Cover letters doing wonders!

[RedlineBrett]

I know most REIN buyers are including cover letters with their offers... for those of you that aren`t asking your agent to either draft one for you or to present your cover letter... you simply MUST change your offering policy!

I include cover letters on all my offers and I just got off the phone with yet another listing agent that told me the letter did wonders for her to sell our price to her clients.

Also, I include a $/ft analysis which has also worked very well. Combined with a strong cover letter and some appropriately chosen words by your realtor this `double whammy` really adds a professional element to the offer presentation and can save you thousands. It also does wonders for special terms like `lawyer`s approval` or extended condition removal dates.

So make sure you and your agent are doing this!

 

[DonCampbell]

Cover Letters work like magic... They make your offer stand out in a hot market when you are competing with multiple offers... and they work in a colder market when there are more motivated vendors around and you want to justify your offer price and terms.

Nice work! The key is being diligent and providing one for every offer, no exceptions.

The price per sq foot is a unique way to get vendores to see that their price is out of range and that your offer is right where it should be.

Remember, it is our job as investors to "Sell" our deals directly to the vendor, then use a cover letter (and sophisticated investor binder) to sell our deal to the banks, and use a cover letter and JV package to sell it to a potential JV.

Communications is the key that opens the vault. Sadly so many do not use this powerful tool and they don`t create the results the want.

Thanks for sharing this story, hopefully it will help others see that one simple piece of paper can be so critical.

 

[markbrad]

Just used the cover letter myself! Although it didn`t work as well as I had hoped, I think it was more or less because the vendor wasn`t motivated enough. Regardless, I was still able to get just a little over 10K off the asking price! I had hoped for a VTB and/or a promissory note, but being an elderly person, they weren`t interested (I might be dead in a couple of years!). I also used the multiple offer with different closing dates and prices. Nice thing is the numbers still work for positive cash flow even at a full price offer! The other nice thing is I used to be neighbors to this old couple and I know how they kept their place.
Now it is on to the next step....

Mark

 

[invst4profit]

Cover letters can make the difference. My most resent purchase I researched the owners personal, family and financial background, reason for selling, history with property etc. I dug deep until I found his soft spot.
Having that information I wrote a cover letter to strike a cord and ultimately he chose my offer at a lower price (20%) and better terms (VTB) than numerous other offers.
It isn`t always just facts and figures that help swing a deal especially with older owners that may have a personal attachment to a property or there tenants.

 

[weenapratt]

QUOTE (invst4profit @ Sep 22 2008, 05:45 AM) Cover letters can make the difference. My most resent purchase I researched the owners personal, family and financial background, reason for selling, history with property etc. I dug deep until I found his soft spot.
Having that information I wrote a cover letter to strike a cord and ultimately he chose my offer at a lower price (20%) and better terms (VTB) than numerous other offers.
It isn`t always just facts and figures that help swing a deal especially with older owners that may have a personal attachment to a property or there tenants.

Hi Greg,

Could you pls share with us how you researched on the owner`s personal, family and financial background? I found your story very fascinating.

Congratulations on your successful purchase!

Many thanks,

 

[invst4profit]

To begin I chose to work directly with his agent, by not having my own agent his agent was highly motivated ($) to assist both sides in closing. Her allegiance became split. I probed her for back ground info, reason for selling, family status, work history, where he lived etc all in casual conversation. I found out why he bought the property. I also casually gave her personal info about myself and family that I expected she would share with him to soften his position. I next approached many of his tenants with a cover story of being interested in moving in. I found out he had a close personal relationship with many tenants and what his future plans for the property were.
I found out he was older, forced into retirement against his will without a pension, wanted to travel, and after owning the property for only 3 years had developed health problems.

