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Real Estate Investing: a Numbers Game

by Ken Corsini on March 15, 2014 · 25 comments

  
REI is a numbers game

Almost any seasoned real estate investor will you tell you that one of the most critical components to a good real estate business is the ability to scale.  These days, it’s not as simple as jumping on your local MLS to browse a few houses in hopes of finding legitimate investment opportunities.  Sure, you or your real estate agent may stumble across a good MLS deal here or there, but even that one deal probably required a good bit of sifting through listings to find.

Cast a Big Net

Investors that aspire to a true volume business learn over time that finding houses is really a numbers game.  For example, in my market, we still occasionally get an MLS offer accepted, but only after numerous offers have been made.  In fact, we typically analyze 100 properties a day and make upwards of 20 offers a day in hopes of getting a 1 or 2 accepted per week …  and even then, we may only keep one of those houses.  We’ve learned that in order to make the right investments, we have to start with a very big number and whittle our way down to a very small percentage of properties that actually get purchased.

I actually met with some local real estate agents today who have a great system with this exact mentality in mind. They actually make offers on over 100 properties per day. Their strategy is to offer at 50-60% of list price and wait to see who counters. They know that about 5% of their offers will receive a counter offer and those are the properties they engage with. Ultimately, if they can get a couple of properties under contract every month at the right price, they’ve got a great system.

Related: Looking for a Good Real Estate Deal? It’s a Numbers Game

Different Strategies, Same Principle

For those investors that chase off-market deals, the same principle applies. We sent out 30,000 post cards last month in hopes of getting 300 phone calls. Out of those calls, if we ultimately buy 4 properties significantly below market value, we’ve got a system that works.

The bottom line is that casting a bigger net will produce more potential deals.  For some, this may mean finding more real estate agents to focus on specific geographic areas. For others, it may mean developing a software platform to automate creating MLS offers.  I personally like using virtual assistants to make offers, call for motivated sellers, etc.  Regardless of which strategy you use, figuring out how to scale the acquisition side of your business is critical to increasing your deal flow.

What’s your strategy for finding potential deals? Let’s discuss in the comments below…

 

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{ 25 comments… read them below or add one }

Riley F. March 15, 2014 at 5:52 am

Have thought about starting to send post cards, but haven’t. I am very interested to hear the responses to this.

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Ken Corsini March 16, 2014 at 12:55 pm

Postcard advertising definitely works. The key is having decent verbiage on the card that will get the phone ringing … AND, having the ability to follow-up with your callers to chase down deals.

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Bill March 18, 2014 at 7:48 am

Any “decent verbiage” you can share? I’ve never liked any of the “stock” cards around.

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Al March 15, 2014 at 6:37 am

please explain making offers with virtual assistant.

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Ken Corsini March 16, 2014 at 12:58 pm

We have virtual assistants make many different types of offers for us. Some have specific formulas and make blind offers at 50-60% of list price … others get a number from us, but they take the time to fill out the contract and email to the agent (rather than us). In both scenarios, we are leveraging cheap labor to do something fairly mundane so that our time can be used more effectively.

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Alison March 15, 2014 at 9:35 am

Timely article Ken. I am giving a lot of thought to this right now in my business, and trying to figure out how to pay for the scaling I need to do to grow.

Question about mailing 30k postcards every month: do mail to the same folks the next month or do you have a different 30k that you mail to? How many addresses are on your total mailing list? Just curious how often you repeat to those prospects.

Alison

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Ken Corsini March 16, 2014 at 12:59 pm

Alison – great questions. The list we mailed in January has 30,000 different names and addresses. We will mail this list about every 6 week (the same list) … for probably the next year.

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Randy Phillips March 15, 2014 at 10:41 am

Wow, 30,000 postcards in one month. That must have cost you $12,000 or more.
But one or 2 deals could cover that cost.

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Ken Corsini March 16, 2014 at 1:00 pm

That’s true – we aim for at least 4 deals from this mailing, but even one deal would pay for the total mailing.

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Julie March 15, 2014 at 12:38 pm

That sure is a TON of postcards! Do you usually target a list of absentee owners or free & clears maybe? Definitely a numbers game from marketing to offer making to follow up. Thanks for posting.

