Some things never change. People always ask me "How's the real estate market doing around here?" It's a great question - I'm glad people care to know rather then believe the dramatic and often negative soundbites they get from TV.
First of all, we're much better off here in the Triangle than in other areas of the country. We have a diversified job market. We never had the real estate bubble that places like Florida and California experienced. Therefore, the national reports don't tell the local story. And we all know that real estate is about location, location, location. Foreclosure filings are way down in the Raleigh area as of August 2010.
Second, affordability is back. Granted, that some people can't afford to buy right now because of their job situation or problems with their credit. For those people with stable jobs, you can get a better house price and a lower interest rate. Imagine the idea of holding onto a mortgage for more than a couple years! This is a great lesson for those homeowners who used their house like an ATM to buy cars and keep their not-so-modest lifestyle during the previous 5-10 years. Get a mortgage today at under 5% and other than insurance and property tax increases, know that you will have the best deal for years to come.
Banks are being more cautious about loaning money which is what they should have been doing to begin with. Data shows that recent loans since 2009 are doing well and most are staying current. With house prices decreasing slightly in most Triangle cities and towns coupled with it being a buyers market, buyers can get a house that is reasonable for their income and where they work.
For homeowners who want to sell in the Triangle right now it's not all bad. Homeowners need to be prepared to do whatever it takes to price their house properly, which in many cases means pricing it below what they want or think they need to get from the sale. Pricing + condition = offer. Condition means they have to repaint or do the work - no more allowances for new flooring or solid surface countertops. And sellers cannot turn down showings - you would be surprised to hear stories that local real estate agents have of trying to schedule an appointment with plenty of advance notice to be turned down by the seller. Sellers need to understand that sends a clear message to the buyer that the seller is not serious or motivated to sell their home. In most cases the buyers will not reschedule. The buyers have too many choices to deal with a seller they do not feel is ready to sell and reasonable.
National data is showing that consumer confidence is increasing from 2009. My experience can support that here in NC. I think public sentiment is cautious but the economy is moving. People are out there buying products and services. More consumers are trying to keep local more than they used to - we understand that supporting our neighbors will keep everything going instead of focusing on the cheapest price for a product or service.
If you are going to jump into real estate investing, then you'll want to make sure that you avoid these common mistakes made by most property investors. I've seen some well intentioned investors give up completely when all they needed to do was follow these five simple suggestions.
Property Investor Mistake # 1 - Negotiating Over the Telephone
Why is it that so many property investors think that they can effectively negotiate the deal over the phone? Yes negotiating over the phone saves you time, but it also is extremely difficult.
You will ALWAYS be more effective in person as compared to negotiating via the phone. In person you'll have the non-verbal cues to watch for in their body language.
In person the other party can really get a sense that you are a good person and come to like you more. And in person you can more easily connect with the other party, something we'll talk more about in a moment.
How is it that property investors get TRICKED into negotiating over the phone? Sellers will say things like,
"Tell me about your program?" or "What will you give me for the property?"
Be WARY before you answer. If you are not careful, you will get yourself into the heart of the negotiation prematurely.
Instead, answer these questions cautiously. Say,
"Well Mr. Seller, to be frank I'm not sure if I do want to buy this property. With all that's going on in the world I'm not sure that now is even a good time to buy. May I ask you a few questions to see if this is even a house I would want to have you show me through the inside of?"
Notice how you have effectively turned things around on the other party.
Property Investor Mistake # 2 - Negotiating Money Before Motivation
The single most important key to closing the deal for property investors is to remember to never talk through any numbers or specifics of price and terms before you have spent time talking through the seller's motivation to sell the property. In order to get a great deal on a property you need the seller to feel motivated. We use the word feel intentionally. It's one thing if the seller intellectually knows he is motivated. It is quite another thing for him to feel it in his gut. One is an intellectual response, the other an emotional response. When you can help the seller cut through the layers of denial and get to the emotional core of why this property you are talking with them about buying is such a burden to them, then you will get a great buy.
