i. I = Income Generation from Rental Payments
ii. D = Depreciation (Tax Advantages)
iii. E = Equity (Capital) build up as tenants make their monthly rental payments
iv. A = Appreciation as the Value of Real Estate grows and finally
v. L = Leverage through the usage of "Other People's Money".
And therefore, inspite of the above mentioned five key benefits of real estate as an investment vehicle, there are also several key reasons that would make a property owner decide to sell his/her property and become flexible in the long run in terms of price and conditions of his/her Sales Agreement. And understanding these reasons in the first place is crucial to you as a real estate buyer or investor.
BUT WHY IS THIS IMPORTANT TO YOU AS A BUYER OR INVESTOR YOU MIGHT ASK?
If you don't know who a flexible seller is, then I recommend you read the blog post article entitled, "How To Identify Flexible Sellers of Real Estate Property" found on our main website.
The reasons people or sellers of real estate property become flexible fit into three main categories and these are :
1. Personal Problems,
2. Property Concerns, and
3. Economic Concerns.
Sometimes a flexible seller will have a combination of these three reasons.
You see, dear prospective property buyer or investor, when you seek to purchase a piece of real estate property, you must always keep one caution in mind and that is ; You want to solve the flexible seller's problem (in this case, his financial problem), and NOT buy the problem from him. In other words, the very reason why he is a flexible seller may well transfer with the purchase of the property to you - the buyer. And that's what you wouldn't want to happen to you because the problem might be impossible or overwhelmingly expensive to rectify, and should be avoided like a terminal disease, no matter how attractive the price and terms might be.
Gladly, some problems may be rectified cheaply with your knowledge and creativity before you actually buy the property in question.
Well, here then are the three main groups of problems or reasons that motivate sellers to become flexible in detail including real life examples for your personal consideration and application.
Examples of personal causes of flexibility would include ; owner’s location, time constraints/health concerns, retirement, divorce/family disputes, partnerships, ignorance, financial problems, management issues, and estate sales.
i. Owner’s Location
The location of the property owner may affect the control or management of the property.
For instance, John Mweemba was recently transferred to another town in the country. Wanting a house to live in, he decides to either buy or rent a new home in his new town. But the problem he has is that he still hasn’t sold his first home or rather found any tenant to rent it. The result is : ” The Double Payment Nightmare ” is eating and disturbing him a lot. At the same time, because his previous home is still vacant, he now becomes more worried about vandalism.
This therefore definitely makes John Mweemba become a proper flexible seller of his home due to his personal problem of changed location.
And therefore, you could appear to him and use what you know about him to help you negotiate a good deal and buy his house at a reasonable price.
ii. TIME CONSTRAINTS/HEALTH CONCERNS
The property seller may have become too busy to administer and/or worry about his property. He or any one of his immediate family members may have health related issues that could have ended up interfering with his ability or desire to manage his property.
And therefore, you could appear to him and use this information to your advantage and negotiate a good deal with him resulting in you buying his property at a competitive price.
The property seller might have been recently fired, downsized, or simply retired from his regular employment or business. He may also be contemplating of traveling somewhere else, or just try to take it easy, or simply doesn’t want to worry any more about managing real estate property.
Still, other property owners might be considering moving to a different climate area or simply to a much smaller home.
Again, you may appear to such property sellers and eventually negotiate a good deal with them.
iv. DIVORCE AND/OR FAMILY RELATED PROPERTY DISPUTES
This is also one of the main causes of seller flexibility when it comes to real estate property deals.
For instance, Pezo Chinyama and her husband have been very active in building and investing in a profitable real estate investment portfolio. But because of a marital problem or difference, they eventually settle for a bitter divorce. Pezo Chinyama happens to have only terrible memories about everything her husband did in the past. To say Pezo Chinyama is a flexible seller would be an extreme understatement. She is a very anxious and extremely flexible seller to deal with.
Another issue under the banner of divorce/family related property disputes, would be a situation where the bread winner of the family dies and leaves behind some real estate property. And the remaining beneficiaries differ over the management of the property as well as the even distribution of the whole estates of the deceased person. The result is, the family decides to sell the property so they can have liquid cash to enable them share equitably.
Sometimes, these beneficiaries or heirs end up not liking the property in question. They would rather make a quick sale and have the money instead.
At other times, the executor or administrator of the estate may need to liquidate some assets in order to pay out taxes and debts the deceased person owed to other individuals and organizations.
And this therefore would qualify such a family as a flexible seller and you could equally appear to them and negotiate a good deal with them.
