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Hi, guys, I hope that 2022 is gearing up for you.
What I want to talk to you about today is negotiating tips and strategies for 2022.
You see, a lot of what you would do in a negotiation stays the same no matter the market conditions are. However!!…
There are certain types of negotiation you should be focusing on when the market is hot. (As it is, and has been for the last 18 months.)
So anyway, I’ll start with the first one. By the way, this may sound very familiar if you’ve been to any of my trainings. But for those of you who are new here, let me bring you up to speed real quick.
Look, before you go into any negotiation you definitely need to be an area expert and a strategy expert.
You know, I have done a lot in residential. That’s where my fame and fortune have come from. I’ve done a lot of renos in the past (I’m definitely not a fan of them now.) But I specialize in Residential Land Subdivisions.
Thirty, fifty, hundred lots. Our previous one was 30 Lots. I just recently launched a 25-lotter development application before Christmas. And I launched an 11 lot application last year and that got approved just before Christmas as well. I’ll keep you posted about how they progress in the months ahead.
Anyway, long story short is, you need to be an area expert and a strategy expert.
There’s so many strategies out there. Airbnb…Reno… Cosmetic Renovations …spec builds… build apartments… build townhouses…
… there’s so many niches out there!
In Rich Dad, Poor Dad, Robert Kiyosaki talked a lot about mastering a formula.
Then learn another one. Master a formula.
Then learn another one. Master a formula.
Then another one.
Rinse and repeat!
So many people just go from one course to the other to the other, switching directions all the time, and always wondering why they never get any traction. The answer? You need to master a formula. Not just learn about it but master it.
So for example, if you learn land development, master it in a specific council. Pick a council. Any council. Brisbane City Council, Blacktown City Council, whatever. And become an expert in that area.
Then when a deal comes up, you’re able to capitalize on opportunities that most other people don’t see. Because you understand the nuances and the constraints, the possibilities but also the issues that council may raise. You know how council responds to demolishing a house, moving a house, etc.
Like recently I cut it with my 30 lot subdivision then I’ve got a couple of blocks around about 200 square meter mark. Two of them are 184 square meters. Yes, 184 square meters. People thought I was crazy for doing 180 square meter loss.
Well, well, well… in the last few weeks I sold one 184 square meters block for $280,000.
To give you a reference point, 12 months earlier, a 300 square meter block right opposite my 184 sqm block sold for $275,000.
So a block nearly twice as large as my 184 sqm, sold for the same price.
So how did I earn just as much on a tiny block? Has the market gone nuts and prices have doubled?
It’s back to those important nuances I was telling you about.
You see, in my instance, my land is registered. And because it’s registered, it’s very, very rare. It’s registered and ready to build on. Versus other blocks, where who knows when they’re going to be registered. Because there’s so much bought land in the pipeline.
So coming back to it, you definitely need to become an area expert. You definitely need to master the strategy. Know your zonings. Know your council.
Don’t try to learn five different councils at once. But one council at a time, one area time, and master it.
That’s exactly what I did. My first three properties were in the same 4300 postcode, for example. WHy? Because I became a four-three-double-zero postcode area expert.
But wait, I promised to teach you about negotiation and I haven’t talked about negotiation at all so far. What gives? .
Well, how can you negotiate when you don’t know what something’s worth? When you don’t know what the possibilities are? Right?
So I’m looking at a site at the moment. Working on it, working on it. I know what the land is worth. I know what I can do with it. I’ve done some good due diligence on it. Therefore, I can come up with a good price. And I can offer the owner a cash unconditional contract.
Which means no clauses. I pay a deposit. If I don’t go ahead, I lose that deposit.
So I better know what the land is really worth!
So firstly, you need to be an area expert. That’s the first thing.
The second most important thing if you want to get better property deals in 2022, is you need to get deal ready. This is so critical.
- Get your entities ready
- Get your finances ready
Being deal ready gives you the confidence to go “yes, you’re asking for $800,000 but I’m offering you $720,000 because I can settle in a week”
So how to get deal ready?
- Talk to your finance broker.
- Sell down properties or things that you don’t want
- You might have to reduce your debt, or recycle your debt
- You may want to substitute loans
(What I mean by loan substitution is, say you’ve got an investment property worth $800,000. You take a $500,000 a loan on it. And you apply that $500,000 to another property. So that could be one way to get serviceability.
Bottom line is, knowing in advance what you can borrow now how far you can stretch gives you a HUGE edge in negotiation!
