I recently talked with a Realtor friend of mine who told me that over 35% of all properties in the United States are owned free and clear with no outstanding mortgages or liens.
This statistic is vitally important to investors everywhere because it means that whoever you, are and wherever you are investing, you will meet many sellers of homes that are owned free and clear.
Let's go over the biggest considerations when you meet with sellers of free and clear properties. Then I'll share with you several powerful buying strategies to buy these homes and make a healthy profit.
By far the biggest factor you need to keep in mind when meeting with a seller of a free and clear property is that most free and clear properties are owned by people in their sixties or older. Stop and think for a moment what this means in terms of how you should approach these types of sellers.
What are their biggest desires? What are their biggest fears? How can you interact with them in a way that increases your chances of having them say "yes" to your creative offer? What things must you avoid doing to keep yourself from turning them off to your offer?
Most older people want the equity in their homes to fund part or all of their retirement. This means they crave security above all else. And they fear making a mistake or getting ripped off.
As an investor, you need to move slowly with an elderly person and allow them to get to know you first without you pushing an offer on them.
I want to be clear that by moving slowly I do not mean taking weeks to work with a seller. Rather, I mean when you meet with them to negotiate on the home, you should be prepared to spend as much time with them as you need to come to a decision with them in a way that feels comfortable for the older seller.
This may take a few hours of sitting and talking. If they offer you coffee or tea when you arrive, take it--and then settle back into your chair to enjoy a leisurely negotiation.
Use your age as an advantage
Another key factor when working with an older person is to use your age as an advantage. If you are younger than the seller, help them to identify with you as a younger version of themselves or as a reminder of their children (or even the children they wished they had).
If you are the same age, relate to them about your similar ages and turn that into a "rapport building" bond.
I once had a seller sell me a $600,000 estate and carry back all the financing. Perhaps the biggest factor of that sale and the huge note the seller carried (which he did without ever asking for a loan application or a credit report) was that the seller saw in me a younger version of himself.
As for me, I had a great time and gained many valuable insights as the seller shared with me all the stories of his rise to wealth through investing in real estate.
Their three biggest desires:
No matter what your offer to the seller is, you will need to address their need to feel safe with the choice of selling you the property.
If, for example, you are negotiating a cash price with the seller, stress how this represents the safest path for them since they are getting cash at closing and not taking back any risky financing.
If you are negotiating for them to carry back the financing, stress your history of on-time payments to other sellers who have sold you their houses.
#2: Positive attention
Never underestimate the power of positive attention. People sell houses to people they like, and people like people who make them feel good about themselves. Listen to the seller's stories and encourage them to talk about their past. This is the best way to build rapport with an older owner.
#3: Hands-off and hassle-free income
Many older sellers don't really want a big chunk of cash; they really want a steady income stream over time.
If you are negotiating for an owner carry deal where you are making the seller payments, stress the easy way in which they will have converted their equity in the house into a monthly income for themselves without having the big tax hit they would have if they sold to a cash buyer and with interest rates significantly higher than if they put their money into a CD or savings account.
Their biggest fears...and how to put them to rest
All of these types of sellers' biggest fears are really the flip side of their desires, which you just learned about. The flip side to security is the fear of making a mistake and getting ripped off. Ultimately, this fear is of growing old without having the means to support themselves.
The reverse of positive regard is fear of loneliness--of having no one to accept and love them as they age. The reverse of wanting a hassle-free income is the fear of having to deal with a big mess if you don't pay them.
When you understand these concerns, you can specifically address them with the seller. This is a powerful way to close the deal--to deal honestly and up front about their major concerns.
The bottom line is that most older sellers want a clean break from the property. Whatever you offer them should emphasize that they are now done with the property and that you'll handle all the details to make this as simple and easy as possible for them.
About the Author:
David Finkel is an ex-Olympic level athlete turned real estate millionaire and one of the leading investing experts in the nation. He is a Wall Street Journal and Business Week best-selling author of over 40 business and investing books and courses, including the wildly successful, Real Estate Fast-Track and The Maui Millionaires.