The other party is not interested in the deal because you are making a profit?

Question

Here's the question - why are some sellers/buyers disturbed by the fact that the other party in the deal is an investor and will end up making a profit?

Last year I had a potential buyer coming to see a property and I was honest and open about everything I am doing, also that this property is an investment for me and if I can not sell it, I will keep it as a rental or move in myself.

Until this point everything was going well and she was interested in purchasing it as her daughter was living in the house next door.

The talk about my potential options with the property made the client very curious and she started asking more and more, trying to figure out how much I will make on the deal with seemingly very little work.
 (Yes, I ended up making an hefty profit but the buyer, who was the next person after her to come and see it, bought it at a very fair price and got a good deal, when it came to comparing prices of similar properties in the area.)

She did everything she could to try to talk me down to selling the property for less what I had paid for it. (60% ARV) and we parted ways.

I feel like she felt she was about to get ripped off, because I had paid so little for it. She liked everything else about the property and I think she was almost ready to buy.
 
I have tried different techniques and while telling a little white lie about why I am selling the property (had problem tenants and want to get rid of it asap, etc) has not caused any problems with buyers, I like to sleep sound at night and prefer to tell the truth.

How much should I tell to a potential buyer about why I am selling something? How much money I'll make? ... And how can I avoid a problem like this in the future when I'm flipping a property?

(This turned out to be quite long :) Any ideas?

J Scott · Answer

Based on your two quotes above, my guess is that you're volunteering too much information.  Instead of volunteering to tell the buyer that you're an investor and that you're selling the house to make a profit, why don't you just treat the sale just like any other sale -- answer questions about the house, but when it comes to the reason why you're selling, all you have to say is, "I'm looking to buy something else."

You don't need to lie, but you also don't need to disclose your investing strategies or the fact that you're selling in order to make a profit.

Many people don't think like investors, and when they hear that someone is making money using simple arbitrage techniques (buying low and selling high without adding much value), they are disturbed.  The best defense against this is to not disclose that that's what you're doing, at least not until they are emotionally attached to the property.

If you have to, why not get an agent to sell your houses for you, so you don't even need to be there during the showings (from a selling perspective, it's probably better if you're not there during showings, btw).

Account Closed · Answer

i hear your pain...i have 2 stories to tell you:

1.  a wholesaler bought a vacant, boarded up 4plex for 32k.  he wanted to sell it for 55k.  i was currently looking at another vacant 4plex for 85k. i didn't want him making 20k off of me for not much work on a cheap property, but in the end, the wholesale 4plex was a better deal even, if he made a few bucks off of me.  i was wise enough to be able to understand the numbers, and take my emotions (jealousy) out of it.  in the end, i rehabbed that 4plex, sold it after a few months, and made more on it than most people make in year's salary.

2.  i was selling a multiunit property.  i bought it very low and fixed it up and stabilized it with good tenants.  i had a buyer tell me verbatim, "this is the best deal in charlotte, and has the best cashflow, but i won't buy it if you're gonna make that much money"...obviously he wasn't a sophisticated enough investor to look at numbers---his emotions got in the way, and so he lost out on a great deal that others jumped at...

my advice is to play up the good parts of your deal.  i challenged him to find a better deal, and he said he knew he couldn't...i don't tell people what i paid, but it's public info and any half decent investor who has taken a course or read a book will know how to find it..of course that doesn't include your rehab, so you can always tell them that you had to fix it up (only if you really had to fix it up though--don't lie)....another thing, i have lots of multifamily that i'm constantly buying and selling--i always give the same reason for wanting to sell (which is the truth btw)..i am selling some smaller properties of mine to consolidate and buy a larger mutlfamily of at least 50 units..this has seemed to go over well with buyers for me at least

Mike McKinzie · Answer

J Scott is absolutely correct.  There is no need to tell a potential buyer anything more than information about the house.  If anyone asks me why I am selling, it is a very simple answer, "I have some personal reasons for selling that I prefer to keep to myself."