In the early days, you could sign a contract subject to finance for 28 days, and that would be normal. But in a competitive market, being deal ready right now is very desirable. If you’ve got $500k cash, you’re in a way better position. You might have to sell a couple of dud properties to get that position. So you have to do it first, right? Then you have a massive edge over many DIY investors you may be bidding against.
Because if you can go in with a stronger offer and substantially quicker settlement – it gives you the capability to get deals off the market for a better price.
Then there’s getting your entities ready.
Look, this can take months to do. And you don’t want to be signing contracts and doing a deed of rescission. It’s an absolute waste of money.
Is it an important tool if you need it? For sure.
But I think it’s a waste of money. Because when you do a deed of rescission, it cost you $1000 bucks. You could use that $1,000 towards setting up a company that you sign with anyway. Companies are so flexible. You can change directorships. You can change shareholdings prior to settlement. That’s all legal!
And all of this is part of gearing up. It’s all part of gearing up.
So when an agent flips you a deal, you sign a contract, within an hour, you’re ready.
You can write an offer and get the deal off the market.
One of my clients, Vivian, recently bought a double block 600 square meters. She’s gonna do some mini boarding houses on it. It came up, within an hour she had secured it and taken it off the market. And she got that I think, for $500,000, within 12km of Brisbane CBD.
Lesson learned: you want to have a stronger hand in terms of entities, finances, reducing debt, reducing credit cards, everything you can do to get your serviceability up.
And this all takes time, it all takes energy, and focus, and intention to do it.
Third, let’s talk about negotiating with sellers directly.
I prefer dealing directly with owners, by the way. Negotiating with them. Right now I’m on my way to a meeting Northside, and even though we’ve got an agent involved, it’s a complicated transaction so the agent and I are both talking with the seller.
And in this conversation, my #1 goal is to find out the real reasons they want to sell.
And that’s my tip for you, too. First thing you want to know: WHY are they selling?
Is it because of a deceased estate? Is it because of the sick and tired of mowing the grass? Is it because they want to retire?
Until you figure out what’s the sellers internal motivation, you can’t get them to sell to you on your terms.
Because if they have no need, then you’re basically trying to force them to give you the property at your price point. And that’s not cool. You’re basically just pushing the proverbial shit uphill, so to speak, right?
You got to find that need. And see how you can fill it. And it’s not always about money!
You’re looking for an opportunity where, yes, they want to sell. And yes, the market is hot. But the seller has a need. It might be 100 grand deposit. It might be 50 grand deposit released. Now, they might be happy to take a one year, two year, three year, even five year settlement.
So find a need! Don’t just go in asking “what’s your best price?”
It’s not something you can really do over the phone, ideally you do it face to face. And if you have an agent working in between you, that can be hard as well. That’s why I prefer to deal with direct owners direct.
It’s in these conversations where, if you listen, you can learn amazing things! For example, I bought a 7000 sqm site off my cousin. He was just tired of the maintenance of the house and of mowing the lawn! I remember 11 years earlier when they bought the house, he and his wife were saying they will will never ever sell, right?
11 years later I bought the property with a 10-month settlement.
So if you find out what they’re after, and if there’s a genuine need, a genuine frustration that you can add value to them. That’s where the power can come from.
Now for my final tip for you. Perhaps the most important one I can give you:
You WILL get better and better with time.
I do teach my clients to go out, door knock, and practice talking with sellers direct. It can be a bit daunting at times, practicing talking to strangers and building rapport with strangers. Because why bother? They want to sell, you’re giving them money. What’s the problem?
Not everybody wants your money!
For example, the house we live in, we’ve been there since 2007. Call it 15 years now. And my wife just refuses to sell!
I’ve talked to my whole house about selling the place. We live in inner city Brisbane, and she doesn’t want to sell. Not because of money. It’s because she figures she won’t like anything else out there. Money will not convince her. So if someone wanted to buy from her, they’d need to figure out what DOES matter to her.
So look for a motivated seller and more precisely – look for your seller’s motivation. (Anyone who’s selling anything has a motivation!)
And most important – don’t give up!
Don’t give up.
Keep practicing. Keep talking to real owners and real people. And start noticing those “leverage points.”
If you’ve got any tips on negotiation, anything that you found in the past really works for you, please share in the comments section below!
I’ll be back here next week sharing more property tips.
Have a great week and we’ll catch you soon.