Unfortunately, for some property investors the experience of buying an investment property or a buy to let property can be a bit like a jockey’s experience of running the Grand National. They carefully negotiate the hurdles of finding a property, doing their due diligence and analysis, and of obtaining a ‘decision in principle’ on the finance, only to fall at the last fence by failing to agree satisfactory terms for a purchase. In other words, they make a hash of the negotiation and the chance to do a fantastic deal goes begging.
If this sounds uncomfortably familiar, worry not. You’re in good company. A lot of people get the negotiation stage wrong, especially when it comes to trying to agree the right price.
Negotiation to a lot of new investors is merely making an offer a little below the asking price and when that is rejected, offering a little bit more. But I hope we can do a little bit better than that!
The good news is that it doesn’t have to be this way. In fact, if you think about, constructing your negotiation around the asking price is nuts anyway, especially if you’ve taken the time to do your own research into the financials. I’ll say a lot more about that later.
So let’s look at how to negotiate the best possible deal.
Negotiating a good deal is really a three stage process of:
- gathering information
- building trust
- solving problems
By the time you start to think about making an offer you will have already completed the gathering information stage.
You will already have a lot of the information you need through doing your due diligence. Before you make any offer, there are certain key facts you need to know about the property and so you need to:
- Have appraised the location of the property
- Know the condition of the property and what, if anything, needs doing to it like repairs or modernisation and the cost of doing those works.
- Know whether that property fits with your goals, strategy and plan and whether it will appeal to your target market
- Know what the property is worth, whether the price is reasonable, the rental value and the likely void periods, and by analysis whether the property will provide a suitable return
- Have gathered any other supplementary information you feel is relevant
- Know whether the property is mortgageable and how you will finance it, and what terms you are likely to be offered by a lender
That’s all good stuff and will help you make a realistic appraisal of how much you want to offer, but some investors don’t even get that basic information.
In the next post we’ll look at some of the skills essential for obtaining the information necessary to put you in a strong position for negotiation.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor