As a real estate investor focusing almost exclusively on apartment buildings throughout the country, people often ask me what it takes to find motivated sellers. All buyers want to make intelligent investment decisions, and to do so investors must understand seller motivation-thus the question.
One of the most important principles for negotiating the purchase of a lifetime (over and over again) is to learn and understand seller motivation. They generally fall into one of four categories:
They need to solve a problem. (Management headaches, divorce, bankruptcy, death, illness, lawsuit, needs cash, dispute with partner)
Their circumstances are changing. (Retirement, moving, job transfer, increase in taxes)
They have other opportunities. (1031 tax-deferred exchange, business, stock)
They’re price motivated. (If they get their price, they’ll sell. If not, they won’t.)
If you buy an apartment building and hope to make a lot of money, you’ll need to convert current and/or future cash flow into value. Price is undoubtedly a major factor in your decision making process. If you negotiate with sellers who are price motivated, you’re less likely to get what you want and you’ll probably make a poor investment. It’s your job to figure out what’s driving the selling decision and then focus on solving whatever issue your counterpart is facing, but you don’t want to solve it by paying too much for the property. So how do you do it?