Investment Property
Why Do You Want To Invest Early?
By
Jan 28, 2006, 22:26

Long time ago when I was about 18 my brother and I saved some money and were thinking of buying a new Chevrolet. We had about $500 combined. When we were ready to put our money down on the car, my mother told us, "You guys are making a big mistake." So we held on to our money. 

The next Sunday, we drove down to Hermosa Beach, where my parents had a summer cottage, and found a two-unit building not too far from the water, which was listed for $7,000. The seller wanted $500 down. My mother said, "That's the thing to spend your money on. If you buy this place, in just a few years that piece of real estate will buy your car for you." So that's exactly what we did. We subsequently rented it out and in a couple of years we not only had a place of our own but a new car to drive around in as well. Our timing was superb because we bought it just before the second World War. When all the influx of population came into this area to help with the war effort, combined with the industrial base that was in place, there was a huge demand.

In 1975, a friend of mine who was a school teacher wanted to buy a house. We found a single family residence for her for $65,000. The owner said he wanted 10 percent down, or $6,500. So my friend got the money, and we made an offer for slightly less. We decided to make an offer with a set of harsh conditions and try to extract every concession we could. We wanted the owner to carry the second mortgage for 10 years for about three points below the going market rate with no interest payments for the first two years. We asked for the range, the refrigerator, the washer, dryer, all the appliances, just about everything but the kitchen sink. From a buyer's point of view, it was perfect. But we knew the owner would have a negative first reaction.

So we put the offer in his mailbox, and I told my friend not to answer the phone for two days in order to let the seller think about
the deal. At first, buyers are furious, then they're mad, then they look at their situation and realize they're not getting anybody else. After a few days he called and said, "Well, I don't know - I can't let you take my washer and dryer." That's what he was concerned about.
He wasn't upset about the really important thing, the 30-year note with only 5-percent interest. We wound up buying that properly for
$61,000. You just never know what the other person is thinking.

It also proves that every property, and every situation, in real estate is unique. No two parcels are exactly Mike, and no two buyers or sellers are exactly alike. You can never be sure of the attitudes, needs, and desires of people. What might be absolutely fantastic to one person might be unacceptable to someone else. The only way to uncover the problems is to make an offer on the property. Then you begin to understand what the sellers want out of it, why they have to leave, where they're going, and what price they need to sell for.

Making an offer is the quickest way l know of getting to the heart of the problem, learning the seller's true motives, and negotiating the best possible deal for yourself. As we'll see in the next chapter, the terms of sale and the size of the down payment are far more important than the purchase price.