Deal Review! Seller financing, BRRR!

[Joel Mooers]

Hello,

I am looking to purchase my 4th property and would love some seasoned eyeballs or experience dealing with difficult tenants.

The details: Off market 

$170,000 smaller house with 875 sqft,  2 bed 1 bath

$850/mo in current rents with tenant paying all utilities

property tax of $100 month

20% down payment - 34K. Seller financing with 5% interest and any term length we choose (e.g. 15, 20, 25 year etc). No pre-payment penalty so can refi after BRRR. She is an awesome lady selling parts of her portfolio every year to retire, we could also pick up other deals from her in the future.

25-30K in remodel. ARV of 245K and rents of 1,400++. Very hot rental and housing market, likely able to get 1,600.

Great annual return due to buying below market of 195K and rehabbing to add value. at 1,400 in rents = 6.9% purchase cap rate, 7% cash on cash ROI and $72K in equity after rehab, so we could get our rehab budget out. If 1,600 in rents = 12% cash on cash ROI.

The issue: tenant is an elderly man, a smoker with a dog and doesn't want to move. Would consider cash for keys or paying him to move. Will meet him this Sunday. Any suggestions?

Thanks!

[Simone G.]

@Joel Mooers

Bravo on this gem of a deal. 

In the spirit of getting you to the finish line and cleaving off more properties from this "awesome lady's" portfolio in the future, below are some unconventional negotiation and behavioral psychology suggestions on how to manage the 'elderly man' tenant, and maybe other comparable situations in the future?

Feel free to ignore, but hopefully these help:

• When you first sit down with him, ask him about the genesis of something personal to him - ask him where he got his shoes, a shirt, a hat, his dog, whatever. 
• Do not talk about yourself.
• This gets him talking about something comfortable and familiar because it's part of him and is a non-threatening topic. Him potentially having to move, uproot, pack, find a place to live, etc. is threatening and unfamiliar - you both know why you're there, you'll get to that topic eventually.
• Do not talk about yourself.
• Once you gently meander through the 'genesis' convo, bleed in to asking him what he values; that's the question, and pose it genuinely, "I would love to better understand what you value...and what's the best example of someone exemplifying that value to you?" 
• Do not talk about yourself. 
• Again, he's going to confidently be able to answer you and by doing so, you'll also get an idea as to the most valuable currency here to employ in getting him to leave - is it money, time, comfort, extra help packing, helping him find the next place, finding his dog a yard, whatever.
• Do not talk about yourself. 
• Now you (hopefully) have him comfortable and you don't want it to be an interview, so the questions need balance, but talking about yourself is not the next play (spoiler alert!). So many investors make the mistake of hemorrhaging on about their 30,000 feet view of the property, their goals, why they need the tenant to leave. This is a mistake. Never position yourself as needing something from them. Instead, position yourself as a winning lottery ticket they simply need to cash. 
• Next, ask him what makes his dog the happiest. He will list all the things that make his dog happy. By doing this, you're acknowledging the importance of incorporating (probably?) the happiness of the most important thing to him.
• Again, don't talk about yourself.
• You're seeing a pattern here. You don't need to qualify yourself. No one cares about you, sorry, but he doesn't, and any tenant in this situation doesn't either. Talking about your dreams for the property, your kids, where you went to school, is not the agenda. 
• Now that you know what he values, what his dog likes, and his preferred currency, you do something like this: "Look, Frank, I am pretty bad at a lot of things in life, but maybe this is something I could be somewhat good at, you tell me...you mentioned you value consistency and familiarity, are getting older, could use a little help packing and finding a new place, and ideally, more space for your dog - if I could set you up somewhere where it would be unlikely you'd have to move again, your dog could run, I could send my guys to help you pack and give you enough cushion to not have to worry about unpacking or the first three months rent at your new place, would that be of interest?"

You script it accordingly. But the take away is make it about them. Listen. Ask. Listen. Ask. Give them a winning lottery ticket they simply need to cash. 

Hope that helps.