Before Starting Surgery, Learn the Anatomy of a Deal
In butcher shops it's not uncommon to see a chart of a cow on which all of the cuts of meat are diagrammed.
The idea is that you'll have a better understanding of just what you're ordering when you buy.
I look at potential real estate deals the same way.
If I were to chart the "cuts" on a house, ten of them might include (1) Equity appreciation, (2) Tax benefits: (a)Depreciation write-off, (b) Section 121 Tax-free sale proceeds, (c) Section 1031 tax-free exchanges, (d) Amortization write-offs (3) Loan Pay Down, (4) Liquidity and Leverage via low cost loans, (5) Options, (6) Income from (a) leases and (b)sandwich lease; or from (c)installment sales, (7) Profit from (a) short term flips, (b) long term gain from sales, (8) Personal or Business use, possession, and/or occupancy, (9) Fixer opportunities, (10) Equity Sharing with Investors.
I'd try to structure both my acquisition and sale to give the minimum number of these "cuts" to a buyer, or leave them with a seller, and carve off the rest for myself through negotiation.
If you can learn to perceive all the variable benefits of transactions, buying and selling at a profit amounts to much more than simply trying to bet the best price.
See if you can figure out how I profit from the following: A.
I'll willingly give you any price you want so long as I don't have to pay you until I've sold the property to net 110% of that price; or B.
I'll give you any interest you want so long as I can buy your house at a low price and pay you off in full when I sell; or C.
I'll sell you my house for less than I paid for it, if I can keep an Option to buy it back for exactly that same price anytime I want in the future; or D.
I'll pay you the highest rent in town over a five-year period and pay for all repairs and maintenance so long as I can sub-lease the property; if you'll give me 125% credit for every dollar that I spend against today's purchase price; or E.
With a large equity, I'll make your payments while you live in your house rent-free if you'll give me a credit based upon top fair market rents for you equity; or F.
I'll pay you the top retail price, if I can pay half now, and the balance in a single payment in ten years with zero interest and zero payments; or G.
I'll put a new roof on your house and buy you a car if the fair market value of is counted toward a 10 year Option on your home at today's appraised price; or H.
I'll pay your kid's 4-year college tuition and you can continue to live in your house in return for 125% credit against today's price for every $1 that I spend; or I.
I'll buy you a $250,000 insurance annuity for life commencing at age 65 if you'll deed me your free and clear $250,000 house today; or J.
I'll pay your hospital bills in return for equivalent equity in your house; or K.
I'll lease your house, pay all costs, and pass on to you all the rents, if I can have half the profit when you sell the property in no more than five years; or L.
I'll give you a $10,000 zero-payment Private Line of Credit to use to pay off credit cards in return for $20,000 credited against an Option on your house today.
I've done all the above.
In every instance the seller accepted the offer because I was solving a problem that was more important than his home equity.
In just about every instance where you take the time to discover the true personal reason -- other than merely a desire to make a profit on a sale -- why an owner is selling, you can negotiate better while you buy and sell at a greater profit.
The idea is that you'll have a better understanding of just what you're ordering when you buy.
I look at potential real estate deals the same way.
If I were to chart the "cuts" on a house, ten of them might include (1) Equity appreciation, (2) Tax benefits: (a)Depreciation write-off, (b) Section 121 Tax-free sale proceeds, (c) Section 1031 tax-free exchanges, (d) Amortization write-offs (3) Loan Pay Down, (4) Liquidity and Leverage via low cost loans, (5) Options, (6) Income from (a) leases and (b)sandwich lease; or from (c)installment sales, (7) Profit from (a) short term flips, (b) long term gain from sales, (8) Personal or Business use, possession, and/or occupancy, (9) Fixer opportunities, (10) Equity Sharing with Investors.
I'd try to structure both my acquisition and sale to give the minimum number of these "cuts" to a buyer, or leave them with a seller, and carve off the rest for myself through negotiation.
If you can learn to perceive all the variable benefits of transactions, buying and selling at a profit amounts to much more than simply trying to bet the best price.
See if you can figure out how I profit from the following: A.
I'll willingly give you any price you want so long as I don't have to pay you until I've sold the property to net 110% of that price; or B.
I'll give you any interest you want so long as I can buy your house at a low price and pay you off in full when I sell; or C.
I'll sell you my house for less than I paid for it, if I can keep an Option to buy it back for exactly that same price anytime I want in the future; or D.
I'll pay you the highest rent in town over a five-year period and pay for all repairs and maintenance so long as I can sub-lease the property; if you'll give me 125% credit for every dollar that I spend against today's purchase price; or E.
With a large equity, I'll make your payments while you live in your house rent-free if you'll give me a credit based upon top fair market rents for you equity; or F.
I'll pay you the top retail price, if I can pay half now, and the balance in a single payment in ten years with zero interest and zero payments; or G.
I'll put a new roof on your house and buy you a car if the fair market value of is counted toward a 10 year Option on your home at today's appraised price; or H.
I'll pay your kid's 4-year college tuition and you can continue to live in your house in return for 125% credit against today's price for every $1 that I spend; or I.
I'll buy you a $250,000 insurance annuity for life commencing at age 65 if you'll deed me your free and clear $250,000 house today; or J.
I'll pay your hospital bills in return for equivalent equity in your house; or K.
I'll lease your house, pay all costs, and pass on to you all the rents, if I can have half the profit when you sell the property in no more than five years; or L.
I'll give you a $10,000 zero-payment Private Line of Credit to use to pay off credit cards in return for $20,000 credited against an Option on your house today.
I've done all the above.
In every instance the seller accepted the offer because I was solving a problem that was more important than his home equity.
In just about every instance where you take the time to discover the true personal reason -- other than merely a desire to make a profit on a sale -- why an owner is selling, you can negotiate better while you buy and sell at a greater profit.
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