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How To Beat The Competition and Get Better Deals

by Danny Johnson on January 29, 2013 · 33 comments

  
Beat the Competition

So many people are paying more for investment houses, whether for house flipping, renting or anything else, than they have to. In this post, I’m going to discuss how I beat the competition and get better deals. These are strategies that I am actively using in my own house flipping business.

Avoid the Competition – Target Motivated Sellers

The first way to beat the competition is to avoid the competition as much as possible. This is exactly why I target motivated sellers instead of chasing listed properties. This isn’t to say that great deals can’t be had when dealing with houses listed by Realtors, it’s just that you are likely to face more competition and will have a harder time getting a better deal.

Background

There was a time when REO agents were calling me with great house deals that they were listing for banks. REO’s are bank-owned properties that can usually be bought at a discount.

When the housing market plunged back around 2008 a lot of investors decided to sit it out for a while. Whether this was voluntary or not depended on whether they needed to do deals or not from a financial perspective. A lot of the investors that had the ability to ride it out without doing deals did so. I could not believe it when the investors that I looked up to were suggesting that I do the same.

Why not just change my buying criteria?

Instead of buying at 70% of after repaired value, less the cost of repairs, I could buy at 60% or less (minus the cost of repairs). The investors that blindly just kept doing what they had been doing and paying what they were paying quickly found out that losing money or making too little money just wasn’t worth it. These guys dropped out.

So now the experienced guys and the big group of newer investors that were paying too much to begin with, were not buying houses. There wasn’t much competition and times were great.

The Realtors needed somebody they could count on to close these deals and there weren’t a whole lot of us around that were capable of doing volume. It wasn’t very difficult to get great deals at prices that still worked in the slow market.

Times have changed.

Fast forward a couple years and everybody is back in the game. Now that people have realized the sky wasn’t actually falling, they are back offering crazy prices for houses that we used to buy dirt cheap.

The calls stopped coming in from our favorite Realtors. We were no longer in favor because we offered too low. They had people willing to pay way more than we would ever imagine paying.

I got sick and tired of going out and looking at 8-12 houses in a day and submitting offers right away, only to be told that there were multiple offers and to submit our highest and best. These all on properties that were just listed that day or the day before. (Note: you can still find some good deals on houses that have been listed for a while. The new ones that are listed at great prices get much more attention.)

There are always motivated sellers.

Though we never quit marketing to motivated sellers, it was time to switch back to focusing on them 100%.

I am constantly amazed these days when investors act surprised that I buy most of my houses directly from homeowners. It’s like they didn’t know it was possible or just haven’t heard much about going that route. When I got started flipping houses about 10 years ago, it’s what everybody was doing.

Maybe some of them just decide to go the route of buying listed properties because they don’t want to deal with sellers. Buying from a bank is one thing. Buying from someone that is crying and stressed out because they are facing foreclosure is another. But, I’ve found that this is not really the case. Most of the people we buy from are extremely happy with the transaction. Foreclosure is not the only reason why people sell cheap.

Some of my favorite ways to market to motivated sellers:

  • Direct mail – Mailing direct mail letters to people is also a great way to find good deals. Great people to mail to are absentee owners, owners of vacant and run down houses, people that owe property taxes, properties in probate, and just anybody that is facing a situation where they would likely be motivated to sell a house at a discount.
  • Website – I generate most of my leads from my website. This is a great way to market because I don’t have to put out signs or mail letters for these leads.

Schedule An Appointment Right Away

When motivated sellers call you about a house they want to sell, it’s best to set up an appointment to see the house during that initial phone call. The reason is that it makes it more likely that they will feel that they’ve accomplished what they set out to do and may not call that many more people.

If you are able to determine that there is no possible way a deal can be made (due to not enough equity or other reason), then don’t set the appointment. If you are unsure, set the appointment and do the research immediately after getting off the phone. If there is potential, go ahead and meet the seller as scheduled. If, after research, you determine a deal is not possible, call up the seller and tell them that there is just not enough equity to meet your investment criteria and cancel your appointment.

