Raw greed only kills deals. The key to negotiation is to start with a well-defined goal and to know what you're willing to sacrifice to reach it. Gathering information about the true state of affairs, the property, mortgage and tax details, the urgency of the situation, and the cost to the other party of not making a deal is critical. You must invest time in patient questioning and listening to the answers in order to separate what the other party wants from what he perceives he needs. Fulfilling his needs is your currency in the transaction.
Think of it this way: he's got a financial itch that you've got to locate and to scratch. In return for your solution, it's only fair that he gives up the benefits that you need to make a transaction work. Negotiation works like a seesaw. In return for a high price, you might get zero interest financing. For a quick cash sale, you might get a low price. For a delayed closing, you might offer a high price. If he needs to escape from management, you might offer an assignable net lease. If he needs tax relief, you might set up a tax-free Exchange with a lease-back or loan-back.
Suppose you were getting ready to take a chance on a rental income property that you felt certain would increase in value over a reasonable period of time; what is the most likely way that you could lose your investment? Loan default! If you could trade off some of your future profit for financing that would provide cash flow, such an arrangement could be a prudent move. Interest doesn't add anything to a property's value but it increases risk of default. Wouldn't it be great if you could eliminate it.
To make a loan that would enable you to retain more of the rental cash flow, you might use a “shared appreciation” note. Instead of paying 10% loan interest, pay 5%; and give the lender an Option to capture half of the property appreciation upon sale. This way, he pays low capital gains taxes on half of his profit.
Sometimes sellers will give you zero interest financing and reasonable payments in return for a share of your future profits. When negotiating to buy a house, offer to pay a high above-market price in exchange for zero interest and payments that are less than the free cash flow after expenses.
Suppose a free and clear house were valued at $100,000. Let's say mortgage interest rates were 10%. Offer to pay $125,000 with $10,000 down, and the balance payable at $750 per month over the next 153 months + $250 the last month. If asked about interest, explain that it is included in the price and payments.
Let's look at how the numbers pan out: A conventional $90,000 loan bearing 10% interest would require level amortizing monthly payments of 789.81. These would total $284,333 over 30 years. Contrasted with a zero interest loan, that's almost $40 more per month in increased payments, and lost cash flow, for the first 153 months, and $789.81 in cash flow for 207 more months until the conventional loan would have been paid off.
It gets better….
Learn how to be a PRO-Creative Real Estate Negotiator with Jack Miller's Negotiations seminar Manual. This 200-page manual contains all of Jack's best techniques and strategies for getting the best price or the best terms… or both! SEE DETAILS HERE
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