A word of caution though ; it is crucially important to exercise maximum restraint when dealing with family properties on sale and NOT be deceived by their extreme flexible terms and price because You might discover later on after buying the said property in question that some key stake-holders in the family weren’t consulted in the first place. And therefore, it is important to take your time and do your homework well when dealing with family property on sale!
v. MANAGEMENT ISSUES
Some property owners and/or sellers simply happen to be such poor managers of their own perfectly good and profitable investment properties that ultimately turn out to be thorns in the flesh due to bad management. Sooner or later, they become absolutely fed up with owning real estate property.
And therefore, a lack of knowledge about management issues and general business principles can make a world of difference between a successful happy landlord and a disappointed unsuccessful landlord.
And you could appear to such a seller and negotiate a good deal with him and eventually turn his lose making property into a profit making asset through proper and effective management.
vi. FINANCIAL CONSTRAINTS
A number of issues fall under this category of problem. It may include a seller’s debts, bankruptcy problems, business investment capital needs, foreclosure issues, tax issues, or simply the desire for status symbols such as cars, clothes, and jewelery or the like.
You could appear to such a seller and take advantage of this to negotiate an excellent deal with him.
A peaceful and excellent partnership in real estate investment can be quite a heaven on earth experience. But a troublesome one can be such a terrible experience amongst the partners just like a family embroiled in disputes after the death of the property owner.
This normally happens when partners no longer share the same vision due to differences regarding the management of their property. And with emotions getting involved the way they do, partners will sometimes go to extreme lengths to just get rid of the property quickly so they can dissolve their partnership arrangement.
For instance, David Kapalu and Joseph Chapewa were two old good friends who initially started out as partners investing in real estate property. They were highly optimistic, aggressive, and energetic individuals or investors, but later on found that they could no longer share the same vision on management decisions regarding their joint property.
When things started to go wrong, each began to throw the blame on the other. They ultimately decided to sell the property and dissolve the partnership in question before they could start to hate each other.
David Kapalu and Joseph Chapewa have truly become flexible sellers and you could appear to them at an opportune time and negotiate an excellent deal with them resulting in you buying their property at a much lower price!
viii. IGNORANCE, NEUROTIC FEARS AND/OR UNREASONABLE EMOTIONS
In some cases, unfortunately, many property sellers make decisions based on their emotions, fear of the unknown, or even make decisions based on sheer ignorance selling seemingly good real estate property due to lack of essential knowledge in economic factors and market conditions or trends.
Others have a phobia of doomsday or just end up experiencing an emotional dislike for a particular piece of property for some reason that is perfectly known only to them, but does not affect the value or desirability of the property in question.
Still, others simply don’t have that foresight, ingenuity, and patience that go with investing in real estate. They let their emotions and fears do their thinking instead of thinking logically and creatively resulting in them selling seemingly perfect real estate properties to other razor sharp investors!
And so, you could appear to such sellers and use this piece of intelligent information to negotiate with them an excellent deal.
i. MANAGEMENT ISSUES
Management issues also sometimes fall into the personal category, but this can also have much to do with the property itself in question. Because of neglect or because of the condition of the property, it may require intensive and careful management. The quality of tenants may also affect the management of the property. A certain class of tenants may attract like- minded tenants while preventing the more desirable and affluent tenants. It is not uncommon for a building to be only 60% occupied due to a single undesirable tenant!
For instance, an attractive office building in an excellent part of town had two spaces rented out to “Problem” tenants. Both were good tenants in the sense that they paid their rentals on time and both were legitimate. But one of them happened to be a government wing frequented by lower class individuals who were a nuisance to visitors of the other offices.
And the other space was occupied by a private concern that promoted controversial but legal family planning practices. The negative aspect of these two distinct classes of tenants was such that the building remained 60% vacant most of the time.
Therefore, property owners who find themselves in this kind of situation can quickly become flexible sellers.
However, problem cases like these ones can be hastily corrected by getting rid of such undesirable tenants or by altering the looks of the property in question.
Whatever the case, you may also appear to this type of flexible sellers and use this particular piece of intelligent information to your advantage to negotiate a good deal.
ii. EXISTING FINANCIAL OBLIGATIONS
The existing financial obligations on the piece of real estate property can create real time problems for the owners. Negative cash flows can be extremely discouraging, and they have a way of reasserting themselves on a regular monthly basis.
Moreover, loan repayments and increasing interest rates due to variable loan rates and adjustable rate loans, can end up changing a seller’s financial well being all too quickly. And in some instances, the seller may have secured financing that he never should have agreed to in the first place.
