Real Estate Investing: The 5 Magic Questions

The ability to quickly separate the motivated sellers from the time-wasters is a valuable skill that will save you time and frustration. That's exactly what the MARLA formula is designed to do. M is for Motivation. A is for ARV (after repair value), R is for Repairs, L is for Loan balance, and A is for Asking price. The 5 magic questions are:

1. Why are you selling the house?

2. How much is the house worth?

3. Does the house need repairs?

4. How much do you owe on the house?

5. What is your asking price? Follow-up: Is that your bottom line?

Now that you know that questions, let's look at why you're asking them.

The sellers MOTIVATION will be drawn out by the first question. You'll have to be the judge if the answer indicates whether you're dealing with a motivated seller or not. The majority of sellers will not be motivated enough to buy their house so don't get discouraged. It's a numbers game. Move on to the next one. Don't waste your time with unmotivated sellers but also be aware that some seller will hide information until they feel comfortable enough to open up so don't give up in five seconds.

"How much is the house worth?" gives an indication of the home's market value. Most sellers have some idea of how much their house is worth. Of course you should do your own due diligence before actually buying the house, but for now you can just go with what the seller says. If the seller doesn't know what the house is worth, you may be able to get a good deal. Ignorance is expensive.

You'll need to know what repairs the home needs to put it in good sellable condition. That's the point of the third question. Make a list of the repairs that need to be done, if any. Ask the seller for a repair estimate. It's common for seller to provide a high estimate which will work in your favor.

You'll get information on the existing mortgage from the fourth question. Motivated sellers won't hesitate to tell you so don't be timid, just ask. This is an excellent question because unmotivated seller will not want to reveal this information. That's great. You've saved yourself time by quickly eliminating an unnmotivated seller which frees you up to move on to the next seller.

You'll get the seller's asking price from the final question. Always ask a follow-up question to test the seller's asking price. More often than not, the seller will drop the price with a simple question that gets to the bottom line.

It's possible you'll have enough information to make any offer at this point. At the very least you'll know if you're dealing with a motivated seller or not. The next could be a few strategic follow-up questions or formulating an offer which is the subject of another article.

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