Key points:

retired insurance co. manager
poor health
friends with long term tenants
short term ownership
no pension
Hands on personality
dislike for large companies
seeking freedom

My letter complimented him on the appearance upkeep and efficiency of the property. I clearly stated that I wanted to maintain all of the present tenants (friends) and that I would like to pick his brain for management skills. I told him I was being pressured to retire early due to cut backs (large corporation) and that I needed something to supplement a inadequate pension. As well wanted a business I could do most of the repairs myself on as a part time job when retired. I was on a tight budget and required financial assistance with the purchase.
His short term ownership was used to limit the resale profit he wanted (200,000) and his lack of pension allowed for an opportunity to negotiate a VTB that would provide him a monthly income.
Other offers on the table came from someone not living in the area and a corporation. Both of these were negative options in the sellers mind even though they offered more. I mentioned that as well in the letter.
I made many comments about my goals that I knew parallel his plans for the property.
He lived on a lake- I talked about how owning this property would allow me to be at my cottage in the summer. He had dogs. I told him I looked forward to getting my dogs out for runs on the adjoining acreage
In essence I became him writing the letter.
This would be way to personal for most but I discovered he was a very personal type of person with strong (too strong) ties to this property.
Once he opened the door I fell back on my negotiating skills. I am a trained labour/corporate contract negotiator.

He dropped his price by $100,000 and offered a VTB for 3/4 of the price at a rate below any bank. The purchase is 100% financed with a substancial positive cash flow that will increase in the next 1-3 years.

 

[weenapratt]

Wow! That was brilliant, Greg. Thanks very much for sharing your wonderful strategies with us. You certainly worked very hard on making your offer a great success.

 

[invst4profit]

I had put a lot of research into deciding what I wanted and what it should cost (it is not your unusual rental property). When this property came up I knew it was the right one and although I made my initial offer knowing I could not afford or finance the purchase I was confident I could negotiate something. Negotiating this type of deal is far easier than negotiating a collective agreement with a large corporation. If you can get into a sellers head you can figure out what he "really" wants from the deal and move to satisfy his needs.
I still paid 40,000 more than my target price but the conditions on his final offer more than made up for it. The deal also included an item I can sell to regain at least 1/2 of the overage but I consider the cost as his bonus for carrying the deal.
I hate to lose so I`ll call this win/win

 

[Nir]

Greg, AMAZING JOB! Thanks for sharing.

just curious what type of property was it (triplex, 6-plex, 12-plex?) and what annual rent to purchase price ratio you were able to achieve (15%, 20%?)

If I recall correctly you are no longer into purchasing residential properties(?) {I understand this transaction was done in the past}

Regards,
Neil

 

[invst4profit]

It`s a Mobile Home Community (33 units) I own the dirt and the infrastructure.
At time of purchase the ratio was a hair under 15%, due to having slightly overpaid, but with my planed
changes and anticipated turnover (rent increases) over the next 1-3 years it will be easily in the 18-20% range. In addition I intend to purchase some of the older units renovate and flip as a side line to generate additional income. As park owner I have first refusal to match any offer a owner receives on the purchase of there home. Also when retired (early) I plan to work as a handy man in the park which will provide more income than I need (most tenants are seniors).
The best thing about it is every thing is in one place and I can work as little or as much as I wish.
My desire was/is not to be rich but simply comfortable, and busy, however I already have my eye on 2 more parks in the area should they come up for sale. I think I"ll convince the owner of one to sell possibly next summer.

Also my brother has recently completed building a tri plex in Belize, rented to tourists, that is at my disposal so I have every thing I need.

 

[Nir]

Good stuff Greg! Thank again for sharing.

Great result as if I recall correctly in this type of real estate expenses are significantly lower than 50% of the rent meaning more left as net income making it close to 10% CAP if not higher(!)

Cheers,
Neil

 

[invst4profit]

Yes expenses are in the 40% range normally and less depending on how much you are hands on. As I am not involved in locating other investments (simply watching) I have the time when not at my regular job to be very hands on.
When evaluating this property a 10 cap was my target and I managed to slightly exceed that with my purchase price and since have moved up to about 11.5 with more to come. Many parks are bought at 15-20 cap depending on the amount of work required to turn them around. Mine had very little to do and was chosen for that reason because I do still work full time.