Most multifamily investors and commercial real estate investors have heard the old saying that, “You make your money when you buy a property.”
What this really means is that when you buy the property correctly, at the right price, you will maximize your investment returns. Property management side, if you pay too much for a property you may end up with a break-even deal or even worse …
Suffice to say, you should negotiate to the best of your abilities up-front to help maximize your returns.
One of the things I like to do is 're-negotiate' a deal before I actually close on it …
In fact. I do this all of the time.
Again, if you are reading this, you know how important it is to negotiate the best price possible on a property. But just because the contract has been signed does not mean the negotiation is over.
First of all NEVER be afraid to come back to the table with something based on either new information or a new development that has transpired while you
were heading to a closing.
There are a lot of examples of things that may come up during the due diligence period that may bring you back to the negotiating table.
1. Inspection Issues.
This is a pretty easy example for everyone to get. Most Purchase and Sale Agreements include an inspection clause. This is the time for you to review the property in detail with an inspector or other trade professionals, such as HVAC Technicians, Pool Technicians, Plumbers, Electricians, etc.
If at the time of inspection you find issues, this is an opportunity to re-negotiate your agreed-upon purchase price. In other words, you go through the building and find 8 units uninhabitable you will go back and strike a better deal.
This is not to say that you use every minute, small detail to knock the price down, but be reasonable with it. If there are really issues that need addressed, this may require an investment on your part to fix the problems, so is a good time to work with the seller to either a) fix the issue, or b) credit the purchase price.
2. Appraisal Issues.
Appraisal issues can range from a minor issue to a REALLY big problem that could, in fact, turn out to be a deal breaker.
This is something that comes up more often now than it has in the past, as appraisers tighten up on valuations after all of the problems in the residential markets. The important thing to note is that if there is an evaluation problem, again, it is a time to go back to the seller and renegotiate.
Again, never be afraid to go back to the table and ask. The worst thing that can happen is the seller says “NO” but as a sub-strategy keep in mind that time is on your side …