In my experience, the typical seller usually only has about three people make offers on their house. If you schedule an appointment right away, you will become one of those few people. If you wait and decide to schedule one later, you will likely be competing with more investors as the seller may have continued calling around until they had three scheduled appointments.

This isn’t to say that all motivated sellers do this. Some will call and schedule 10 appointments. Some will call until they have a single appointment. Don’t you want to be that single appointment?

On the appointments where they have a few investors, some of them may not even make an offer. Which brings me to the next point.

Always Try To Make An Offer During the First Visit

This may not be something you are capable at first, but something you should try to get to as quickly as possible. Some sellers are willing to take the first offer that sounds reasonable to them.

I’ve had sellers actually call and cancel all the other appointments after I made an offer they liked. They didn’t even want to see what the others would offer!

To do this:

  1. Do your research before arriving to see the house.
  2. Run your comps and determine your after repair value, if you are going to flip it.
  3. Drive the best comps before going to the prospect house and verify that they are comparable.
  4. While at the house, you will need to determine the cost of repairs required to make the house sellable.
  5. Calculate your maximum allowable offer (usually After Repaired Value * 70% minus repairs).
  6. Offer less than your maximum allowable offer and put it in writing if possible (even if just a simple note on a piece of paper).

Sometimes they just feel that they only want to work with me and don’t even bother with the other appointments they were going to make. Which brings me to my final point.

Really Connecting With The Seller Goes A Very Long Way

This final point is huge. People want to sell to who they feel comfortable with. It’s just the way people are.

I’ve bought a lot of houses where I offered less than someone else and the seller still chose to sell to me. Many have even told me that they just didn’t like or trust the other investors that made offers.

The best way to connect with them is to shut your trap and really listen to them. Let them tell you everything about how they ended up in a situation where they had a house that they wanted or needed to sell quickly. Ask simple open-ended questions to get them to share with you.

When they talk about something that you can relate to, let them know that you can relate. You have to be real. Don’t do this unless you can do it in a natural way. If it feels wrong and you feel like you are being fake, they will also feel your phoniness.

Don’t be ‘that’ guy.

My approach is always to be personable over corporate. You can be professional and still be personable. I don’t think people like when someone comes in acting like they are the best thing since sliced bread and how lucky they are to even be in their presence. This happens with all the talk about how awesome you or your company is. They don’t really care most of the time.

Don’t tear the house apart.

Never go in and tear a place apart as you look it over. They know the house needs a lot of repairs. You pointing out every water stain on the ceiling and talking about how structurally unsound the house must be because of it is not going to help your chances. Many sellers are pretty embarrassed about the state of things and can be put at ease simply by stating things like, “this house has a lot of potential” or, “this is what I would do here”. You get the idea.

Conclusion

These are the ways that I consistently am able to beat the competition and buy houses at a deep discount. Sellers are happy to work with me and sell me their house.

If you are just getting started, these are ways that you can get in there and beat out some of the more experienced investors.

I’d love to hear your tactics on beating your competition. If you are wiling to share, please do so in the comments below. Thanks.
Photo:David Blackwell.

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{ 33 comments… read them below or add one }

Jason Grote January 29, 2013 at 2:31 pm

Excellent article Danny. Written by someone that knows what they are talking about. I hold an identical philosophy that I only learned by trial and error. I am going to borrow your idea of writing the offer on a piece of paper. I usually try to make an offer in person, but usually just give it verbally.

I only make an appointment once I feel like their is a strong likelihood of a deal. So, if I determine that on the initial call, I set it up right then. Otherwise I quickly do my research and call them back to set it up. I personally don’t like to make appointments unless I know that I am interested.

Thanks for the post!

Reply

Danny Johnson January 29, 2013 at 3:19 pm

Thanks, Jason.

I’ll make appointments if there is potential. If I determine during further analysis, which is usually done within minutes after the call, that a deal is unlikely I will cancel. So they are not too inconvenienced. I don’t have to cancel often. Sometimes I will bird dog the lead and just have them go to the appointment.

