I have done a lot of deals with a lot of different sellers over the years and, in general, you can fit them all into one of four categories. You have to decide what type of investor you are and then find the right seller for you. For our purposes we will assume that you are either a flipper or a long term rental investor. Then, if you are a long term rental investor, do you want a building that is already fixed up, full of tenants and that you can buy turn-key or are you looking for a building with some issues that you can fix up? As you look at properties try to find the proper match between yourself and the seller.
- Seller has a nice property, wants a lot for it: Here we have a seller who legitimately has a nice property and has priced it at that level. If you plan on flipping the property then you do not want this property; as there is nothing to improve on and there will be no left over profit. You would also pass on this property if you want to rent it out but you like your buildings beat up and mismanaged. If you want a turn-key property then this is the type of property you want. You just have to run the numbers and make sure they still make sense on this specific building.
- Seller has a so-so property, wants a lot for it: These sellers come out especially in hot markets. They think their property is the greatest thing around and price it way too high. The problem is that the building isn’t the greatest thing ever. No matter what kind of buyer you are it is REALLY hard to deal with these sellers. If a seller isn’t realistically matching the condition of their building with their price, then there is not much you can do. You just need to move on or wait until the market gives them a dose of reality and they adjust their price properly.
- Seller has a so-so property, priced accordingly: This seller has taken an objective look at their property, realized that there are some warts and has priced it properly for the market. You can work with this type of seller. These are the properties that you are looking for as a flipper. As a rental investor who likes to add value this one works for you too. The only way this doesn’t work is if you want a turn-key product.
- Seller has a nice property, pricing it too low: Scoop these up as fast as you can as they don’t come around too often. Just make sure you do your diligence to ensure that there isn’t some hidden issue that would account for the low price. Sometimes, though, people just need to sell something quick.
As an investor you get yourself into trouble if you try to force a purchase with the wrong property. You fall in love with the property and force the numbers to work or you deal with the wrong type of seller for your needs. Be honest with yourself. Understand who you are and be specific about what you are looking for.
Then you have to fully understand which of the four types of sellers you are dealing with as you hunt for prospective properties. We automatically assume that if a property is for sale then the seller is willing to work with you. That is not always the case. Don’t try to force a round peg into a square hole. You will save yourself a lot of time, frustration and money.