Buying an investment property requires that you negotiate the deal with the seller. However, what do you do when you are dealing with a seller who’s not motivated to sell?
By now, you are wondering what’s that part about the seller not being motivated?
In real estate, when buying an investment property, there are two types of sellers: the motivated and the unmotivated sellers. So, what does that mean? How do you differentiate between the two? More importantly, how do you deal with unmotivated sellers when buying an investment property?
Buying an Investment Property: Who is a Motivated Seller in Real Estate Investing?
Well, many think that a motivated seller is someone who is desperate to sell his/her house. Therefore, a property buyer expects a motivated seller to list the property for a significantly lower price. However, even though it is true, is it only partially true.
In other words, a motivated seller is someone who is seeking to sell a property as quickly as possible. This does not mean that he/she is willing to sell it at a very low price. You will find out the reason later on in this blog, so keep reading. First, here are some signs you are dealing with a motivated property seller:
- A person who is relocating and needs to find a property buyer as soon as possible.
- A person who has a life situation that forces him/her to sell his/her house. A life situation could be divorce, death or any other reason connected to unpreventable life events.
- A seller’s motivation could also be not being able to repay the mortgage. Therefore, he/she sets the listing price lower than the property’s market value in hopes of avoiding a foreclosure.
Really, what motivated sellers have in common is unpreventable situations either in life or finances. So, they tend to list their properties at a lower price.
Buying an Investment Property: Who is an Unmotivated Seller in Real Estate Investing?
Unmotivated sellers, on the other hand, are those who do not care about any time limits. They only intend on selling the property, regardless of how long it takes. So, if you have seen a “for sale” sign in your neighbor’s yard that’s been there for 8 months, he/she is hardly motivated to sell his/her house.
Buying an Investment Property: What are Common Scenarios of Unmotivated Sellers?
Well, spotting unmotivated sellers is very easy. You should pay attention to the following to identify a seller who’s not motivated to sell his/her house:
- As we mentioned before, when you see a property for sale with a “for sale” sign that has been there for the last few months, that is a strong indicator of an unmotivated seller. This could also mean that the property is selling at a price that is higher than it’s worth.
- Ever checked a listing site and spotted a property that has been listed for several months without any price deductions? Well, that is also an unmotivated seller. In other words, they don’t care how long it would take to sell the property but rather insist on the price they are asking.
- An unmotivated property seller is also your neighbor who says “If I find another home, I might sell this one.” This indicates that their intention is coming from a place of mere desire and not from a place of urgency.
These sellers usually stick to the concept of “take it or leave it”. So, make sure you understand these signs to be able to determine what kind of sellers you are dealing with.
Buying an Investment Property: How to Determine Whether a Seller is Motivated
Basically, you are wondering how to go about buying an investment property from an unmotivated seller. But, it is not easy to deal with such sellers. So, here are some things you can do to avoid wasting your time convincing a property seller to sell:
- A seller’s motivation is very important when it comes to finding real estate for sale. Therefore, find out why the property seller is selling his/her house. Measure things out and figure out whether that is enough motivation.
- Buying from motivated sellers is one of the best investment strategies in real estate. However, as a real estate investor, do not rush the process. Of course, when you are searching for properties for sale, you will check a few listing websites. Make sure you check the date of the listing as well as the listed price. The reason we say that is to check how long the property has been listed for sale. This is a great indicator of a seller’s motivation. If it’s been there for a long time without any indication of price reduction, then you might as well skip it altogether.
- Another strong indicator of an unmotivated seller is unreasonable list price. A property seller who is asking for $650,000 for a property that is worth $500,000, without a doubt, does not care whether the property sells or not. So, how do you decide whether the price they are asking for is too high? We will answer this question for you.
Buying an Investment Property: How to Buy a Property from a Seller Who’s Not Motivated
Buying an investment property from an unmotivated seller is challenging. As we already said, they do not really care whether it sells or not. Therefore in order to be able to get the best real estate investment deals from unmotivated sellers, you will have to do the following:
- The first step towards buying an investment property from an unmotivated seller is to get preapproved for a mortgage. You should go through it before even looking at any properties for sale. Getting a pre-approval will let you know exactly how much you’ll be allowed to borrow in the first place.
- In a seller’s market, a buyer does not have much of a privilege to negotiate. Therefore, you are the one to compromise, as the buyer. Determine how much you are willing to do so. Note that part of compromising is taking the property as it is. The seller won’t bother to perform any repairs. So, don’t have any expectations regarding the matter. Another part of compromising is not to have any clauses that might lead to the termination of the agreement (of course, unless it is vital).
- Offering a price higher than the one already asked for is preferable to buying an investment property from unmotivated sellers.
- Of course, you know that you will have to put an earnest money deposit. A typical earnest money deposit is somewhere between 1-5%. However, consider paying a bit more in order to encourage the seller to sell.
- Finally, when it is time to set a closing date, make sure you are flexible. Flexibility will put you in an advanced position if there are a few buyers looking to buy the property.
Buying an Investment Property: How to Know Whether the List Price is Reasonable
The only way to detect a reasonable price for a property is to perform an analysis. So, what are the types of real estate analysis a real estate investor should perform?
First, the investment property analysis:
When buying an investment property, it is essential that you analyze its potential. Therefore, what you need to estimate is the return on investment. You can achieve this by calculating the capitalization rate as well as the cash on cash return. An important aspect to take into consideration is the potential rental income. It gives a real estate investor a sense of the amount of cash flow he/she can expect to generate.
Second, the real estate market analysis:
This type of market analysis is crucial when determining the worth of an investment property. Therefore, make a comparison between a few investment properties situated within the same location (including the property you intend to buy, of course). When buying an investment property from a motivated seller it should, at least, match the property prices in that area. If the price exceeds the average, then forget it. The seller does not care to sell the property!