DEALMAKING

 

The Art Of The Deal Dance

 

by Jackie Lange

 

 

The Art of the Deal is not about finding a seller then making an uneducated offer or two.  Oh no! 

The true art of the deal involves asking a lot of questions, listening intently to what the seller is saying (and not saying), getting more information, probing a little deeper to find the seller’s true motivation or reasons for selling, listening more, showing empathy when necessary, clarifying to the seller that you understand their situation and objectives, then proposing some “what if” solutions to their problems which could solve their problems. 

 

Sometimes the dance can be done in one sitting but often it takes several visits to get the seller to feel comfortable with you… and your offers.

 

If the seller does not feel comfortable with you, the deal will rarely move forward.  You can never appear to be anxious or desperate to get the deal.  Stay calm! Don’t try to rush the deal.  You must exude confidence to gain confidence. You gain confidence with education and experience.  

The more education you get (at places like www.cashflowdepot.com), the more confidence you will achieve.

The more a buyer knows about the needs and goals of the seller, the wider the scope of financing possibilities. In turn, the more time and effort the buyer invests in discovering the needs of the seller, and meeting these needs in the transaction, the more successful he or she will be in getting seller's to accept a creative offer.

 

You cannot ignore the seller's needs.  But you can come up with creative ways to solve them.

 

While it's usually dangerous to impute motivation to the other party, it is safe to say that seller problems tend to follow along similar paths. These might include the need for the following:

 

Cash

 

A seller may need cash to settle pressing debts, or to pay for future foreseeable expenses such as medical expenses, balloon Notes, law suits, maintenance and repair, college, business expansion, etc.

 

Income

 

Income may be needed to support life-style needs such as retirement, payments for personal or mortgage debt, transportation, insurance, health or dependent care, alimony, tax.

 

Property Management and Maintenance

 

Burned out Managers and absentee owners are the most distressed sellers in the market. They need to protect their equities and make their payments, but lack the skills, patience, or intestinal fortitude to manage their rental properties. They desperately need to find a capable manager who can and will take over the management burden and restore lost income.


Security  

 

Many people will voluntarily opt for a lower, more secure return on their investments rather than to take a chance on future possibilities. They are those who invest in bonds, insurance annuities, interest-bearing bank and money market deposits, and guaranteed returns based upon various financial contracts.

 

Ego Satisfaction

 

Some people would choose a transaction in which they appeared to have made a good deal in lieu of a transaction in which the bragging rights were less obvious. For example, they might accept an offer that met their asking price based upon 2005 values, but with zero interest and low or deferred monthly payments rather than taking a low cash price.

 

Tax and Timing Considerations

 

Many times an Option can be obtained when a seller can save taxes by delaying the sale. This would be the case where ordinary income might be converted to capital gains; or a property might qualify for a tax-free Exchange or Section 121 residential sale in the near future. In other cases, principal payments might be deferred into a time when gain would be taxed at a lower rate such as from 2007 to 2008; or a transaction sped up when tax on gain is about to increase dramatically, such as happened from 1986 to 1987; and which might happen again when the Bush tax breaks expire if either Democratic candidate is President.

 

Avoidance and/or Elimination of Risk

 

There is considerable variation in risk tolerance among buyers and sellers; especially when confronting the liability risk of defaulting on personally guaranteed loans; or when facing the prospect of recession, depression, deflation, or inflation. When the entrepreneur is willing to undertake more liability and risk in order to relieve the other party of perceived risk, a profitable transaction can often be made.

 

Real estate is often illiquid and indivisible just when an estate must pay estate taxes. Sometimes settling an estate can be simplified by having a buyer with an Option waiting in the wings to buy a property at the end of a seller's life. Alternatively, heirs, who are eager to get their hands on their bequests are happy with an offer that combines a low offer with cash and terms that will provide cash for taxes, and a windfall for them.

 

When structuring a creative purchase or sale, the first task is to determine the needs of the buyer or seller, as the case may be. This is done by slow, patient inquiry that takes place only after the parties are comfortable with each other. Most people are motivated, directly or indirectly, by an emotional response to fear or greed; or a combination of these.

 

If you've taken the time and trouble to discover true motivation, whether fear or greed, then you can channel your creative efforts to allow the other party to meet as many of his needs as possible at a cost that will enable you to meet as many of your needs as possible.

 

As you can see, there is a lot more to the Art of the Deal… than just making creative offers. 

 

Reprinted by Permission. The author is the founder of www.ExtremeSuccessSystems.com and co-founder of www.CreativeRealEstateWorld.com. Visit  www.CashFlowDepot.com or call (972) 496-4500.