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Jason Grote January 29, 2013 at 3:23 pm

I assume that you only bird-dog to a small handful of investors that you trust? They kind of “represent” your company, right?

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Danny Johnson January 30, 2013 at 11:30 am

I do limit my birddogging to just a small group of investors that I know and trust.

They don’t represent my company though and they don’t act like they are to sellers. They make it known that they are independent.

Erik January 29, 2013 at 4:24 pm

“Don’t be That Guy!”

My favorite point… I certainly have dealt with my share of investors in the past year, and “that guy” is commonly seen.

Making it personal goes a longer way than many would imagine.

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Danny Johnson January 30, 2013 at 11:37 am

I always have to laugh to myself when I show up and act all high powered (when we happen to cross paths at a house).

I remember when I was still working a job and flipping part-time, we had a house we were wholesaling. My wife and I met this investor there to show him the house. He made it point to keep talking about how he ‘does this’ all day, every day. It’s what he does. Thought it odd that he was seemingly trying to convince us. We are always saying some of the things he was saying as a joke between ourselves. We still do it and it’s been years.

To my surprise, while taking a break outside at my job, I saw this ‘full-time’ investor park and go inside to his ‘job’ (different company in the same building). Too funny.

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steve January 29, 2013 at 4:34 pm

Thanks for the great article Danny,
It’s funny that after reading in Bigger Pockets, to see how effective bandits signs are. One of my goals in 2013 is to place some bandit signs up. Two question- I think I’ve read it somewhere before, but where do you recommend ordering the signs from and what should be written on them? Second, once you get “the first phone call” what are factors/numbers that you are looking for. Also, what are some of the questions that you might ask the seller. Is there a script of sort that you go off of, I’m sure by now it’s second nature, but I’m sure that there are a few questions that must be asked every time that you talk to a seller. Thanks and I look forward towards what you have to say with this issue.

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Danny Johnson January 30, 2013 at 11:41 am

To answer this in the comments would take a lot of space.

I get signs from supercheapsigns.com

As far as what to put on them, see this post: http://www.flippingjunkie.com/2011/the-first-week
As far as what to say to sellers, see this post: http://www.flippingjunkie.com/2012/15-essential-questions-you-should-be-asking-sellers

Sorry to direct you to other posts, but they more thoroughly cover these than I would be able to in the comments. Thanks for the great questions.

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Tara Brown January 29, 2013 at 4:40 pm

Danny,
I had a question too about bandit signs…..do you put them out consistently why or why not? In your area how many signs would you say you need to put out a month to do one wholesale deal?
Thanks and great article!

Tara

Reply

Danny Johnson January 30, 2013 at 11:46 am

Thanks, Tara.

I do not put them out consistently, though I should. This is because I get busy with rehabs and also get harassed by the city from time to time about the signs.

I’d say putting out 100 (spread out over time during a couple weeks to a month) should get you some decent leads and could land you a deal. It really depends on the areas they are put in and where they are posted (best for busy intersections with lots of traffic).

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Tracy Royce January 29, 2013 at 7:30 pm

Nice article Danny, I agree. And I like the feedback of being personal over corporate, and “shutting your trap.” Can’t get much more non-corporate then that :)

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Danny Johnson January 30, 2013 at 11:48 am

Thanks. Melissa is always making fun of me when I say corporate things around the house. Thinking outside the box. Raise a flag and see who solutes. etc. etc. etc.

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Ben Leybovich January 30, 2013 at 7:52 am

Excellent article to jump start the conversation Danny. The moral of the story – when everybody zigs, you should zag!

I especially like the “foreclosure is not the only reason people sell cheap.” I agree. In the past four years, I’ve bought everything from “we got married and don’t need 2 houses”, to a bank-forced bankruptcy, to “I’ll buy if you owner-finance it to me. And none of those usually hit the market. If the competition doesn’t know about it, we are much likelier going to get a deal.

There is a caveat – I don’t advertise. Why? Because everyone else does. I don’t want that competition.

