In this episode, we’re on part 12 of our series about bringing investing back to basics – keeping things simple.
My business partner, Peter Vekselman, and I are sharing the things that we think will help you find REI success in the basics of investing.
In today’s episode, we’re talking about why you should absolutely, most definitely, without a doubt renegotiate your offer price if it’s warranted. We know that makes some investors uncomfortable, but as you’ll hear – you really don’t need to be afraid to renegotiate your deals on the back end – if you follow our advice.
Here we go…
Listen and Enjoy:
Podcast: Play in new window | Download
- 2:48 – Why to renegotiate your deals
- 7:46 – How to structure your contacts
- 10:44 – How to break the news to the seller that you’re renegotiating
Mentioned in this episode
- Joe and Peter’s Brilliant at the Basics free book
- Peter and Joe’s Apprenticing and Partnership Program
Download episode transcript in PDF format here…
Joe: Hey everybody, welcome! This is Joe and Peter. This is the Joe and Peter show. No but this is real estate investing mastery. We are doing a series called Brilliant at The Basics and bottom line guys you can never go broke making money. Who do they hear that from Peter.
Peter: Thank you, thank you.
Joe: I got that from Peter that little nugget of wisdom. You can never go broke making money, that’s a tweetable right there. So everybody listening to this go tweet that whatever that means. So we were talking last episode of the basic series on– what were we talking about? Oh yeah keeping it simple and making offers, making a lot of offers. You can never go broke making money and you can never go broke making a lot of offers. And he who makes the most offer wins always, every time. All right so first of all if you go to Peterandjoe.com, Peterandjoe.com.
There is a little video there Peter and I talk about what we do, why we’re doing this. We want to do more deals. We want to grow and do deals all over the country. And we are taking on partners. It’s application only, so we just don’t take anybody. We only want serious A players, but it doesn’t matter if you have a full time job. If you’ve been wanting to get into the business and you just kind of overwhelmed with all the stuff that you got to do, we’ve got a simple, duplicatable, easy to follow system, where we will set up your systems for you, your voicemail, your CRM, your websites, your phone systems all that, and we’ll actually do the marketing for you.
We’ll find the cash buyers for you. We’ll find the sellers for you. Get the list, do the postcards. We have the VAs that will work for you as well. So there is a lot that even the VAs will do the follow up. We got a whole support team that will help you and work with you. I’m really, really proud of this. So if you want to go and get more information Peterandjoe.com, Peterandjoe.com. And Peter and I also wrote a book called Brilliant at The Basics, about how we kind of run our systems and how you can get more leads, more time, more money by being brilliant at the basics. All right so Peter today I wanted to talk about renegotiating deals because last episode we talked about just making offers. If it’s closed, it’s good enough, just make an offer. And then you can use your due diligence, your 15, 30 days that you have to close as you do diligence to then evaluate the deal, form it out to your buyers and see if there is any interest in this.
So first of all talk about why do you renegotiate all your deals? I mean isn’t it– because I can hear someone say listen if you give somebody a contract aren’t you morally obligated to give them that price? Aren’t you kind of gaming the system?
Peter: Absolutely not. You know absolutely not. If you think about it if that was the case there would be no due diligence in any kind of contract. The due diligence is the customary thing that not only happens in our investor world, heck it happens if you go buy your own house, right? A personal house to live in. And if you think about it, if you do buy personal house, guess what you are going to do. You are going to put that property in the contract; you are going to put some due contingencies in there.
You are going to put a due diligence spirit in there and guess what you are going to do, you are going to send an inspector into that house. And if that inspector comes out and he says you know what that he sees going to book crush on you, you know the ceiling may cave in and I got some other issues, you are going to go back to the seller and you are going to tell him, look here is the situation. Either you make it right go ahead and fix it, or you make a price adjustment. Either way that’s money that you are going to be getting back one way or another.
So due diligence and renegotiations is done all the time across pretty much every facet of the real estate business. Now here is why it’s important for investors to understand the strategy of putting things under contract and then if you have to renegotiate in the back end. See when you go in with this concept of I got to have that that perfect deal set up, then as you heard of our previous video you spend way too much time in a front end before you even make the offer trying to figure out that perfect deal. You know how much work does it need? What are the cons and all this.
Whereas our philosophy again going back to our previous videos spend an all amount of time talking to sellers putting offers out and then only focus on those deals that you have offers accepted, okay? Now following that philosophy of spend as much time with the sellers, make as many offers as possible, you simply don’t have– I mean my office we have any work from 500 to 1,000 sellers calling us a day looking to sell their properties to us. We can’t possibly do due diligence ahead of time.
Now we are pretty good, we know the market, we kind of know we can pay. The goal is to get it locked up. But then you literally use the due diligence period of the contract which is very illegitimate, that’s why you do due diligence. You use that time as the time to get into the get into the property, figure out what the rehab costs are, figure out the you know what else is going around there, you know you putting your eyes on it. Either you are somebody in your team is putting their eyes out. And then, then what you do is then you can make an adjustment. It’s okay to make an adjustment to your purchase price.
You know the seller for instance– and you know here is the reality. A lot of times comes down to the sellers. You know sometimes it just they misrepresent the properties, not even on purpose. You know what one person thinks is a $10,000 renovation, another person could realize it’s a $20,000 renovation. So then when you are putting your eyes on it or somebody in your team is putting your eyes on it, then you can get very specific on what exactly the renovations are. Exactly what that deal is based upon the, you know, the house to the left and the house on the right that you couldn’t see when you made an offer is.
