Convincing a homeowner to sell

[John Waterhouse]

I have found the perfect house for a flip. I've done the research, I have the comps, I know the area, and I've done the math. NOW... How can i convince a couple, whom I've never met, to sell their home? Thanks

[Frank Chin]

Originally posted by @Michael G Sweeney:

Hi everyone, 

I have a some similar questions on how to approach homeowners of potential investment properties that are not currently for sale.  My first deal I found a property that was abandoned. The owner was military, moved out of country and had stopped making payments. After doing some digging, I was able to find the property owners information and message them on Facebook. I was able to get the property under contract all through Facebook, email and fax. However, with my new deal I would like to work on. This person still lives in the property and may not have high motivation to sell. (other than the fact that the house is looking pretty rundown). I am looking for advice on the best way to initially contact/approach the home owner. Is a Facebook message too informal? Should I send a letter or track down their number and call? Or would it be best to simply knock on the door and talk with them directly?   

I like to comment on "This person still lives in the property and may not have high motivation to sell". 

My parents had a mixed used property, lightly run down, had plenty of buyers approaching my dad initially in the 1980's. He originally bought it in 1963, here in NYC, there's big demand for such properties, and the value zoomed from $25K in 1963 to $250K in 1981. He couldn't believe his good fortune, and ask me what to do.

A little background. He ran a business there, in 1981 retired, rented out the two stores. He lived upstairs rent free with mortgage paid, and the stores covered the RE taxes, they pay rent, and taxes on top. Additionally the property had 4 garages rented out. He's living comfortably.

After he called me, I asked him if he considered capital gains tax on the Federal and State levels. He didn't. He was going to take the money, rent an apartment nearby. He was only 60 years old at the point, and I told him the money wouldn't last for 20 to 30 years. At that point, we weren't even thinking about estate issues.

Fast forward to 2013, my dad passed away leaving the property to my mom. We got contacted again by investors. My mom lived there since 1948 and we promised mom we keep her there instead of sending her to a home. This time my mom has Alzheimer's and we had attendants that speak little English. They open the door, let people in, and my mom wouldn't remember 5 minutes later what you said 5 minutes before, and has no idea what they're doing there. They get me on the phone, if they can get me, and I tell them the property is not for sale.

I attended the NYU Real Estate school, one of the professors dealt with old retired owners. He approach it from the standpoint of NOT what makes sense for him, but what make sense for the sellers. Fortunately, my dad didn't sell it in 1981, and by 2013, the value went up from $250K in 1981 to $1.2 million is 2013. This time I was more educated, understand the issues of capital gains, estate taxes, and the stepped up basis. Had we listened to these investor in the 1980's, we would have missed the stepped up basis, stuck with capital gains taxes, mom and dad may even be homeless. 

What the NYU professor did was to tie these properties on long term NNN gains, with an option to buy from heirs at the time of death. He does these deals for MF's and mixed used properties where the elderly owner has trouble finding help managing and maintaining the properties. Says he often gets to exercise his option because the heirs who would fight you tooth and nail when the owners are alive, are more than happy to let go upon the owners death. In other words, take the tax free money and run.

As to door knocking, I invest in NYC, and partnered with a full time RE agent whose broker insisted on his agents knocking on doors. Asked him how he did. Says he got no deals from 2 years of door knocking. He finally figured out his own niche. Brokers often require agents to go to closings where they pick up their commission checks, and it's a pain for part time agents since they have to take time off from their full time job. So he volunteered to go to closings where he got to know all the real estate attorneys practicing in the area. He settled on a niche, pre foreclosures, and when an attorney has a client needing assistance on a pre foreclosure, they would call on him. So he says, isn't getting a phone call easier than running around door knocking? But he also needs investors like myself with money to tie up these deals.