The more time you spend letting the seller tell you all the reasons he or she has had trouble selling, the better deal you will get. Remember that the next time you are tempted to rush past this step. The amount of money you make in the deal as a property investor is directly proportional to the time you spent building the seller's motivation.
Property Investor Mistake # 3 - Talking In Technical Language Versus Descriptive Language
Can you imagine the seller's response if you were to say to them,
"Mr. Seller, what if we were to lease option your house with an option price of $150,000. We would give you $1 as option consideration, in addition to our commitment to the long term lease which will be additional option consideration. "
The term of the lease will be one year with five additional one year renewals to come up on a rolling basis every twelve months".
Have your eyes glazed over yet? Are you a little intimidated by the language? If you feel that way imagine how the seller will feel. Scared and confused.
And a scared and confused seller is NOT going to ask property investors the questions to clarify their understanding or to settle their anxiety. They are simply going to say one word...NO! So make sure you instead talk in descriptive language like,
"Mr. Seller, what if we were to make you a guaranteed monthly payment every month and then at some point down the road we were to cash you out of the property at the full $150,000 price we talked through a moment ago. Is that something we should talk about, or probably not?"
The funny thing is that what you said in the second example describes in functional terms what you said in technical jargon in the first example. Remember, sellers want to feel comfortable with whatever property investors offer them. You have got to explain things to them in language that is simple and tells them exactly what they get. Never use jargon or fancy language to cloud up the discussion. Using fancy language usually only results in bolstering an investor's fragile ego, but at the expense of his or her bank account.
Property Investor Mistake # 4 - Selling the Other Party On the Deal
One of the subtle negotiation applications of this take away approach is for you to become an expert at being a reluctant buyer.
The single biggest language pattern of the reluctant buyer is how they qualify everything they say with phrases:
"I don't know if I could do this, but what if"
"My partner might not like this, but what if I could get her to agree"
Also, when you get the other party to give their initial agreement on a specific idea or offer, fight the urge to rush in and SELL them on the benefits that accrue to them if only they move forward with the deal. Instead, get them to sell themselves! Property investors do this by asking them a question. For example, if they said they would be interested in a five year lease option ask them,
"What about me making you payments for up to five years and then cashing you out is such a fit for you?"
The result will be them telling you all their reasons for wanting to do the deal.
Property Investor Mistake # 5 - Negotiating On an Intellectual Level
Don't make the mistake that average property investors do of talking only in intellectual terms, work to get the conversation to touch the other party at an emotional level.
The single most important skill you have as an investor is your ability to connect emotionally with people. This is the skill that will help you get the seller to open up as to their real reasons for selling. This is the ability which will help you create trust and rapport with the seller. Master this skill and you'll never really be "negotiating a deal." Rather, you'll be talking over ways of coming up with a win-win solution with the seller.
So there you have the five most common mistakes that property investors make when negotiating deals, don't you dare make these common mistakes!
I'm amazed at the, recent, turn of events on foreclosures.
At one point, all the major servicers, known as the BIG 4, were accelerating foreclosures and FNMA/FMAC were setting records (Allbeit - depressing records) on monthly/quarterly foreclosures.
So, here we are in the midst of "oblivious" robo-signers and massive issues relating to MERS and the rights, within that institution, to directly foreclose on properties.
The fact that hundreds of thousands of real estate properties, whose mortgages were sold, and resold and resold - in the secondary marketplace - and now, likely, have missing links in their associated chain of title, is disturbing and will be resolved, but at what additional cost ??
Yes, the problem(s) absolutely have to be fixed, but watch the massive litigation that is about to take place, between title companies and servicers/lenders.
Where does this leave all of the current owners of real estate that they purchased as REOs ?
Will any of these, "recently", sold REOs fall into a grey area - split between a previous owner's claim, or fact, that the foreclosure was NOT, in fact, legal ??
One thing for sure, these are some major issues that aren't going away anytime soon.
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