Negotiation is a subject that, in my opinion, does not get enough airtime on finance themed websites – particularly those dealing with real estate investing.
Negotiating is a core skill which real estate investors must master in order to be successful. Negotiating a successful purchase or sale is only the start; other negotiations are just as critical, and many are significantly more complicated. Consider the following:
- You need to increase the rent on one of your units but want to do so without damaging your long-term relationship with a reliable tenant.
- You need to get a lower rate from a trusted contractor on a rehab job in order to stay under budget.
- A loft that you own belongs to a homeowners association which wants to replace the roofs on all of the units in the complex, requiring all of the owners to pony up. Most of the other owners support the measure, but you've calculated that it's not in your financial best interest.
- Your tenant has just purchased a new home and wants to break his lease, which would create an unexpected vacancy for you.
- Your tenant is pressuring you to make some renovations to the unit that they’re renting, but you feel that it’s already fairly priced for the current condition.
These aren’t hypothetical situations; they’re a sample of specific issues that I’ve had to deal with over the course of the past several months.
When placed in these positions people tend to take one of two routes. The hard style: we’re playing hardball so it’s my way or the highway. The goal is to win. And the soft style: the goal is agreement, be flexible and compromise. Like Rodney King said – can’t we all get along?
Well both of these approaches are sub-optimal. The hard guy wins a few battles, but in the end he loses the war. He grinds his relationships into powder, walks away from good deals, spends lots of time in court, stresses himself out and damages his business. The soft guy keeps his relationships intact, but often ends up getting taken to the cleaners.
There’s a third way. In their seminal tome Getting To Yes Roger Fisher and William Ury outline an approach which they call principled negotiation - negotiating based on principles as opposed to staking out positions to be either defended or yielded. Getting To Yes is one of those books that I re-read every few years, and it’s guided me through all of the situations I mentioned above in addition to helping me in my day-to-day life. Everything we do, essentially, is a negotiation. Gonna ask your boss for a raise? Or perhaps your employees are going to ask you for a raise. How about setting your kid’s allowance, or deciding where to take the family vacation. In all these cases you want to efficiently get to a wise decision which concludes amicably.
This is a book that I recommend to real estate investors. In future posts I’ll be referring to some of the principles in this book and how they apply to situations which investors face.
