How to Negotiate Contracts for House Flips

One of the keys to success in flipping houses, or buying investment properties is being able to negotiate effectively.  Being a strong negotiator gives you a competitive edge against other buyers.  It can make the difference between a deal being profitable for you or not.

I recently purchased a property, listed on MLS, for $35,000 below the asking price.  In fact, this house was previously under contract by another investor for the full asking price of $160,000 but he found it was too tight a profit margin to make it worthwhile.  I was able to negotiate a much lower price.  One of the factors was that I made a cash offer, with incentives to close including paying for title and survey costs.

As a general rule, expect 3 moves (3 rounds of negotiations) before you land a deal.  I made an offer of $100,000; they countered at $130,000.  I offered $115,000 which was rejected.  We settled at $125,000.  

Good negotiating saved me $35,000 which will nearly cover all the improvements needed to the property!

Tips for Negotiating With an Owner-Occupied House

Owner-occupied houses are leads you often get from your mailers and other marketing tools.  These are homes owned by people who are often in financial trouble and they want to get out from under their debt.

Before meeting with the home owner, I determine the value that I think their house is worth based upon comparable sales in the area.  If you cannot access that info, you need to work with a real estate agent who can.

I typically will start by asking the home owner what they think their house is worth.  Then I ask how much do they owe, or how much they are in arrears.  This is vital information for you to have to determine if you can make a workable offer.  You want to be able to make an offer that has some wiggle room to go up if need be during the negotiation.

If the home owner has unrealistic expectations, you have to explain your offer.  Bring to the forefront all anticipated repairs, and assign a cost to each repair.  Bring up the real estate fees and commissions as well.  Doing so will help the home owner understand the basis for your offer.  Then you can sweeten the deal if possible.

In an owner-occupied situation, you want to leave the owner with some extra cash beyond what they owe.  This may be $1000, 2000, or $5000 that they can pocket and use to move on with their life.

Tips for Negotiating for a Vacant Property 

A vacant property almost always offers a potentially good deal.  That house is costing someone money just sitting there.  House insurance, electricity, water, and even possibly a mortgage are all costs that are costing the owner money.

You should follow steps as outlined above, but in this situation, you should be more aggressive in your negotiations.

Want To Learn More?

At Flip University, we teach people how to achieve financial freedom by flipping properties.  Visit our website for more information.

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