Avoid Overpaying REI Deals

Experienced real estate investors often run into problems when other investors are paying too much money for houses in their market. Investors who have been working in the same market for years are now finding themselves competing with new investors or companies who are offering ten, fifteen, even twenty thousand dollars more for a house. If this is happening in your market, you might be wondering how anybody could make money at that price?

Frequently, the offer is not genuine. It could be an offer made by a new investor who does not have as much experience and perhaps is overexcited. This is a mistake many beginners make. I remember the first two houses that I wholesaled; I was successful on the first deal, but I had to cancel the contract on the second house. Mistakes like these happen when you are getting started.

The problem is that when you go up against other investors who are willing and able to pay more than the house is worth, you lose the deal. This can be a huge problem because you have already invested money in the marketing. You have already invested time and money following up with the homeowner and have maybe even visited the house in person once or twice. When you have put all this capital – time, money, energy – into securing the deal only to have someone outbid you who most likely did not put in the save level of work that you did, it can be frustrating and disheartening.

Here is a quick strategy to reduce these occurrences in your market. Remember, it is not so much what we, as investors, know to be true – it is what our motivated sellers think and believe that matters. So, when our team goes to a seller appointment, we bring along educational information in the form of our workbook. One page that we always go over with any homeowner we work with has a script for the motivated seller to use when interviewing any investor that they might choose to do business with – including us. We introduce the workbook and script by simply saying, “If you're going to work with an investor, you want to protect yourself.”

For example, let’s say that I go to an appointment at a house that needs a lot of work in my area. I might tell the owner that my absolute best offer is $140,000, but the motivated seller has already received an offer at $150,000. I might say, “Wow, $150,000, really? That's 10K more than the absolute most I could pay. I have no idea how that could even a valid offer. Are you sure this offer is from a legitimate company?”

Perhaps the motivated seller might respond by saying, “Oh yeah, it's from a very nice young man who is going to buy the house for $150,000.” At this point I will simply let them know that I am aware of some recent examples where investors backed out on their offers at the last minute and share with them a few warnings signs and red flags to look out for before signing any contracts. There are a lot of real estate investors making offers who do not have a lot of experience. These offers are not made maliciously, often the person making the offer genuinely does not realize their offer is too high to be fair and profitable. These inexperienced investors are putting the house under contract but then immediately attempting to sell it to real cash buyers like myself, experienced professionals who will purchase the home with our own money.

This is often surprising to a motivated seller. If they are not a real estate professional, they have no way of knowing how an investor or wholesale deal works. I go on to explain that when the wholesaler who made the higher offer realizes that they will not be able to sell it for more, they will just cancel the contract, leaving the homeowner back where they started. As a homeowner, you might have thought that your house is as good as sold and you are ready to move. Suddenly, that is not the case at all.

Now, the motivated seller is much more interested in the information I have to offer. “Here on page 36 is our interview script to ask investors. You want to be sure to ask these questions of me, too. The first question is ‘How did you come up with a fair price for the home?’ That is a reasonable and fair question, but somebody who has never been asked serious questions will get nervous. ‘How are you going to pay for the house? Do you have a proof of funds letter?’ If an investor cannot or will not answer these questions, it might be best to consider finding a new professional to work with.”

When we educate people, we get more deals. When motivated sellers are empowered, they will be able to spot the people who are not what they seem to be. Their fear will disappear, and this is the reason educating your motivated sellers, or your private lenders, is imperative to running a successful real estate business. If you are working with educated, empowered clients, suddenly the fakers have left but you are still there. Your clients and prospects will say, “Thank you so much. I want to work with you.”

You do not need to be a published author to educate sellers. Ask yourself, “What can I offer that is a little bit more valuable than just a business card or yellow letter or brochure? What kind of education can I provide?” Choose something that fits your business and personality: an eBook, a one pager, an educational video with the QR code, etc.

Positioning yourself as the advocate and the local expert will get you much further in business than sales tactics. It is also a fun and rewarding way to build a business. Create some value, help your motivated sellers solve a complicated problem and they will love you.

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