How to find out quickly if seller is motivated?

Question

A few times a month, I get tips that are usually something like "So and so is really sick of being a landlord, and wants to sell his properties ASAP."  I got one such tip last night. Potential sellers own a duplex and a triplex, purchased in 2005 for more about what they're worth now and certainly a whole lot more than what I would pay for them.

Typically in situations like this, I call and say something like "I heard you may be interested in selling your property. I'll be very straight with you, so I don't waste anyone's time. As an investor, I am a bargain hunter and never pay more than the tax assessed value [in my area, this is designed to be 20% below market value]. However, depending on several factors including the condition and rents, I often offer significantly below the tax assessed value. On the plus side, I can close quickly and take care of any deferred maintenance for you, so you don't have to worry about prepping your property to go on the market."

Is there a more effective way to approach these potential sellers, without wasting a lot of time before they tell me they want full retail price?

Brian Wall · Answer

There is a very quick way, I would call them up and say "Hi, my name is Brian, and I purchase investment properties, I heard you may be selling your properties, when do you need to sell?"

If they come back and say, "well, I don't need to sell", or "I would like to sell ......" they are not motivated, say thanks, and hang up.

If they come back with "Yesterday!", then continue with your questions.

Thanks,
Brian

Mike C · Answer

Mariah,
                              
                              A couple of comments. First, saying you will only pay tax-assessed value is frankly an insult and fantasyland and screams newbie IMHO. Tax assessed value is always way below 80% market value. It is usually closer to 20-40% of value but is never near 80% in my experience. If someone told me that, I would probably laugh and hang up and wish the newbie luck and wonder how long it takes for them to get realistic about this business. Worse, if it got around in your local investment community that someone was that far from reality or being realistic, they would be quickly known to all and avoided like the plaque. It makes it sound like you donâ€™t understand real estate (Again, no offense, just my opinion). For example, look at the assessed value of your house and what it is really worth and I hope you see my point. 
                              
                              Having said that though, the situation you describe is a possible deal IF this seller is realistic and motivated. You can find out all you need to know in 5-10 minutes max (and usually closer to 5 minutes max as most will be unrealistic). Tired landlords can be very good source of deals for you if you approach them correctly. If they are a referral from a good source I will be bit more direct in finding motivation. If they are just a referral or someone I found in the paper I will treat them a bit differently as most donâ€™t. Remember, with the tired landlords your biggest job is to get them to realize what they are really getting a year (average out) after they take into account vacancies, repairs, landlord headaches and so on. Of course if they are not motivated, even making them think about this is a waste of time. You will learn to get a feel for this as you gain experience talking to sellers.
                              
                              Here are few things I would recommend saying. First to me, motivation is the most important factor. If they are not motivated, the rest is probably a waste of time. Why? If they are not motivated they will not give me the discounted price or terms or both I need to make a deal that I want to be involved in. If they donâ€™t have to sell for year, why are they going to sell to me at a discount? Answer, they wonâ€™t (at least not yet). I want the person who was just transferred across the country, canâ€™t afford 2 house payments and has to move in 3 weeks. Now that person is motivated (usually). The next important question if you get a good answer to why they are selling is when they NEED to sell? It should be obvious why this is important. 
                              
                              There are two ways to play this. 1st, if this was a good referral (i.e. I call them and tell them so and so said they were looking to sell and if this is true) the first thing I want to know is why they are selling? If they are motivated, they will tell you. If they wonâ€™t, they probably are not (but donâ€™t give up yet just donâ€™t waste a ton of time). Hopefully they say they hate being a landlord and just want out but they may not. Now I need to ask 3 questions. What are you asking? What are the repairs? What is it worth? How did you arrive at these numbers? Same questions I would ask a SFH. This will quickly tell you if they are realistic or delusional. If things look good, put it under contract and do your full do diligence (anything you donâ€™t already know: the real value, what the rents should be, clean title and so on).
                              
                              2nd, if it is someone I just called in the paper or a less reliable referral. I will play it more like this. I will ask about the unit a bit and make sure it is available, what they are asking for rent, about the neighborhood (should know a bit already) etc. Feel out if they are happy landlords in this process if you can. Then ask then if they would be willing to sell building/home in addition to the lease you are interested in. They either say no, I would not be interested and so you move on to the next one after explaining you also want the chance to buy and expand your portfolio. Or they say yes and you continue on with the info mentioned above. 
                              
