The Basics: Tips for Finding Houses and Making Offers

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My market is like a lot of other markets. We have an active investors group with a lot of educated folks that earn their living as real estate investors. So there is a lot of competition here for good deals. I have a few tips for finding houses and making offers.

Where Do I Find Houses To Make Offers On?

The MLS

A lot of investors have alerts set up on their phones or computers that notify them once or twice a day when new listings come out on the MLS or the “hot list”. If a house hits the market that is a really good deal, it’s not unusual to have multiple offers on the property in the matter of a few hours. I personally don’t like to get into a bidding war with other investors, so I usually don’t chase these houses. I much prefer the “low hanging fruit” such as probates and absentee owners

If you decide to search for property on the MLS, you might look for houses with high DOM (days on the market) and ones that have big price reductions or discounts. If you can find a house that has gone past 120-180 DOM and needs a lot of repairs, there is a much better chance of putting a deal together not only with a bank but with a motivated seller.

Direct Mail Campaigns

One of my main sources of leads comes from my direct mail campaigns. I have used direct mail successfully for many years. It works especially well for certain niches in real estate. With direct mail, success is in the follow up. I think this is where many people go wrong. Real estate investors send out a letter or a postcard or two, and then they just quit before they see results.

Networking

Networking can be a valuable source of leads. Make it a point to tell everyone you know or come in contact with about your business. Perfect your “elevator speech”. It should start out with “I help folks….” I often get leads from friends and acquaintances. Be sure to attend your local REIA meetings. Most large cities will have a REIA Group where you can network with like-minded people. Get out in your community and join a couple of local business groups that aren’t associated with real estate. The more people that know what you do, the greater the chances you will be the one they call when someone needs to sell a house quickly.

A Basic Website

If you don’t have a website, it should be one of the things you put on the top of your “to do” list for this year. All you need to get started is a basic website that tells folks what you do and that collects your visitor’s name and phone number or email address. Include some helpful articles for sellers. A website will give your business credibility even before you are getting leads from it. Include the URL to your website on all of your marketing pieces as well as your business cards.

How Do I Figure Out How Much To Offer?

If you ask half dozen investors how they determine how much to offer when they want to buy a property, you will most likely get 6 different answers. There are number of things to take into consideration such as the neighborhood and the condition of the property. But most all real estate investors use 70% formula in the equation. For anyone that is not familiar with this formula, this very simply is the percentage that an investor will be willing to pay for a house.

70% of the after repaired value (ARV) – repairs = the maximum allowable offer (MAO)

Comps

One of the first things you need to do is to get the “comps” for the area. Be sure to look at all of them, not just the one house that sold for a whole lot more than the rest of the houses in the neighborhood. You will want to know what an average house is selling for. Also be sure to look carefully at the low comps. This is likely what other investors are actually paying for property in the area. There are no shortcuts when you are trying to figure out what to offer for the property. Time and experience will help you feel comfortable making offers, but you always have to do your homework.

Photo: Tim Lindenbaum

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About Author

Sharon has been investing in real estate since 1998. She owned and operated a successful home inspection company for 17 years. In January of 2008 she took the leap of closing her business to become a full time real estate investor.

14 Comments

  1. My favorite is direct mail marketing, which we’ve been doing for about 7 years without stop (!). That way, at least when they call I know I’m interested in the area.

    Also, with direct mail, I have the opportunity to talk with a seller before they’re on any list. Like you, I don’t like the competition of a list. Once they’re on one, everyone’s calling…

    We also network, have websites, use bandit signs, check the MLS, blog – any marketing you’ve heard of, we probably do it! And we bought 68 houses in 2012 so it’s working!

    Thanks, Sharon, for your article and Happy New Year!

  2. Karen –

    I think we are pretty much doing the same things. Although, I have to confess that I have fallen off the bandwagon this year where bandit signs are concerned.

    I also used direct mail with great success in my previous business. It works! I really like that you can target it toward specific niches.

    Maybe we can brainstorm sometime. Happy new year. I hope you have a great 2013.

    Sharon

  3. Renee Childress on

    Sharon,

    I’ve been reading some of your blog posts, and I find them very informative. I am interested in investing in real estate in the Louisville area. I would love to have an opportunity to meet with you and gain some insight into this market.

    Renee

  4. Sharon,
    Great tips, as for me I dont really put signs or announce but I rather look in the MLS and make the numbers in lists as long as 50 properties per week, then I make the offers with my agent in order to get the numbers that I want. What do you think of this? should I make the web page and announce more?

    About the houses that have more days on market… those are the best deals, normally they dont sell because they have holes in the wall and dirty bathrooms… which cost only about 1k extra in repairs and cleaning!

    Great post!

  5. Jose –

    I think everyone should have a basic website. It just make you look like a legitimate company. Everyone uses different strategies in their business. You just have to choose what works best for you. If the MLS works for you then by all means use that strategy.

    I’m not sure what you mean by announce.

    Sharon

  6. Direct mail is universal, we have used this method for drumming up new customer leads in our contracting business. Getting the mail piece opened is the most important challenge, later we switched to a combination of post cards for certain markets and letters for others.

    One tip on networking, I would also extend that from the usual subjects to your contractors as well. On many occasions I have bought properties from owners who confided in me they were interested in doing the work as a means to make the property more attractive for resale. One of my most valuable properties was bought for 40% of the ARV, the owner was collecting estimates to separate the heat and hot water as the property was in negative cash flow during the winter months.

    Instead of spending near $20k to separate the utilities I asked him what was the lowest offer he would take just to sell the place. He also offered to finance 100% of the property just to get rid of the place. Did I mention this landlord called from a postcard?

  7. Dennis –

    That’s a great point. The wider net you can cast when you are looking for leads, the better chance you have of landing good ones.

    One thing I learned in my REIA group is to not “assume anything”. You never know where your next lead might come from. Let everyone you meet know what you do, and don’t be afraid to ask everyone you meet if they know someone that has a house they might want to sell. Great story.

    Sharon

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