A Deal on the Brink | my latest flip in Hanover, Massachusetts Extended Article
The call went a little something like this:
“Listen, don’t worry about all the stuff – just knock $10,000 off the price of the house, we’ll clean up all of the stuff on our own”
Then there was a long pause before the investor on the other end of the line responded with:
“OK, let me see what I can do”
15 minutes later he called back, agreed to the proposal and I closed on the deal just days later.
The day after the closing, we had a team of high school kids from my marketing specialist John Fossetti's football team in there hauling out two dumpsters full of junk. We filled up two entire dumpsters and $1200 later (including labor), we had a clean house.
An immediate $8,800 profit for us…
New Hanover Property Videos Now Available
This experience got me thinking about how important good negotiation skills are in order to succeed in the house flipping business. Yet before I dive head first into negotiation principles, I want to let you know that you can learn more about this specific deal in Hanover by visiting the Hanover Flips in Progress page.
We just uploaded a new round table video, whiteboard video and walk through videos of the Hanover property which you can access right now by clicking here.
Ok, now onto the negotiation...
Lessons in Negotiation
When negotiating, don’t over talk. State your proposal, then shut up. The first person to talk next loses. (In this case though, we both won!)
When confronted with a roadblock, be creative – money often times solves all problems. EVERYTHING in real estate is negotiable.
As soon as we had all the junk cleared out of the house, we immediately realized we had yet another issue. As much as I’d like to think that I am pretty good that visualizing floor plans that sell, on this one I was stumped. Both Bill and I were scratching our heads trying to figure out how we could arrange the floor plan so that it flowed well, but also we had an extremely vexing issue in that the house was a two bedroom and in our experience, two-bedroom homes take a long time to sell.
Somehow, we had to figure out how to change this two-bedroom house into a three-bedroom house. We also had to figure out a way to open up the main living area and expand the kitchen. The home had an extremely challenging floor plan with two bedrooms, a weird kind of living room and a large workroom that was way too large to make into a third bedroom. Here is a picture of the floor plan here:
For the first time a really long time, I was stumped as to what to do.
What would YOU do with this floor plan?
Then Bill thought of an idea. Why not invite our architect, realtor, designer and contractor all together in an on-site “meeting of the minds” to solve the issue all at once? That way, we would have input from all parties who would have a vested interest in the property in one room and resolve the whole thing.
So we did just that.
Don’t think you always have the answers. When you need help, ask for it. In this case, we had no clue – so why not get the experts to help decide instead?
Learn from your mistakes. We knew two bedrooms don’t sell in our market, so we didn’t repeat those same mistakes. Learn from them, don’t repeat them and move on.
We realize that if we got all parties involved in the project in the same room, trying to figure out a singular problem – each would elicit input based on their own vested interest. But by having everyone in the room at once, they would balance and counter each other out.
For example, the contractor suggested that we should expand the kitchen with an island and bar stools. He said it would cost an extra $10,000.
Fair enough, I said.
I then turned to the realtor and asked her if that kitchen would help the home sell faster. She said it probably would. If I didn’t have the realtor there, Id be taking a guess on that.
Everyone was there helping to make the right decision.
At another point, the architect suggested moving the bathroom over to a corner of the house, claiming that would open up the space more. But the contractor countered and estimated the costs of doing that in structural and plumbing cost would raise the project another $15,000. The realtor then interjected and said that additional cost may get us $5,000 or so in ARV.
Use the collective brains of your real estate investing team – even before a project starts and at all points along the way. Their input is invaluable.
If you are going to spend additional money on a rehab, make sure you get at least a multiple on your money for that improvement.
As you can see from the photo, there was a workroom behind the garage which was too big for a single bedroom. What could we do with that?
It was isolated from the master bedroom, so would that detract from the house?
We hashed out all these issues in our hour-long meeting and we finally decide on three basic floor plans. The designer and architect agreed to draw up the three plans by that Friday. We would then pick one that day and then start the rehab.
If you cannot solve your problems on the spot, make a specific plan to narrow down your choices with deadlines for completion. Time is money in real estate, so don’t dawdle…
We met with the designer and architect on that Tuesday and they showed us the three plans and we picked one.
We called our contractor on the design decision. He was thrilled as some of his ideas were added in.
We then called the realtor. She too was thrilled as some of her design ideas were added in as well.
Bottom line: we eliminated the need for structural changes, kept within our projected rehab budget of $50-70,000 (we were now on the high-end of the range, but still OK) and came up with a kick-ass design that will SELL!
Furthermore, I have no doubt my builder, my architect and my broker will work even harder than they have before on this house to get it done and get it sold because THEY had a part of the decision-making process.
Later in the day, I got a call from the realtor. She was so excited to talk to me because she had done a little more research on our plans and was convinced that we could sell the house for $20,000 OVER our original ARV.
What do you think? Let my team and I know by leaving a comment below or posting in the HFS forum.