                              Remember, you goal when deciding what you will pay to them in rent is whatever they are really receiving and not what they are asking. You are asking them how many months of vacancy they have and annualize that so they realize what they really receive annually. Same with repairs. Same with headaches. Your ultimate goal is to get your payment to them at whatever their mortgage is if it will cash flow at that level. If not, you want to be below that. They will have to be very motivated to take less than their payment but it can happen. The more motivated they are, the more likely this will happen. Remember, no deal is better than a bad deal. 
                              
                              This is the basics but there are too many variables to go into to much detail (and the post is already long enough). Remember KISS. Keep it simple. You donâ€™t need a lot of info to make your business decision. Remember that. Keep learning and talking to sellers and you will do well. 
                              
                              Best of luck
                              
                              Mike C

Scott C. · Answer

A sales company I used to work for trained us to always start off a conversation with something positive. You could try rewording your script like, "I heard you may be interested in selling your property. As an investor, I can close quickly on your property and buy it from you as-is. I will be honest with you that due to the many foreclosures in the current real estate market, my company is only able to purchase properties significantly below market value...

Hope this helps.

Brian Haskins · Answer

There are definitely much better ways to approach investors that will kill any deal immediately. First of all if your buying properties at 80% of the fair market value then you won't be an investor for long you need to be buying maybe at 60%or max 70% in this market. I'm not sure your price range in your area but still 8-% of fmv is way to much unless you have buyers that will pay more than that which i cant imagine. You need to definitely not waste your time with unmotivated homeowners but if you plan to ever make any deals you need to take a completely different approach. You should start out building rapport with the homeowner. Get them on the phone and ask them open end questions and just sit back and listen. You will find out quickly if they are motivated and better yet what their motivation is. Don't get them on the phone and ask them well how many beds and baths and bla bla bla. Get them on the phone and say something like Hi my name is Jane doe and I heard from so and so that you may be interested in selling some of your properties. Then maybe tell them a little about yourself and how you can help them, like maybe that your an investor looking for undervalued houses and you can pay cash and so on. Then ask "what can you tell me about the properties." then sit back and listen. Take notes. Then ask "can I ask why your selling" you will quickly find their motivation if any. Then you can get into more specific questions. When I first got into investing I was 20 years old and people wrote me off as a kid that couldn't buy their house. I had to quickly get good at building rapport after a few appts. I got so good homeowners often to sell to me at a cheaper price than some other people that put in higher offers. Just because they like me and trust me. I know this got a little long winded but definitely don't just jump right on them and try to beat them up in the beginning just stay on the phone with them for a few minutes and ask open questions you will find out much more and be able to buy many more houses. You have to understand when dealing with other landlords that they know they are working with another investor and have to take a discount. They don't need you to tell them that. They are just an average homeowner.

Brian Haskins

Account Closed · Answer

I'd be really happy to sell any of you everything I own at tax assessed value.

Mike C · Answer

Thank you for the comments Steve. I have had a few brain farts thrown in on occasion. I can certainly be the bigger man and admit my error (of which I make many). My apologies Mariah.

Now if only Kentucky can keep winning and M St. wins tonight I will be ok.

Good investing all.

Mike C

Don Konipol · Answer

assessed value differs in each state and sometimes in jurisdictions within a state.  In Texas property is assessed at 100% of appraised value  and has been since 1982.  In fact, many properties which have become functionally obsolete are have assessed values at way over market price.

Don Konipol · Answer

It really depends on whether your goal is to negotiate on every property possible, or to filter out all unmotivated sellers (including some motivated ones).  Your line about being a bargain hunter should eliminate anyone thinking about a full price offer, but might also eliminate some solid prospects willing to eventually sell at acceptable price.  It really depends on your deal flow and the state of the market.  For instance, in my hard money lending, I receive many more loan requests than I could possibly fund.  So I tell everyone that we have the highest interest rates, the highest points, and our loans make sense in only 1% of the cases. After that if their still interested, I hear no complaints or negotiating for lower costs, and all I have to do is filter the safest best deals from amongst those willing to pay our rates.

Mariah Jeffery · Answer

Tax assessed value in my county is supposed to be 80% of market value. However, I have seen it to 60% of market value to above market value in some cases. I have 19 units, and have paid less than or equal to the tax-assessed value for all 19. I don't think it's being unrealistic when I've done it many times in the past.

Steve Babiak · Answer

I think the rest of your post is solid, and it still got my vote.

How to find out quickly if seller is motivated?

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