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Ken Corsini March 16, 2014 at 1:02 pm

Julie – we’ve been mailing high equity lists. And you’re right – you HAVE to include follow-up as part of the process … 30,000 postcards will definitely get the phone ringing, but deals don’t just happen by themself … you have to work every lead.

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Bill March 15, 2014 at 7:57 pm

Curious to know how much or exactly how you are putting earnest money up for your offers. Where I’m at, to offer on 20 deals at the low-end would tie up about $40k-$80k.

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Ken Corsini March 16, 2014 at 1:04 pm

earnest money really depends on what type of property we are offering on. Some REO banks have min requirements as well as HUD. Regardless, we rarely put any earnest money in escrow until an offer has been accepted. Are you depositing earnest money every time you make an offer?

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Bill March 16, 2014 at 1:19 pm

Interesting. Agents I’ve been working with have expected it and I’ve not pushed back – sounds like I need to (and find new agents).

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Mehran March 16, 2014 at 8:29 am

I can see it become easy to feel like you’re not making progress when sifting through a bunch of deals that are not good/don’t pan out. The opportunities will present themselves if we stick to our systems/criteria and keep on mushing forward. Thanks for the reminder on the reality of this being a big numbers game Ken!

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Ken Corsini March 16, 2014 at 1:05 pm

Mehran – you are exactly right. You’ve got to stick with a system of making offers and looking at houses …. eventually the deals will start coming in.

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Todd March 16, 2014 at 10:06 am

Thank you great article, Ken. Which post cards do you find have the best response rate? Also, do you prefer yellow letters or postcards?

Cheers

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Ken Corsini March 16, 2014 at 1:06 pm

Todd – we’ve tried both … right now, I like postcards and am experimenting with different copy to see what pulls the best response rate.

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Danny March 16, 2014 at 12:29 pm

30K postcards a month! Thats huge. You must have a very organized phone system to deal with that level of call volume.
I pull absentee owner leads from my local MLS. However I do it abit differently. Instead of just blindly mailing all the contacts on the list, I do a bit more legwork. I research the properties on google street view, tax n mortgage records that r public, etc. This weeds out alot of properties that were never deals to begin with. I end up with a smaller list that has potentially more motivated leads and costs lower to mail out.

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Ken Corsini March 16, 2014 at 1:07 pm

Sounds like you’re saving money by researching a more focused mailing list … but, how long does it take you to do the research? Might be something you could subcontract to a VA.

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Shaun March 19, 2014 at 8:38 am

Always better to have a targeted list.
I agree with Ken though that for such a mundane task you should look into outsourcing it.
It just can’t be a good return on your time.

Lets say you have a list of 1000 names. You go through and weed out 700 of them. If you are doing postcards you can often get them sent out for less than 40 cents each.
At that price you saved $280. That is nice!
However I can’t imagine that just with the act of pulling up street view and the tax records for each one I have to imagine you are taking at least 4min a property. That is 4000min or over 66.5 hours. That gives you a rate of about $4.21 an hour. Given the simplicity of the work I’d guess you would not have a hard time finding a VA to do this around half that wage.
Of course even if you have to pay roughly the savings I’d take all that extra time over that trivial amount of money.

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Adrian Tilley March 17, 2014 at 11:03 am

Ken,
What is the tradeoff between casting a wide net and a very good net? You’re looking for a 1% response rate, and you surely have to deal with a lot of worthless phone calls. Would it be more productive to mail to a “better” list and spend less time analyzing deals?

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Kent March 17, 2014 at 6:51 pm

Love the info!! Question I have been trying to find the answer to is, can you do a deal with owner carry when the owner still has a mortgage? If so how and where can I find that info?

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Shaun March 19, 2014 at 8:18 am

My business isn’t scaled the way your is but this is the kind of philosophy I have.
I make a lot of offers and I am just looking for counters to see what ones are worth worrying about.
You can never scale if you overanalyze every property just to make a lowish offer on it that is still likely to, at best, get countered.

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Joan Hing King March 22, 2014 at 1:53 pm

I find joining a real estate investing networking club has helped me find deals. My club, Oakville Real Estate Club, helps members find deals and bring deals which they have already qualified. Another advantage is a member can find joint venture partners at the Club. Most of the members cardinal rule is running the numbers to as many properties until they find one that matches their criteria and totally agree with you that it is a numbers game.

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