Jun 20, 2013
Comments Off on Buying Commercial Property|Making Offers and Negotiating Deals

Buying Commercial Property|Making Offers and Negotiating Deals

MAKING OFFERS

Most successful investors only work on deals that they feel they can close. This means that you need to have a plan in place that eliminates the deals that won’t work for you. Here’s how to develop that plan:

• Develop a qualifying system of identifying the types of properties that you want to buy using factors such as age, condition of property, upside income potential, rehab or rezoning possibilities, etc.

• Approach each offer with a strategy that will work for you such as knowing the amount of time you’ll need to do your Due Diligence, how much money you can put down, etc.

• Lastly, put together a system for making offers:

(a) Set up your parameters for the deal such as the top price you can pay to get the return you require.
(b) Have a follow-up system to make sure that your deal is moving along.

There are two methods of presenting an offer to a Seller. One method is to utilize a Letter of Intent and the other is to use a Formal Purchase Agreement. The Letter of Intent tends to save the Buyer time and can quickly tell you whether you and the Seller are on the same page. On the other hand, the Purchase Agreement tends to make the Seller feel like they are receiving a “solid” offer.

My preference – and what is used most often – is a Letter of Intent, but whichever way you go, try to present the offer in person to the Seller and/or their Broker.

If you use a Letter of Intent, make sure that you insert a clause that states that both parties will move forward in good faith toward signing a formal contract within ten days of signing the Letter of Intent so that your offer will look serious to the Seller. Also, make sure that once the Letter of Intent is signed, you write up the Contract immediately.

NEGOTIATING DEALS

A couple of very important tips to successful negotiating:

1. Always start with the end in mind so that you know where you want the deal to go.

2. Understand the Seller and what they need.

You’ll be much more successful in closing deals if you solve the Seller’s problem by understanding what they want. Those buyers who also connect emotionally with the Seller create trust and rapport which opens the Seller up to discuss what they’re really looking for. If you’re sincere and willing to truly listen to the Seller, you’ll be more successful at putting together an offer that may be acceptable to them.

And when you understand the Seller’s motivation, i.e., why they’re selling the property, you’ll be in a better position to negotiate.

Here are some examples of typical deal points that come up for negotiation, with some suggested solutions for each point:

PRICE

If the Seller has to get a certain price and can’t be negotiable on that point, you may be able to negotiate certain terms:

1. Ask the Seller to carry back part of the financing so that you put less money down.

2. Ask the Seller to guarantee income for vacant spaces or spaces coming up for renewal in a short period of time to give you time to lease the space

TIMING

To understand negotiating timing issues, you need to understand that the Seller’s position will be that he’s taking his property off the market with no assurances that you will be able to close.

Here are a couple of examples of timing issues with possible solutions:

1. Seller wants a shorter period to close than is required for you to complete all facets of the Due Diligence, i.e., Seller wants a 30 day close, but you want 30 days for Due Diligence and 30 days to close.

Possible Solution 1: Set up periodic times to waive certain issues in your Due Diligence Process. Example: If you have a list of 40 items that you need to verify during Due Diligence, you can stipulate that you will clear 10 items at the end of 15 days, 10 more items at the end of 30 days, etc. This assures the Seller that you’re moving through the process.

Possible Solution 2: If you need more time to complete certain facets of the Due Diligence process, for example, you don’t have time to have a roof inspection done, you can go ahead and close but set aside funds to pay for any roof repairs which the roof inspection discloses are necessary.

2. The building is vacant and you don’t want to close until you can find a tenant for the vacant space.

Possible Solution: Buy 2 extensions of 30 days each by putting in more hard money. (Note: The money becomes non-refundable but applicable to the sales price.) This gives you 90 days to determine whether or not you’ll be able to lease the vacant space.

By putting in more non-refundable money to extend your time, you’re giving the Seller money in his pocket to pay for taking his property off the market for that period of time. Also, he feels that you have more money in the deal so you’re more likely to close.

These are only a few of the problems and possible solutions you may run into when negotiating a deal.  Always try to listen closely and understand why the seller is selling the property or making an objection to the offer.  Remember, don’t take anything personally, it’s just a deal point that needs to be dealt with or an objection that needs to be overcome.  Try to overcome any objections, but don’t get emotionally tied up in any purchase offer and walk away from properties that do not fit your criteria.

As I say throughout my blogs, if you have any questions please feel free to contact me.  My way of giving back is to give away my knowledge.  Thank you for reviewing this blog.

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