Does accurate valuation and strong negotiation make or break RE investments?

[AJ Wong]

You get what you pay for is a valid RE investment lesson. 

It's hard to 'steal' properties these days. Whether you're a wholesaler looking to flip a profit,  short term rental owner, value investor or purchasing a legacy property for your family, nobody wants to overpay or invest and rarely is worthwhile attention provided to rough deals or tales of caution.

Anyone investing in real estate long enough, has cliche's: It's not as easy as it looks would be a common theme, another might be, expect the unexpected?

Full time investor, landlordship, ownership or BNB operator is a full time job. Yes, even if someone is employed to manage the property. There will be unforeseen circumstances and costs, both during the transaction and after it. Real Estate requires time, energy and expense. 

Sometimes real estate can feel like a heavyweight fight, the winners are announced after ten rounds of brutal tribulation, and only victorious for a moment at the end. Then it's on to the next project. Scaling fast is one thing. Scaling profitably is another entirely. 

I remember a lot of investors that were 'up' in the early 2000's. By the mid 2000's they were down, bad. Myself? I've lived nine real estate lives. Purchased and sold vacant land and remodeled and sold an SFR just before 2008 :) Seller carries and private financing. Scaled to multiple BNB's. Flipped a few. Built from scratch in Mexico. Funded millions in mortgages and sold $10M+ in Coastal RE last year.

Fortunately, all of my personal and professional investments have yielded healthy returns, at least in part to strong initial evaluation and negotiation but they weren't all necessarily winners from inception or during transition. 

Not all deals are created equal. Real Estate Brokers/Agents take a lot of memes for not always earning their due, but approach the same opportunity with two broker guides and they could yield vastly different investment results. 

Properties can become more attractive and lucrative on the right terms. (My mentor bought a $1.1M FL property during COVID with a 3% interest only seller carry, and it's now worth $2M+!) Creative financing is one way to get there, creative transactional structuring is another. In most markets (when there is not oppressive competition) there is usually a way to find more meat on an investment bone through concessions or outright price negotiation. 

Sometimes the win isn't creative at all. Often it's just thinking ahead of the market or competition. It's nice to evaluate a home for less than asking, but if it's the 'best' deal for the client on a competitive offering, securing it for the investor could be where the RE representative earns their keep. Escalation clauses are fashionable in HOT markets, seller carry's could be the play in a down turn. Timing, will always be critical. 

The point is; evaluation, accurate analysis, due diligence and ultimately negotiation is critical to investor success.  And yet..the best moves aren't always closed deals (for investors and brokers alike) sometimes the best deals are the ones you walk away from. It only takes one rotten egg to spoil the dozen..One bad investment to ruin a growing portfolio. 

No amount of time and money is worth a unsatisfied client or an unprofitable investment, and with a game as cyclical as Real Estate, the pendulum swings quickly. 

Professionally (and personally for that matter!) my negotiation tactics are not always flawless, but they are always honest. One measure I use to hold myself accountable is to compare my CMA (Comparative Market Analysis) with closed sales that my clients either didn't win or didn't want (and those that did.) I'd say 95% of the time my valuations are within a percent or so of the final closing price. However, once in a blue moon, a property closes below what a client offered or was in contract for. Potentially something unforeseen came up that influenced the final sales price, but either way that would be an instance when I left food on the table (for the opposing party!) 

When working for buyers, my job is to get you the most optimal property and price within parameter. The entire incentive of real estate representation is that the client's money is your money. Broker and Agents work in a fiduciary capacity. To protect and advise to the best of one's ability. The most efficient way for me to get rewarded is to trade something that is worthwhile. The market dictates the price of property, but the parties to the transaction comprise the market makers. 

My advice to investors, especially rookies, is to keep everyone honest (including oneself!) When I was starting out.. I wanted to know EVERYTHING because I knew nothing. I still know nothing, but I have enough experience to add some insight to almost any real estate transaction. When I don't know, I ASK, when I can't add value, I refer. 

Thus: Ask questions and listen.

"Thanks for the CMA, why do you think the property is worth paying full asking price? Or why $45k less? Justify it, with facts. Why would this make an excellent vacation rental? Who can manage it? What are the costs? But also, why hasn't anyone purchased this home in three months? Why is the seller, selling after six? Why is there a crack in the foundation, why isn't the repair listed on the seller disclosure? Indirectly, why should I invest in YOU?"

Listings come and go..but a mortgage is forever...

For both real estate professionals and real estate investors alike, you can't be all things to all people or properties and you can't have them all. For investor friendly brokers the job is not to get the deal closed, it's to perform for your investor client on their behalf. The final diagnosis is not 'winning or losing.' Winning or losing are symptoms of high performance. Deals WON'T work, until ALL parties are satisfied. 

FOCUS on creating the best possible conditions with the resources available, do your best with what you have, MAXIMIZE those assets and the investments will eventually return (even if you didn't execute flawless negotiation or evaluation initially.) Somewhere out there, are just as many 'good' investments that went bad as those that went from 'bad' to GOOD! And the BEST were probably the problems that were outright avoided. 

Supposedly, the BEST negotiators share common characteristics and traits: 

-Active listeners!

-Ask A LOT of Questions.

-Have high Emotional IQ.

-Are well prepared.

-Are well researched.

-Are adaptable.

-Plan and create value. 

-Use numbers instead of ranges! 

-Lastly...they are willing to walk away :)

What is your experience? Is highly accurate valuation and strong negotiation critical to successful real estate investment?

Anyone completed a 'Negotiator' Course or have some 'fun' stories of getting it right, or wrong?