. Given this nature, you must be prepared to give up something in favor of a better deal. This is the reason why sellers need to price their real estate properties higher than target price and buyers ask absurdly lower prices.

If you are selling your real estate valued at $8,000, the smart thing to do is pad your price and sell it at around $10,000. Do not use your target price as your initial selling price. As you gain experience in real estate investing, you will realize that almost all buyers ask price reductions or concessions. The added $2,000 plays as your leverage to compromise and close the deal.

When making concessions on your real estate investment property do not reduce your price right away. Play it carefully and break the $2,000 in maybe 4 equal terms. When a buyer asks for reduction, your discounted price is now $9,500. Create an impression that it is very hard for you to give discounts because your price is already low to begin with.

There are different negotiation strategies and tactics available for real estate investors. I hope this article will help you close a deal profitably and expand your real estate investments.