Every retailer, from Mom and Pop's General Store to Wal Mart, buys wholesale and sells retail.  And don't ever belittle that fact, "I have little time invested".  You have your entire life, knowledge and experience invested.  While you may have only a couple of hours invested in one particular deal, you have thousands of hours invested in gaining the knowledge and experience to find and execute that one deal.  Thousands of hours, which, at that time, you made absolutely NOTHING for.

A buyer does not need to know your personal life.  They may want to know your professional life and if you have "Letters of Recommendation" from past clients, use them.  Show them the comparable sales.  Show them other nearby listings.  Let them know if you warranty anything about the house.

Joel Owens · Answer

If the buyer perceives they have a deal but will be taken to the cleaners in reality they will buy.

If on the other hand they perceive they are being taken when they are not then they will fight you all the way and most likely will not purchase.

I always argue it's not about reality it is the perception.

Just like a crap contractor giving a home owner a low bid.The home owner thinks they are awesome until the contractor tears up the place and leaves the house a mess and worse off than when they started.

Had a buyer on a big multifamily I had listed.Kept telling me "oh what a dump it will never sell for more than XX"

Showed the rejection from the seller and then a buyer paid almost twice the price for it cash and we closed it.

You will not convince all buyers to change their mentalities or ways of purchasing.You just have to move on to the next buyer.

Steve Babiak · Answer

I had one available for sale last year.  A (very motivated) buyer came along and insisted on getting central AC installed by me (houses in that neighborhood rarely have central AC) - but was very fixated on the price they offered to me.  They saw what we paid in the public records, and refused to give us the number we needed to get to add the central AC.  I believe it was some emotional or psychological barrier - because our asking price was more than fair (actually, it was less than what a fair price for that house would have been :D ).  So they ended up paying about $50k more, for a house one block away that did not have central AC, and that wasn't a fresh rehab (and the property they bought didn't even have forced air heat - it has radiators - a lot more pricey to add central AC to that)!  Of course, I knew that they were motivated buyers, but was still willing to give them a fair price in spite of that their motivation to buy; that motivation to buy, along with their emotional / psychological hang-ups about "over paying" an investor caused them to overpay somebody else!

Bill Gulley · Answer

Some people will not accept the fact that the early bird gets the worm and they will cut off their nose to spite their face.

As Jason said, too much info. If you feel you need to explain that you have not owned the property for 20 years (they will likely find out) just tell them that you are an investor, that should say plenty. The fact that you need to buy another proeprty is good enough reason to sell anything. Good luck

Jeff Crum · Answer

It is really interesting how making money off of a house could turn people off.  For a significant amount of time, people were convince that property values could only appreciate (thanks a lot, bubble), but suddenly, a rough patch in the field, and people are skeptical.  Perhaps this person has distrust in the market? Perhaps she doesn't want to get her hopes up only for the news to report lower house prices.  I would say also don't lie, but if you can curb some of  the finer details, it would be best.  If they ask these detailed questions about specifics, its your call as to what to do.

Silver A. · Answer

Thank you for your thoughts everyone, all responses have been helpful.

Kevin Yeats · Answer

I will add to the previous comments ... to some people PROFIT is a dirty word ... especially when someone else is making it.

If you reveal your profit to a buyer, that buyer will think "That is a lot of money ... why couldn't I find this property before this seller did then I would have a better deal."

Just keep to the basics about the property.

Max Drizin · Answer

I've never had an issue, but I've always gotten lucky.  I actually had a seller go through his rent roll with me and tell me, "You can raise the rent on this guy, this guy, and this guy, they aren't going anywhere no matter what you do.  You'll make a lot of money on this one right here."

It was one of the most interesting deals I've ever done.  In most other cases, I just try to explain that both people are coming out ahead.  The difference is that the seller wants cash in hand and the buyer wants a deferred payment.  I'm making more money in the end because I can afford to not have it now.

On the other hand, the investor who got in over his head on 6 other mortgages needs cash now, and I've got it.  That's the good deal for him.  I try to explain everything as a win-win, and that both of us are doing well in the end.

The other party is not interested in the deal because you are making a profit?

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