This is the answer to a Flipping Junkie Podcast ‘Just Ask’ question. Steve L. asked: How do you avoid offending motivated sellers when making an offer.
Great question! The biggest issue with real estate is that it’s such an emotional thing for the sellers to be going through. It’s a difficult thing to deal with.
My first thought was, you’ve got the wrong mindset. If you think you’re going into a deal, or talking to a lead, with the idea that you’re offending them, you need to change your approach. You should always be presented as a problem solver, as an investor who is there to help them out of their situation. Helping them out of those problems with a genuine interest in helping the sellers out.
If you go into talking with the leads only thinking about the price points, then you probably will offend them. Some people will get offended with a low offer on their house, but at the end of the day you’re there to help them.
There was something from Brian Buffini’s podcast about listening. It boiled down to 2 things:
1. People do things for logical reasons
2. People do things for emotional reasons - the reason they typically won’t say.
When you’re helping a seller, you need to get to the core of the reason for why they’re selling their house. And, like we said above, selling a house is an emotional thing. So the more you can present yourself as someone who’s there to help them through their situation, the more likely they are to work with you, and the less likely they are to get offended.
Not every seller wants the most money they can get for the property. There have been lots of sellers who have sold to us for lower than what someone else was offering because we got down to the emotional reason for their sell and were there to help them out of it. If you can learn this, then you’re golden.
You need to go into each deal with this in mind:
1. You’re there to genuinely help them through their problem.
2. Find the emotional core reason for why they’re selling their house.
Bonus tip if you’re wondering “well how the heck do I get to that?!”
Ask them what they’re most worried about with the selling of this property. Ask what’s on their mind. If you don’t ask questions then you won’t understand why they want to sell, and what problems their having with selling.
The question, “How do I not offend a seller?” is a misunderstanding of how the process should work. You need to go into leads without any assumptions on why they’re selling. The amount of money the house is worth isn’t always the core reason for selling.
When you walk into a property, don’t assume who’s in charge. Listen to everyone attached to the house, they’re sharing the same concerns. It’s your job to be there to help them. Often times, the spouse not saying anything is the one who’s in charge, so be sure you’re talking to everyone.
If you understand these core ideas and game changers, then you won’t offend anyone.
Thanks for the question, Steve!
If you have question you want answered, post it in the Flip Pilot Group on FaceBook with the hashtag #JustAsk. Stay tuned for more answers!
Craig S. Cody is an ex-NYC cop and certified public accountant of 17 years, he's a certified tax coach and business owner in his own right. Here's a few things he can speak on (one sheet also attached).
Cody has worked with a lot of businesses through out his life. The best practices he has seen, and the 3 practices that don’t tend to be done right, are here. So let’s take a look at the 3 Proactive Tax Practices:
People go out and buy a car and spend time researching it, but not looking at the tax codes on it. The average person doesn’t plan.
Are you holding your business in your name? Real Estate is best held in an LLC, but you need to talk to your own attorney to see. If it’s in a corporation, there could be tax issues when or if you go to sell.
This could be as simple as having your kids go to the properties to mow the lawn, or clean. If you’re paying them a reasonable amount, they don’t have to pay taxes on it. Their pay comes out of your income, which lowers your taxes, and they don’t have to pay taxes. It’s a win-win!
- What is the biggest mistake real estate investors make regarding taxes?
Typically, most real estate is held in a LLC. The reason for this is because as a real estate investor you fall under “ordinary income”. Basically, it’s short-term capital gain. If you’ve been in for a while, it’s just ordinary income
Some investors treat it all like it’s short-term capital gains. The problem with this thinking is the expenses of operating a business are subject to 2% threshold on schedule 8 of your tax return. They’re also subject to alternative minimum tax. This is a problem because, if you make too much money, they get added in without you getting the benefit of them.
If you do it properly, and actually in the business, then you don’t deal with those itemized deduction. The lesson is to ALWAYS document what you’re doing. This is something where we saved a client almost $80k because they were reporting their income incorrectly. More often than not, you’re in a better position by having your real estate investing business as an LLC instead of a corporation.
-Why not be a part of a C-Corporation?
A C-Corporation has the first $15k taxed at 15%. Getting that money out when you sell the property is double taxation. It’s just not efficient for a real estate investor to be a part of a C-Corporation. I just doesn’t help this kind of business.
However, if you’re using a C-Corp to manage your properties, it could work better. The best practice is having multiple LLC.
Here’s a story: There was a client who was a private business, not even an LLC, who was sued for mold injuries. The house was valued at $25k, and the verdict was $155k+ with interest. She had a pretty significant portfolio, and everything was attacked. If you umbrella it under one large LLC, you’d be safer.
