In commercial real estate investing you are constantly applying negotiation skills. Your negotiations skills will be put to use in the littlest and biggest situations, not only in the process of making an offer and influencing to get it accepted, but also with your contacts, brokers, buyers, sellers, engineers, lenders, and even other investors. In any situation where there are more than two interests, you can be sure that negotiations must happen in order to satisfy everyone's goals.
If you are not familiar with negotiation, I suggest that you take a class, purchase a book, read some articles, or find a seminar that covers the basic principles of negotiation.
When investing in commercial real estate, there are specific negotiation tactics that can be written into contracts. Many of these tactics call for some creativeness and are specific to certain situations.
Here are some little known ways real estate investors get the upper hand and get money making deals:
- It is always a good idea to write a letter of intent before actually purchasing a property. In residential real estate, a letter of intent is usually not necessary, but in commercial real estate, it is a necessity.
The letter of intent must be clear, concise and not in legal format. It must appeal to the owner as a direct, personal letter, explaining your purchasing intentions with the property. Many people put in terms, closing dates, length of due diligence, and so on in the letter of intent. Think of it has an open a dialogue. It starts negotiations early in the game without anything being set in stone.
- Another known tactic that can be written into the letter of intent is known as an option contract.
This option contract is a good way to investigate the property; you then have time to begin putting together a deal to make sure it is workable. You can offer a certain amount of money to tie up the property in order to do some initial research. This is a great option that can allow you to decide to move on with a property and begin negotiating, or simply walk away. Imagine having the ability to quickly analyze whether or not the real estate property you're looking at is a deal or a dud. An option contract helps you have it.
- A favorite way real estate investors reduce risk, is they write in contingency clauses. It is a great way to protect your interest and make sure that you wind up with a property in the right circumstances.
For example, if you are thinking of buying raw land zoned R-1, single family housing, but unsure if the city would be supportive of rezoning the property to commercial, you could write in the contract, as a contingency clause that you will purchase the property ONCE it is 100% verified that the property can be rezoned to commercial.
This is done very often, and works with other variables that could affect the use of the property.
- Another cool way real estate investors get the upper hand in the deal is by setting up two dates to pay the seller- with money in the beginning, and then money at the end of a certain period. This would allow for the buyer to take the profit that he made from the property, and give the seller his money later. How cool is that? You get your CASH NOW and pay your bills LATER. As long as you fulfill the basic, up front needs of the seller, he or she may be willing to accept these terms, and you are on your way to more profitable deals.
As you'll be able to see when you're out in the real estate investing game, these little tactics are there to protect your interests and maximize results. Results that put more money in your pocket with less risk. Be creative. Be prepared, educated and compelling