How property investors negotiate below market value property deals

Always get a great deal when you invest

To get the best below market value property deals, you’ll probably have to learn how property investors negotiate. Some people are born hagglers. Some pay the price asked every time, without question. I’ve sat on a beach in Spain and watched holidaymakers pay £20 for a pair of sunglasses that I just bought for £5.

When you’re investing in property, your skill as a negotiator could mean thousands of pounds of difference. It could be the difference between a cash flow positive investment and a loss-maker. There is no single correct way to negotiate. Different sellers will have different attitudes and reactions in different situations. But what is up for negotiation is the same in every deal.

In this post, I’m going to discuss what can be negotiated when investing in property. This information will give you the same insight as the professional property investors that negotiate below market value property deals every day of the week.

Buying below market value – how much discount could you get?

We’ve previously discussed the benefits of property investment below market value. These include better cash flow and a quicker return on your investment. But what discount can you reasonably ask for, and how much are you likely to get?

There are three components to the cost of property. As a rule of thumb, each component costs around a third of the total cost of build:

  • The cost of land
  • The cost of the building
  • The cost of marketing and the profit for the builder

Land and building costs are fixed, therefore your negotiating power lays in the cost of marketing and the builder’s profit.

Early in my career of investing in property, I was taught always to negotiate the price first. Only when the price is agreed, do you move onto the next stage of negotiating below value property deals: the terms.

(A tip here is to avoid the 5 common negotiating mistakes made by property investors, one of which is to ask for everything at once.)

Buying below market value – what difference can terms make?

Many property investors neglect to negotiate on terms. They get a price discount and then stop. This is a big mistake. There is a tremendous value to be had by negotiating on terms.

The likelihood is that you’ll catch the seller off guard when you begin negotiating terms. They won’t be expecting it. There is plenty of scopes to negotiate at this stage. You could ask for terms including:

  • Extended exchange or completion/settlement dates
  • Access or use to the property before completion
  • Assignment of contract before completion
  • Discount if completion doesn’t happen at a certain time
  • Guarantees on certain things that may happen after completion
  • Retentions on the property in case things happen after completion
  • Seller paying certain fees that would normally be the responsibility of the buyer
  • Seller to provide searches that the buyer would normally pay for

You could also ask for:

  • Furniture and fittings to be left in the property forming part of the price
  • Changes to be made to the property prior to completion taking place
  • Renovation work being undertaken prior to completion

All of these things add value to the deal. Imagine having furniture and white goods as part of the deal, and not having to find the cash to buy them, for example.

It’s never too late to negotiate

You may have agreed on the price, but it is never too late to negotiate. At any time prior to the exchange, you could ask for something more. This might be fixtures and fittings, a bedroom suite, or some repairs made that would otherwise cost you. Often the seller is already emotionally committed, and it’s far easier to agree on this term than to put the property back on the market.

One final comment about how property investors negotiate

Property investors negotiate price and terms because it makes a difference to how their investment performs:

  • In strong markets, you are likely to get a smaller discount. But prices are rising fast, and so your profit will be through capital gain
  • In stagnant or falling markets, you will probably be able to negotiate a bigger discount on the price. Your profit will be from the higher rental yields

The point is that, regardless of when you invest in property, you can always make a profit.

Why not contact the team on +44 207 923 6100 to discuss negotiating below market value property deals in more detail? We’re here to help, and negotiating the best deals is one of our core skills.

Cheers,

Dan Varnaseri

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