But great article to get the juices flowing!

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Danny Johnson January 30, 2013 at 11:50 am

Thanks, Ben.

By not advertising, I assume you are talking about just doing things like direct mail. Is that right? If not, what are you doing for leads?

Thanks.

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Jeff Brown January 30, 2013 at 10:30 am

Your wisdom in dealing with people, Danny, is what stands out. You’ve made deals others simply wouldn’t have because of it. Good stuff.

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Danny Johnson January 30, 2013 at 11:52 am

Thanks, Jeff. I appreciate that.

Must be as I used to even show up to look at a motivated seller’s house wearing old t-shirts, shorts and flip-flops. :)

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Dwight Truitt January 31, 2013 at 9:44 am

This is the best post I’ve read in a while. THANKS!!

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Danny Johnson January 31, 2013 at 9:57 am

Thanks, Dwight. I appreciate that.

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john cava January 31, 2013 at 5:00 pm

Excellent post – thanks!

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Danny Johnson February 1, 2013 at 7:43 am

Thanks. I’m glad you enjoyed it.

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Michael January 31, 2013 at 5:26 pm

Good points Dan. Especially about being personable and not pointing out the stained ceilings and all the things wrong with the house. You are right that they know, so need to point out the obvious.

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Danny Johnson February 1, 2013 at 7:44 am

Thanks, Mike.

That’s to say to just never rub their face in it. You don’t need a wall being put up between you and them. :)

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Matt Lawrence February 1, 2013 at 12:13 am

Great article Danny, excellent points all around.

This not only shows how to get a head start in real estate, but also how to conduct ones-self in the business world.

Much appreciated,
Matt

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Danny Johnson February 1, 2013 at 7:45 am

Absolutely. Thanks, Matt.

Danny

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Thomas February 3, 2013 at 2:51 am

I also think that taking a closer look on what you have is better than spying on the competition. I suggest focusing your attention to the products and services you give rather than finding out what the others are doing is a better option. Just leave the comparison on the hands of the customers.

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Danny Johnson February 3, 2013 at 3:36 pm

Thanks, Thomas.

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Shaun February 10, 2013 at 8:55 am

Great article and lot of nice tips.
I have relied mostly on MLS stuff at this point.
One thing I’ll say is I don’t get all excited about new listings since I have realized some fool will overpay for it and I don’t waste the time.
If it is there in a few weeks I’ll look into it more.
I’ve done well with “stale crap”. :)

Still need to suck it up and deal with actual humans to keep the dealflow going!

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Danny Johnson February 10, 2013 at 2:36 pm

Lol. ‘stale crap’ can be good when it produces a deal. :)

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Shaun February 10, 2013 at 7:22 pm

Sure does!

Terrible buys at asking price look pretty good at 50-65% sometimes.
They take that sometimes when it is 6 months since the last showing… :)

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Tara Brown February 10, 2013 at 9:08 am

Here is a question I just started asking all sellers on the phone:
On a scale from 1-10, 10 being high, how would you rate your motivation level to get out of your situation(get the property sold) and move forward today?

If they say anything other than 9 or 10 I thank them for their time and tell them when they become a 9 or 10 call me back. I explain to them I have a number of sellers that call every week who need my help and services.
That takeaway works great!

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Danny Johnson February 10, 2013 at 3:06 pm

Thanks for the suggestion, Tara.

Guess that really gives you an idea of who is truly motivated. I would think there would be some that wouldn’t want to let you know how motivated they are right off the bat.

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Tara Brown February 11, 2013 at 12:37 pm

Danny,
When you make offers to sellers are you just making one offer, all cash? I know some investors say they like to give the seller options. For instance, one offer for all cash, second offer is a seller finance deal, etc etc
I’ve found if they seller is motivated it doesn’t really matter.

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Danny Johnson February 11, 2013 at 2:50 pm

I’ve found the same to be true. I used to try to offer up different options but it just ended up complicating things. I only make cash offers for the most part now.

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