Tips and Traps When Negotiating Real Estate: How Do You Negotiate Financing?

How Do You Negotiate Financing?

The final deal point we’ll consider is the financing. It’s important to remember that the very best institutional financing in the real estate world goes to owner-occupants of single-family homes. When you’re working with an investment property, the financing is much less available and usually at a higher price.

For example, if you’re buying an apartment building, strip shop­ ping center, or industrial building(s), you can forget about low­ down or nothing-down financing. (Unless you get some of it from the seller.)

TIP

Look for good financing from the lender who handled the construction loan. These lenders will often offer good “take out” or permanent financing in order to assure that a buyer is found for the property and their financing is made secure.

Institutional financing on investment properties may often be only 60 to 75 percent of market value at a variety of interest rates. Thus, if a seller can offer good financing on a project by, for example, carrying back 20 or 30 percent in the form of a second (or third, fourth, or higher) mortgage, the trade-off can often be negotiated into a higher price. Similarly, a buyer who comes in with a lot of cash can often command a much lower price.

Financing in industrial, income, and commercial property is far more critical than it is in housing, and good financing commands far more leverage as a deal point.

The Bottom Line

As I said at the beginning of this chapter, the rules are basically the same when negotiating investment property. The main things that are different are the deal points and the amounts involved.

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