Learn from My Mistake: Why You MUST Understand Your Seller’s Needs
Several weeks ago, I wrote an article about a deal I had to give up on because the bank wasn’t playing ball — it was called “Swing and a Miss.”The gist of that story is that I was trying to duplicate my deal of the year from 2011 in 2012 by buying the apartment build next door to my original 2011 purchase. In the story, I had to give up because I wasn’t able to structure the deal in the same fashion.Shortly after I wrote that article, I had an epiphany. Why am I being so rigid and trying to structure the deal that worked for one bank, with a second bank? The properties may have been identical, but the situations were very different.Once I realized I was making a tremendous mistake, I reengaged and started new negotiations with the second bank.For your reference, I will highlight the key differences in the deals:In the original deal, the property was vacant and needed $50K minimum worth of work to put it back into working order. The second property had a few vacant units, but it was producing income and had at least five paying tenants.In the original deal, the seller knew they had to bring money to the table to close, pay real estate agent fees, and pay any real estate taxes due. In the second deal, the owner wanted a short sale and they were not willing to bring any money to close. They had not paid taxes in 18 months, and they had no money or interest in pay real estate commission.Now for the similarities:Both properties were 10 units, single story, with a courtyard in the center. In both cases, I was able to negotiate with the bank that had the troubled loan. In addition both banks were interested in making a deal work, but it had to be on their terms.Once I acknowledged the differences and stopped focusing on the similarities, the negotiations were actually pretty easy. This is how the deal specifics broke down.Price: The purchase price was never in question, as I established the price point by buying the property next door. However, remember that the property next door was a wreck and the second purchase was already producing income.
But again the price was never in question.Down Payment: In the original deal I was able to secure a zero down deal and the bank financed the entire purchase price. When I sat back and looked at the two deals, I realized why this worked once and not the second time.In the first deal, the seller brought about 15K to closing, and thus the bank didn’t have to cough up any real cash to do the deal. For the original bank the down payment wasn’t important but selecting a buyer with a track record and proven reserves was critical.As for the second deal, the bank wanted the same thing, but remember their seller was not going to bring any cash to close the deal. Thus, their preferred new buyer had to bring something to cover the short fall.