Then you basically gather all your numbers, put them back into your spreadsheets and that ultimately gives you the right number, okay? And again just like in any other real estate whether you are buying a home to live in or buying a home to invest in, you then go back to the seller and you just present your case. ‘Look, based upon what we saw once we saw it, you know it doesn’t need 5,000 it needs 20,000 worth of work. You know it’s you know based upon the fact that the house next door is got 60 drug dealers and the house next door to left is got 60 prostitutes in it based upon that.’
So anyway so all you are doing is you are making a case back to the seller. Reality is all the people that get frustrated or potentially could look at that process and say well gosh I don’t know if I feel comfortable with it. The reality of this it is shockingly surprising how many sellers are okay with that. They are totally fine. They don’t get upset, they don’t like well what did you do this for? And if they do say it you just explain to them how that process works. And I can’t– you know again I can’t remember too many times I hearing back from my office staff where sellers are like, no that mean they are going to agree with it. But under no circumstances do sellers feel like, wow that is just an unbelievably crazy way to do it.
So what I encourage people to do is just try it. Get it all locked up, put under contract, go through due diligence, whine up all the numbers, develop a case, present a case back to the seller or why you potentially need a reduction in numbers, and anyone would be presently surprised how receptive sellers are when they have some logic to go behind.
Joe: You know it’s really simple I think– and Peter you are renegotiating I’m going to guess 80 to 100% of your deals. Now in your original contract do you put a certain number of days for inspection contingency, or they– how do you structure your contacts?
Peter: Yeah we do, we put on a on a typical deal we may work with a 15 day due diligence. You know the bigger the deal the more the due diligence, you know for buying an apartment building or maybe some kind of a small commercial establishment will go up in the due diligence or maybe the properties screw their way from us, then kind of in our sweet spot areas. But we want to start out with 15 during negotiations period, be willing to negotiate all the way down to as low as seven for the right kind of deal. But we really want to be somewhere between 10 and 15 and that’s the time we are using to walk through the process.
Joe: Now you have– do you have inspectors or people on your team that go and look at the property and give you a contractor’s estimate for repairs, is that what you do?
Peter: That’s right. That’s right, we have FAT [ph] qualified inspectors go out there, do the due diligence on the repairs, put together some really good pictures of the property, basically deliver back to us, kind of the whole story of what is going on with that deal and what is going on with that property.
Joe: Do you pay them a certain amount per report that they do for you?
Peter: Yeah we pay our inspectors $30 per report.
Joe: Okay 30 bucks?
Peter: Yeah it’s pretty good. But you know we are a volume person, right?
Joe: Yeah okay.
Peter: So our inspectors can easily make $500 a week doing inspections, and you know for an inspector making 500 bucks a week is not a bad income.
Joe: Yeah, yeah and again remember on the previous episode I told you guys if you got pictures, if you have pictures, there are simply easy ways that you could estimate repairs using something like $5, $10, and $15. If you know what I’m talking about, go listen to the last episode. The other thing you could do is if you don’t have a strong estimate of repair sometimes what I’ve done in the past is just estimate repairs up to the nearest $5,000. And it’s pretty easy to– once you get good at this and you get going you can figure repairs in income as $5,000, and you probably going to be pretty safe.
Again the great thing about this business is you are just wholesaling the contract, right? You’re just wholesaling the contracts. So there is very little risk if any in these types of transactions because if you can’t sell it, if you don’t have a buyer, the wholesaler property too, or it’s just at the end of the day it’s not going to be a good deal, then you can back out of the contract. You may lose your honest money deposit, but you know you can always get out of the contract, renegotiate if you have to. So it’s just it’s nothing wrong with renegotiating, going back to the sellers, right? Cool.
Peter: Yeah absolutely.
Joe: One more question I had for you on this is like, could you give us an example of the conversation you have with the seller when you call them back? The first callback you know they are expecting to get $25,000 for their house in it, because that’s what the initial contract was for and you call it back to renegotiate it. How does a typical conversation go?
Peter: We just tell them it’s just– it’s a numbers driven business for us. We do a number of different inspections. We do a renovation. What we’ve been talking about. We also do a runnel based per what it could be re-rented and a resale inspection. We plug all those numbers into a spreadsheet, and it kicks out a number and that’s what we go with, simple as that. So we do a rehab, resale, runnel inspection, put in a spreadsheet, kicks out a number and Mr. Seller this is what the number is and we still want to do the deal, but this is the adjustment we have to make to go forward.
Joe: Simple enough.
Joe: You can’t go broke by making offers, right?
Peter: That’s yours right there.
Joe: I’ll take that.
Peter: That’s a good one.
Joe: You can’t go broke by making offers. Well good, this has been really helpful Peter I appreciate it. Go to Peterandjoe.com guys if you want to see what Peter does. If you want to work with us and if you want that spreadsheet Peter is talking about, if you want to go to Peter’s office and hang out with him and see how he runs his operation, if you want to hang out with me in St Louis and see my operation or you want to see my RV, I can show you my RV. But Peter has got more exciting things going on in Atlanta. We’d love to work with you.
We’d love to talk with you. And yeah it’s a really simple application process. You go to Peterandjoe.com. Watch a little video. We explain what we do and then you fill out the application, you get on the phone with Peter, and hopefully within a week after that you’ll start getting leads. Start working with you. I’m excited about these businesses. We have tons of clients making a ton of money. Business has never been better. I see people all over the country wholesaling a ton of deals. Whether the market is cold, hot, flat or warm whatever, this is the time now to start investing in real estate. Yeah and this will be good.
So guys go to Peterandjoe.com. Get more information about what Peter and I are doing and thanks Peter. Until the next video, we’ll see you guys. Bye, bye.
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