Blog #2: The Principles of Negotiation: For a Car, a House and an Investment Deal.
Negotiating is often a pain. So how are you supposed to get a sweet deal on things like your house, your car, a loan or an Investment deal! If your new to the Blog, My name is Akshith and I write Finance Blogs for any age group. My blogs cover almost any topic and this one is on The Principles of Negotiation. This is something which while useful is not exactly essential. Let me know how I did in the comments below but with out any pause or any rest let’s get it.
The principles of Negotiations: Part 1: Auto
How car deals work is that you have a sales rep, this sales rep is incentive driven meaning that he will make you work for the car, he will work you as far as possible, the rep will be looking to make as much money as possible off of you as most reps make around 7% off of you meaning that if you buy a Camry, which retail is about 23,500, the rep will make around $300 off of it. Some automakers are starting to get rid of this method and sell more to places like Carvana and places where they charge a flat fee and there is no Commission tradeoffs.
So… How do you hold your own in the deal room?
- Keep it as low as possible and know where you’re budget is: Let me give you an example, You wanna buy a Brand New BMW M5 Competition, now this one’s got a few bells and whistles so it’s just begging for some money to be thrown down the drain. So, a good price for this car would be in the ballpark of 110k.
- Think of whether you can actually afford it? He’s offering you 135k but remember, you read the blog and you know he’s working you. So as soon as he says 135k, know what he says and then know your budget and create a sensible estimate, but do not offer the lowest possible estimate.
- So let’s make an offer at about 118k, he pushes to 125k, do not move above it, unless he pushes it past that first estimate of 135k, then push about 5% so he thinks he’s cracked you, but stay there do not move after this and he will bow to you and so you will win.
- Next comes getting the bank on board, now if you have bad credit, the bank will not pay for it, if you have good credit well it’s party time. If the bank denies your request, you may have to offer a higher rate of interest most car loans at this level often pay at 3.5% APR or the price is just too good to be true but to be honest this rarely ever happens. The faster you pay it off the less you have to worry about. So in total your paying the bank about 118,500* in total.
*these estimates may not be correct so just be forewarned!
Cars are a bit weird because they both appreciate and depreciate in value most cars appreciate because they have fundamental asset value like for example the Ferrari La-Ferrari was priced at 1.09 million at it’s release in 2013 in 2021 its worth anywhere from 2.2 to 5 Million. Another example is the McLaren F1 in 1996 it was worth 876,000 and now it’s worth 25.3 million according to some collectors. The thing both these cars have in common is that they both are sports cars with a bit of prestige. The F1 is the fastest naturally aspirated Hypercar of all time and the La-Ferrari is a car in the group dubbed Holy Trinity of Hybrid Hypercars whereas your BMW after a year or two will depreciate almost 30%.
Now that we’ve covered Cars let’s get to the good parts. Houses!
The Principles of Negotiations: Part 2: Homes
So you’ve had a good run and you finally found that one you wanna marry and both of you have thought about starting a family or you have finally hit that age where people expect you to live in a house(32). House Shopping is a hard thing to do. It takes forever to do and it is a hassle. Apps like Zillow make it easy to buy a house and they also make it easy to check how to get a mortgage and stuff, which leads me to the key here.
Because it’s a deep subject and requires a lot of financial know-how which you can find on my YouTube channel which will be below, I will describe it in Five Stages.
Stage 1: Knowing what kind of house and budget you are prepared to let go of.
Stage 2: Know what style home you are looking for and the location of the place you’re looking to buy at. If you’re looking to build a home know where where you wanna build and again how much you need to spend.
Stage 3: Use tools like Zillow to compare homes you are looking at and look based on price and needs. Then once you settle on a place it’s time to contact the house owner.
Stage 4: Negotiating for a house happens in three steps.
Step 1 is to talk to your local bank about financing. Most House loans are in the ball park of 4–7% APR.
Step 2 is usually to make a deal, now talking to a seller is a time consuming process and usually takes forever, it may take anywhere from 1 week to a month to get a response back from the seller and double that till you settle on a price.
Step 3 is closing, buying a house is a legally binding purchase so there’s a lot to loose and banks and sellers look at everything before the purchase is complete.
Stage 5: Moving in usually has a lot of binding costs if you hire movers and if you’re not aware of the deal in the contracts you are signing. When you buy a house the down payment usually comes from the purchasing parties personal checking account but other costs associated with moving like installing security, buying appliances and celebrating the biggest purchase you’ll ever make are all big things.
The Principles of Negotiation: Part 3: An Investment Deal
So, you’ve started a business and you’ve got it to a state of positive cash flow and now to grow, you need some expertise and some money, like a lot.The Average venture capital investment is 400k-700k after all costs are covered including logistics, R&D and advertising.
There are a lot of ways to get an investment like so many I could write a book on that topic alone but since I’m on a deadline, I’ll tell you four of the most common ones.
- Tell your Story: Most Investors tend to find people with good work ethics and a grind like no other. If they were able to hear your story that would make life easier for you. Tell them who and what inspired you to do what you do.
- Be Specific about what you need: Your business is an extension of your soul so treat it that way in the board room. Know what you want and what you need because in Venture Capital those can be two very different things.
- Hold Your Own: Most investors will want you to see their perspective but you need to be able to sway that perspective with your product and that can take time if you don’t know what you are doing. Be passionate about the mission and execute accordingly. But whatever you do never and I mean never insult the investor.
- Make the Pitch Engaging: The Pitch needs to be something where the Investor or Investors are captivated by your product and they see a reason to invest.
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