How To Make A Deal

The art of getting a deal is well, just that — an art. With interest rates rising and the economy in what could be termed as unsettling, getting a good deal is of the utmost importance.

In times like this, I’d urge you to recall an age-old saying that’s withstood the test of time:

“Money can be made in bull markets, but fortunes are made in bear markets.”

Buying the right asset once in your life could make you a multi-millionaire. You want to acquire that asset — I want to help you acquire it. In today’s newsletter, I’m going to share seven strategies you can use to close a deal.

The concept for the next seven strategies is centered around these words: “Name your price; I’ll set the terms.”

Sellers are coming off of very high prices from the low interest and low cap rates of 2020 and 2021. It can be a shock to see your asset lose value overnight, so if you can find a way to come to their number, you'll get the deal.

As pricing tends to always be the biggest obstacle in most deals, you want to make the seller feel they’re selling for a superb price, yet you’ll be positioning yourself with a built in margin of safety from the agreement.

Overpaying for an asset is dumb, and can leave you in a terrible spot - here are some strategies that can create a win-win.

1. "I'll pay 8% interest."

As interest rates rise, seller financing starts to get a lot more interesting. Sellers that wouldn't have wanted to hold long-term notes a year ago might be attracted by the prime rate at 8.5%. Most sellers don't think about current rates. Offer 8%.

To offer 8% interest you better be getting a good price, or have a way to build in value so you don't create negative leverage - where the debt costs more than the cap rate.

2. "What kind of monthly payment are you looking for?"

Contrary to the sellers coming off of record high prices, many folks feel like their business (that has value) is worthless. They are looking for a way out and to ride off into the sunset, and you can help them.

This strategy is used by car salespeople to trivialize the price a customer pays. It can be used by a buyer when a seller is more interested in a fixed income than a huge pile of money. Especially as the market tightens.

3. "I'll pay your price, but.."

When a seller has an unreasonable price in mind, structure a way for them to earn their price only if the project succeeds wildly. This could include contingent earn-outs, hope notes, rollover equity (at the back of the equity stack), and forgivable debt.

4. "Let's save some taxes."

One benefit of the seller holding back debt is they can use a tax strategy called an Installment Sale, meaning they don't pay the entire tax burden upfront. The seller only pays tax on their realized gain as the note principal is paid down. This is a great strategy for folks retiring and having a large tax event, as it can spread out their tax burden over years in a lower bracket.

5. "I'll work for you."

Compensating the owner as an employee after the sale can be a win/win. The owner receives a stream of income (see above), the owner maintains certain benefits (insurance, retirement plan, etc.), and the payments are now tax deductible for the buyer.

Often times owners are essentially retiring, and will drop into a very low tax bracket. One of my favorite ways to buy a business - you can buy their future earnings and pay them a commission on collections. This can de-risk the purchase!

6. "Don't sell it.. yet!"

Joint Venturing is a common strategy in real estate. Oftentimes the owner can do better than selling, paying the tax, and having reinvestment risk. Letting the buyer redevelop can be a win/win for the owner to contribute the property as equity.

7. "Try it before you buy it"

Adding option-to-purchase to leases can allow time (and the Fed) to do the heavy lifting for you. The next time you sign a lease, include an option to buy for 20% more than today's value. Folks that did this three years ago are in the money.

These strategies will make the seller feel they’re making a great deal while giving you security, flexibility, and a path to great profit. Use these to accumulate wealth in a bearish market where opportunity is always present.

See you next time,

Mitchell

P.S. If you made it this far and enjoyed what you read, send this to a friend who might like it!

P.P.S. My friend Scott Hambrick and I have been working on a podcast! It’s called Stupid Tax - covering taxes, small businesses, and a whole lot more.