October 2016

Have No Expectations When Negotiating

I Blank Slated and Picked Up a Sweet Multifamily Deal

I'm reading the book Start With No by Jim Camp. It is a great negotiation book and flushes the whole win-win concept down the toilet. One of his behavioral goals is Blank Slating. To sum it up, it means to have no preconceived ideas about the negotiation you are about to enter. It doesn't matter what they paid, what they are asking, what they claim they have done in rehab. You run your numbers and make your offer!

This deal is a perfect example of using Blank Slating to capture a great property. The seller originally called me in early October. I obtained the information I needed and said I'd call her back. When I did call her back, I got her voicemail and left her a message. Over the next few phone calls, it became apparent that she was looking for a full retail sale and only hoping I'd save her a commission. At least that is what my prior experience told me. She mentioned "agent" and "contractor" more than once. Also, they had purchased the property for $250,000 back in 2004 and my buy price was south of that. She finally left me a message on a Saturday saying she hired a contractor to do a full rehab and she was meeting her agent there who was bringing some comps on Sunday. Man, that doesn't sound motivated at all, huh? There were so many objections stacked against this deal happening I wasn't even bothering to put much effort into it. Then I got to the chapter on Blank Slating.

So, I blank slated, gave her a call back and said if you have a contractor doing a full rehab and an agent ready to list it, I'm probably not the right buyer for you, but if you want to avoid all that, I can make you a cash offer and you'll be done. She responded, "No, no. The contractor is really just a handyman and he hasn't even really started yet. And the agent is just a friend of ours who lives out in Palm Springs. He is only coming along to keep me company."

What?!! Had I just assumed she was ready to go all retail I probably would have never called her back. Luckily Mr. Camp and his excellent book showed me a better path. I decided to meet up with her at the property and see what I could put together. Going out the door, my numbers were $325K ARV which put my buy price around $221 with a max of $225K.

Upon arrival I met the seller and her agent friend. The first thing he tells me is that there were two guys in one of the houses when they arrived. He asked what they were doing there and the conversation started to get a bit heated. He told them to leave. One of the guys asked who was going to make them leave. The agent said he was and pulled out his phone and started calling the police. The squatter grabbed his phone out of his hand and took off down the street!

The seller explained that her parents own quite a few rentals all in Orange County. For some reason, this is the only one they own in the Inland Empire. She also said her parents are getting up there in age so for those two reasons, nobody pays any attention to this property any longer. I asked for a tour. We walked around and looked at all three units. As we went, I commented on how rough San Bernardino is and how the tenant base can be a challenge. Finally, at the last house I point blank asked her, "This is a big project and this is San Bernardino. The homeless problem is not going to go away. They are going to keep breaking in and vandalizing this place. What's your bottom number?"

She looked at me and said, "I just want to pay off what they owe and hopefully get them a little something out of."

I asked her what the balance of the mortgage was. She said about $215K. I then said, "I'll give you $220K. That will pay off the loan and leave a little something for your parents."

She accepted on the spot. I went to my truck, grabbed the blank one page contract I use and filled it out. We opened escrow Monday morning.

An interesting side note; I went back to the property on Tuesday to meet my contractor there. I got there early and caught a young woman in one of the houses. She had crawled through the window. I told her to get out now or I'm calling the cops. She started crying and said something about her daughter sleeping. I told her to open the front door and let me in. There in the living room was a crib and an 18 month old girl sleeping soundly. In days past, I would have still thrown them both out, but being a new father I know how difficult it is to raise a kid and a kid taking a nap is something one does not want to disturb. Then I had an idea. I knew there were going to be an endless stream of homeless problems at this property both while I was in escrow and during rehab. Quite frankly, I'm sick of it. I told her I'd make a deal with her. She could stay, not as my tenant though. She had to clean up the yard and keep an eye on the place. She was to have nobody over. Not a single visitor. I would let her stay for the next three weeks. (She can't stay over 30 days or I'll have to evict like a normal tenant.) Her job is to be the sheriff and call me immediately if anyone shows up. Within 24 hours she called me twice! The first time a young guy and two girls showed up and told her they were going in the first house. She ran them off the property. The second time she said someone was in the yard. She started yelling at him and said he left as well.

Even if I have to evict her, it will cost me about $700. The money I'll save in vandalism, stolen plumbing, electric wires, hot water heaters, and anything made of aluminum trumps the eviction cost every day of the week. I called the seller the next day because I had a question. While we were on the phone, I mentioned the meth head I let stay there. Remember, it is still her property! She thought it was a great idea. I think so too. I look at it a lot like this presidential election; Trump or Hillary? Damned if you do. Damned if you don't. Better to have one meth head keeping an eye on the place than a constant stream of them stripping the houses bare.

So, what do you think? Was it a smart move to hire the homeless meth head to watch my property? What would you have done. Don't forget about the 18 month old little girl sleeping in the crib. Leave your comments below.

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