- What are the tax write-offs real estate investors miss?
As a flipper, you can write off a lot of things since you’re being run as a normal business.
For example, if you have a home gym or a pool, that can be written off as a work rec area. The space you work in at your home is your home office. The gas you spend going to and from properties and locations can be written off as work expenses. Medical bills that are paid out of pocket can be written off as well.
Let’s talk about the home office for a bit, though. Take the space that you use to work in, in square feet, and compare it to the rest of the house. Let’s say your home office is 8% of your houses’s square footage. That means that 8% all of your utilities can be deducted in your taxes as a work expense: electricity, water, air conditioning, internet, etc. Your real estate taxes can be written off with that 8% as well. As long as there’s an office used exclusive to your business, it can be written off. Retirement plans can be worked in as well. If you’re working on your own, you can make a self appointed retirement plan. Food and entertainment can also be deducted.
Just keep track of your expenses. Make sure you’re keeping your receipts and keeping track of everything. Do it as you go instead of trying to pull things up at the end of the year.
-What are the limitations of the arms length transaction and self directed IRA.
The whole thing can be contributed to the LLC. Which means, the LLC owns that property. You cannot, yourself, do work on that property or it becomes an issue. You can, however, act as a lender in your own LLC. As long as you don’t have active involvement in the property, then it won’t be an issue.
Active involvement means that you, yourself, cannot be doing repairs with your hands. If there’s something you can pay someone else to do, get them to do it. IF you’re working on your own properties, you’re jeopardizing your involvement in the IRA. You can lend to other investors, as long as their not family. Tend to stay away from family!
The interests rates are subject to typical rules, 8 - 10% + a piece of gain, secure by real estate. However, this all depends on the investor. The better the track record, the less you’ll have to give and visa versa.
- What is Cross Segregation?
Let’s use a rental property worth $100k as an example. Typically, you would depreciate that building over 27.5 years. Let’s say your depreciate expenses are roughly $4k a year.
When you do a cross segregation strategy, the building gets broken up into parts. Take the property that would be depreciated over 3 years, 5 years, and so on, and depreciate it faster. Which means, over 27.5 years you’re still getting the $100k worth, but in the first few years you would 20% more expense from depreciation because it’s accelerating. From a tax perspective, that’s money that isn’t being taxed. That’s the smarter way to go for the best gains in your business.
Jason and Pili have two beautiful children, two awesome bulldogs, one flipping and wholesaling business, a Multifamily Acquisition company, a Beer Company, and are the hosts of the REI Foundation Podcast.
Having met in New York, Jason and Pili got into real estate investing shortly after hurricane Sandy struck the east coast. Jason’s family construction business had to help homeowners lift their houses to meet the new FEMA requirements because of the massive amount of flooding. Before the hurricane, Jason’s family business would do maybe 12 lifts a year. After the hurricane, the numbers skyrocketed to nearly 400 in a single year to avoid future flooding.
Because of his background with houses and construction, Jason and Pili made the choice to move into real estate investing! When they were expecting their first child, Jason’s dad asked if he and Pili would be interested in becoming real estate agents to work in their investing business. When a lot of businesses were getting overwhelmed in the east coast, Jason and Pili found a great opportunity and took it.
Geremy Heath is the owner and founder of Texas All Cash Home Buyers. Texas all Cash is a residential redevelopment that turns around distressed properties for profit in the both the San Antonio and Austin areas. Since starting the company in 2009 Geremy has successfully completed over 150 rehab projects.
Geremy came to the US from Australia in 2006 and met his wife a couple months later. While at the airport to leave for their honeymoon, he purchased a book about real estate investing. Much to his bride’s dislike he burned through the book during their trip.
The fire was lit and he became passionate about leaving the rat race and working his way to financial freedom through real estate investing.
In this episode Geremy tells us how he developed the right mindset to be able to become a success with house flipping.
You have to expect to achieve the outcome you want. You have to believe you are going to make it.
Find out how to get the proper mindset in this episode so that your odds of success are greatly improved.
* How my father inspired me to start flipping houses, which led to my wife and I flipping over 200 houses and changing our lives forever
* You’re going to learn the simple house buying rule that will make sure every deal you do will make you money
* Also, find out what major problem arouse when trying to buy 30 houses within 30 days…and it wasn’t buying bad deals
* He also shares his thoughts on what separates the people that make it in this business from the ones that don’t
Who is Frank Johnson? Frank Johnson has been flipping houses in south central Texas for over 18 years. He also happens to be my father.
He was my first mentor in this business and still helps me through tough situations and reminds me of things that I’ve forgotten…like always making an offer no matter what. If you go and see a house, even if it’s the last house you would ever want to buy…you should make an offer.