The pros and cons of the “motivated seller”

With the U.S. real estate market in the throes of recession, growing numbers of investors are adding real property to their portfolios.

Under the right conditions, that could be a wise investment strategy, good for long-term yields and expansion of portfolios beyond the usual stocks and bonds.

But it’s important to have all the facts before jumping into the fray of today’s real estate market. That becomes especially true when you are dealing with a seller who is “motivated.”

Under some circumstances, frankly, you might be better off investing elsewhere, instead of a property that’s priced to move.

Questions abound: Why is the seller motivated? What kinds of liabilities are associated with the property? Is there some outside timeline that could be problematic to the buyer of this property? Will the buyer actually see a healthy return on their investment?

“When I hear the term ‘motivated seller,’ I often sense there might be some opportunity there, but I also tend to be more cautious,” said Jason Wilcox, a Realtor holding the coveted status of Certified Commercial Investment Member.

“There are a lot of opportunities, but a lot of so-so investments.”

CCIMs like Wilcox are specially trained to do something realtors are not: To analyze the property from the buyer’s perspective. That includes doing a current-market analysis, as well as what is called a discounted cash-flow analysis (assessing the projected return on the investment, based on aspects such as inflation, risk and vacancy rates, cash flow from the property, and  how long the investor wants to own the property.)

“We assess the property on that basis,” Wilcox said. “We check the value from the buyer’s perspective. To the seller, they may say a property is worth $1 million. But with our own criteria, that investment may be worth $800,000 to us.”

That opens the door to another facet of real estate in which CCIMs are especially versed: the art of the deal.

Sometimes, the best deal isn’t in dollars, and CCIMs like Wilcox can help an investor navigate the issue for the best return.

“The price may not be the most important thing,” Wilcox said. “It may be the terms. Does the seller want a lump sum and be saddled with a tax burden, or a down payment, with an amortized income stream from multiple payments? Structuring a deal that addresses the critical needs of the seller, while meeting the goals of the investor, can create a winning situation for all parties.”

“The goal is to find the best opportunities that meet the goals of the investor.”

Leave a Reply

Your email address will not be published. Required fields are marked *