For instance, Manyozo Nkongole bought a piece of property some three years ago that had a three year repayment period. He made no proper strategic advance plans for the repayment of the said loan in question just in case things didn’t work out the way he had initially planned them to be and due to his personal circumstances, he finds himself in an awkward situation that makes him unable to obtain additional financing to repay it off.
Therefore, Manyozo Nkongole has now become a definite flexible seller and you can appear to him and negotiate a good deal with him.
Obsolescence is simply a state of depreciation or old age in relation to the property in question.
All by itself, obsolescence may not be a problem per se. But when it begins to affect rental income levels, tenant quality, or simply resale possibilities, it can cause the owner to become seriously flexible.
Obsolescence may come in different forms. The style or structure of the property may be out of date.
For instance, a block of flats with only one bathroom and a toilet. Or, a five-story building without an elevator may be considered obsolete. And such obsolescence may lead to overwhelmingly expensive changes and/or improvements when it comes to renovating the property after buying it.
In some cases, the obsolescence may come as a result of changes in zoning. Sometimes this type of change can simply be the last straw for an already flexible and hurried property owner.
Whatever the case, you can appear to such a seller and negotiate a good deal with him based on this very information you know about the property in question.
GROUP 3 - ECONOMIC CAUSES OF FLEXIBILITY
i. LOCAL ECONOMIC CHANGES
Changes in the local economy can affect the demand for rental units or the marketability of a piece of property that is on sale.
For instance, a major employer in the area may have shut down operations or laid off a large number of workers or may be an entire city may be experiencing a decline in economic activities.
ii. LOCAL NEIGHBORHOOD CHANGES
Over a long period of time, certain neighborhoods may have become less attractive and desirable to a particular class of tenants or real estae investors. In such instances, properties end up becoming harder to sell and good tenants harder to find. A property owner who finds himself in such a situation often becomes anxious to sell his property because management has eventually become to intense.
For instance, Mr. Kukuka Kuka Lyonse bought a piece of rental property some fifteen years ago. The property in question used to be in a nice and respectable neighborhood. But, during the last few years, the area has become increasingly run down and now Mr. Kukuka kuka Lyonse finds it very hard to bring in good tenants. And the property is becoming more and more run down – since Mr. Kukuka Kuka Lyonse has lost all the desire to effectively manage his property – causing it to blend right into the neighborhood he so detests.
Another local change has to do with Stiff Competition. The natural laws of supply and demand may have brought deadly competition to a rental unit that previously had very little challenge. May be there could be a proliferation of more rental units in the area than before and/or even fewer profitable tenants.
Which ever way, the owner may become discouraged and eventually become flexible.
You may therefore appear to him and negotiate a good deal with him. And you, as the new owner, might possibly be able to cure the problem either by upgrading the property or by simply lowering the rental fees.
iii. LAWS AND GOVERNMENT CHANGES
The local laws and government changes can sometimes make a huge difference in a property owner’s success. May be an impending zoning change is likely to affect the neighborhood.
Or, may be a new government may have imposed rental fee controls, and therefore the owner of the property finds himself in a situation where he can no longer raise his rental fees or is restricted in how much he can raise them.
Either situation can create seller flexibility and you – the new owner – could well find yourself in the same trap!
iv. PENDING CHANGES
A seller may well know in advance some looming changes that will adversely affect his property, and he may be trying to sell before the changes take effect.
For instance, he may know that a proposed highway will come near or possibly pass through his property due to new local authority regulations.
And therefore, only if you take your time and do your due diligence thoroughly will you be able to know these things for certain, since the seller may not be able to disclose them to you.
HOW REVERSEABLE IS THE PROPERTY PROBLEM?
Once you’ve uncovered the reasons why a seller is flexible, you must now proceed to the next step and ask yourself the following critical question :
” What Effect Will This Have on Me, or As a New Owner or Buyer? “
Depending on the answers at your disposal and the current situation at hand, the reasons under group one, will NOT have any effect on you as the new owner. But the reasons under group two, may be – note my language here, it’s not “Shall be” but “May be” – something you can correct. But, sometimes making this correction might be too expensive, time consuming, or simply impractical to you the potential new owner or buyer. And finally, the reasons under group three, are probably NOT REVERSEABLE!
Therefore, dear reader, You can see why it is crucially important to know what the seller’s motivation is and if it will have any effect on You as the new owner or buyer. If it is a problem You will inherit, it is important to know in advance, whether You can correct it, and how much it will cost You to correct it!
Remember that, some flexible sellers have very good and valid reasons to be that way. In many cases, You might be attracted to a seller’s generous terms, but after a closer analysis, You’ll discover that You wouldn’t Want his property even if he gave it to You for FREE.
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Hope You got blessed.
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