Real Estate Investors Association of Greater Cincinnati

Can I really amortize 400 months?


I was in the middle of negotiating on a probate property. It was the original home the seller’s family built in 1962. I could see the seller was very attached to this home. Why wouldn’t he be? He had an amazing childhood in this home. The first time I met with him I spent about two hours getting to know him. Finding out what his goals are and what he is looking for in a buyer.

This may sound remedial, but it’s important to understand; the seller is really the one who has some pain that he is trying to avoid. This is something many new and experienced real estate investors forget. It’s for this reason, I spend so much time on the phone and in person speaking with the seller. Many people have told me this is a waste of time. To them I ask, “Is it really?” If you don’t spend the time getting to know your seller, how will you ever find out what their real estate problem is to create a deal that will resolve/ease their pain? 

As the potential buyer, you need to take the time building rapport with the seller. Don’t forget, you can be up against more than a half dozen potential buyers. What is going to make you stand out as, “the only logical choice.” Understanding what the seller’s needs are must be crystal clear.

Mr. Seller really wanted all cash for this property. I mean who doesn’t? Almost every seller I speak to without exception originally “thinks” they want all cash. It’s up to you to convince them otherwise. As I was getting to know Mr. Seller and learning about his situation, I found out he already had other investors making him a bunch of low-ball offers. I was able to find out what they were offering him, by simply asking Mr. Seller what the other offers are. In doing so, I discovered all these offers really irritated him.

Mr. Seller is emotionally attached to his childhood home. He wanted his price more than anything. After sitting down with Mr. Seller, I found out he’s an experienced investor. He has about nine rental properties in other cities and carries paper (Notes).

From this one piece of information, I now know he understands investing. This makes him perfect for a seller carry. If Mr. Seller wants price, then I need my terms. This seller already understands taking his equity over time. I asked Mr. Seller what he would want for interest. He said between 3% and 4%. I told him I liked 3%, obviously he liked 4%. The seller suggested meeting in the middle. Now he sees this as a win for him. He got to pick his interest. I’m shocked whenever an experienced investor offers me less than 6% interest, but it happens all the time. I even have properties I bought from experienced investors that have zero interest. 

The next thing Mr. Seller and I have to agree on is our price. Mr. Seller’s property hadn’t been updated since it was built in the 60’s. This includes the furniture. I’m telling you; I thought I walked in on a 1960’s tv set. The good news is the property has been properly maintained over the years and needs cosmetic repairs; this would mostly be paint and carpet. If it went on the market in its current conditions, it would probably sell for around $185k to maybe $200k just because of the shortage of available houses in that area and it’s on 2.5 times the lot of other properties in the area. Mr. Seller was hoping to get $250k. All fixed up, the property could probably net for $300k. Mr. Seller and I settled on $225K, again this is the number he came up with.

The best part is how we negotiated our terms. I have to thank my husband Gary for this one. It sometimes helps to have a partner go with you. We knew the property would rent for $1400 to $1600 per month. We wanted our payment to be less than $900 per month. Gary told Mr. Seller that we can do his 3.5% interest and his asking price of $225. This made the seller very excited. However, Gary asked him if he can help us. Remember, we are giving the seller what he wants and he’s feeling indebted to us. So naturally, he wants to help us. Gary told the seller that we really needed to keep our payments below $900/month. Gary was able to back up our monthly payment by showing him our numbers based on what actual area rents and monthly expenses we would incur. Mr. Seller understands this very well. This is where it gets very interesting.

How would you make your payments less than $900/month with that purchase price and a balloon in 15 years. Real simple! Ask the seller if it’s okay to do a 400-month amortization. How brilliant is that? We just knocked our payment way down to something that is now quite affordable. With that low interest and payment, we now would have a balloon of around $140k.

Mr. Seller wanted to go over this with his wife who was unable to be there because of health reasons. Whenever possible, if there is more than one decision maker try to get both deciding people to meet you at the same time. What Gary and I learned was his wife use to be a loan officer up until a few years ago. After he spoke with her and staying in touch with him over the next 5 days. Mr. Seller came back to us with a few concerns. The seller’s main concern is in 15 years he would be 79 years old, and he didn’t like that. He wanted a shorter balloon.

My shortest time is usually a ten-year balloon and that was precisely what he wanted. However, if Mr. Seller wants something so do I. Since, I would be going on vacation for three weeks, I asked Mr. seller since we would be willing to give him a balloon in 10 years, would he be willing to give me an extended inspection period of 30 days. This does not include the additional time needed to close and allow the seller to finish moving and selling his parents belongings. This was no problem for Mr. Seller. I already knew Mr. Seller was likely to say yes. From talking to him I knew he was going to be leaving town for an extended period of time.

I wouldn’t have gotten past first base with this seller if I simply showed up. Walked the property and sent him an all-cash low-ball offer. I would have successfully shut him down and walked away with nothing. This example is a complete win-relief for both the buyer and the seller, which is exactly what you want to be creating. Always take your time and look for what no one else is seeing. That’s where the real goodies are!

Happy Investing! 

Maria Giordano

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