How to Fail 90% of the Time and Still Be a Wildly Successful Real Estate Investor
I think the prevailing question I received last week in response to advice in another one of my articles was, “How in the heck do I make 100 real estate offers a week?” and there were many off-shoot questions from there. I am going to try and write this so that it progresses from what you do as a beginner to what you do as an experienced investor.
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Understand right off the bat that as a beginner, you are looking for one property. That is what you need to find in order to get started. Stop dreaming about 10 properties and 20 properties. Heck, stop thinking about two. Just remember that you need ONE property to get started. In order to find that one property, you have to make offers.
Track Every Piece of Data
We started making offers on the MLS from day one, and we tracked everything. A simple spreadsheet was how we operated for years. We kept a record of every offer we made. We tracked the address, zip code, date of the offer, square footage, offer price, and offer price per square foot. The price per square foot is a common denominator that you can track for any property in any location and any given time period. It will be a constant that you can compare on many different levels.
When we would purchase one of those properties, we would create a second spreadsheet where we kept that data. We added the actual contract price, closing date, renovation cost, and renovation cost per square foot. We also started in very narrow areas. When you hear the terminology “farm area,” it is referring to the very specific and usually narrow area of town that you want to learn like the back of your hand. So our initial farm area was fairly small, and the data we were keeping was very helpful.
In a relatively small time period, we had dozens and then hundreds of offers to be able to look back on and track what price per square foot we were offering in an area. Then we could see what price pre square foot we were actually paying when we won a contract. In turn, we could see what price per square foot were we paying for renovations. The next progression was to add rental rates for each property since we were tracking management from early on.
You should be able to tell fairly quickly why this is important and how powerful a tool like this can be. We knew what price to pay for properties in those areas based on what the data told us. We had offers on properties that were rejected or sold to someone else. We could easily pull the wining price from public data and calculate what price per square foot a property eventually sold for. More importantly, we knew what prices per square foot we were paying on properties that we were getting. Then we knew what price we were paying per square foot on renovations and eventually even what price per square foot properties were renting for.
It did not matter then and it does not matter today if an investor is brand new or has years of experience. Simply tracking important data for your business is step #1 to really ramping up your business and growing into a well-oiled machine.
Increasing the Number of Offers You Make
There are a lot of ways you can increase the number of leads you make, especially on MLS properties. We do two things to accomplish this. First, we develop relationships with the big listing agents or brokers. When I say “relationship,” do not read anything more into that. It means that they have to know who you are and that you are serious about buying property. Introduce yourself and ask how they routinely operate. Many will publish a list of all of their listings on a weekly, if not more regular, schedule. So they will publish every property they have and send them out by email to a list of potential buyers. You want to be on that list.
When the lists are published, one of the things we learned to do early on was to take each list, mark through the price on the houses we wanted to buy, and write in the price we would be willing to pay. We would then fax/scan/email that list of properties and our offers back over. In a matter of minutes, we could calculate our offer price based on the square footage of the property and then send that back over to the listing agent. This has two big advantages. One, we are not wasting our time or their time by sending in an individual offer on every property. Two, they are able to tell us very quickly which pricing may work, and they will always say at that point to send it over in an offer format with earnest money.
If the agent is listing 100 properties and sends that list out, we may only be interested in 15 of them. Instead of preparing 15 offers, we only send back his list with the prices we would pay on those 15 â thus making 15 offers â and then we wait for the agent to tell us where we're close. How do we start? We simply ask the local real estate agent group for a list of their top performing agents and then a list broken down by those that specialize in foreclosure sales. Then we contact those particular agents and begin to inquire how we could buy their properties. From there, the conversation grows, relationships are developed, and we begin to offer on dozens of properties each week.
The second thing we do is to find an agent that really, really wants or needs to get some business going. We essentially hire the agent to make all of our offers for us. For us at this point, we were already growing and our "farm area" had grown into several different areas of the city. So we essentially found someone who could legally make all of our offers for us and paid them to sit at a desk all day and prepare offers. They would also get a piece of any commissions earned. This was actually a very lucrative setup for them. At the same time, we were letting listing agents actually represent us on the contract.
Why was that important? They were earning the listing, and then they were earning the sales commission.
Do you think they were motivated to let us make offers, even low offers, on their properties? Of course they were, and they were appreciative of the up-front manner that we operated in.
We were interested in making their life easier, but also in making sure we did not overpay. So even if an agent thought the offers were too low, they were willing to look at them and submit them. Some were even surprised when the seller accepted the offer. Either way, we figured out how to get those offers entered and accepted.
One quick point to note: I am not a real estate agent. I do not have my license. We simply searched for the right setup and opportunity, which included adding an agent to our team who was hungry and willing to earn our business.
Making More Offers in Today’s Environment
You will never hear me say that we had this master plan and followed each step and that is how we reached where we are today. It took good decision making mixed in with some luck for us to have the success we have had. It also took the right environment, and we recognize that our market helped us develop. All of these things have combined to develop our systems and processes.
Our reputation has helped us increase our offers by enabling us to make offers directly over the phone in some instances. Today, we have our own realty company, and our broker is the one who makes all of our offers. He spends a lot of time on the phone, on the streets, and can often be found in the offices of listing agents. He is armed with our reporting of years and years of data. He knows month to month the exact pricing we are paying for properties on certain streets in certain zip codes and has been given the green light by us to offer on properties in those areas at those rates. So on any given day, he may make a dozen offers while standing in the offices of a local listing agent.
We also have members of our team who look at 8-12 houses a day. In those cases, they are looking at houses where the listing agent has asked us to remove any inspection contingencies from our contracts. They want us to look at properties before offering. We can thank hedge funds and bulk buyers for that request, but we are OK with it. We look at properties first and then offer on them. It does not change our strategy; it just means that we had to create a position on our team where we have an experienced rehab foreman looking at properties before we make offers.
Cash Reserves and Proof of Funds
There is no sugar coating these two points. If you do not have funds and you do not have a partnership set up with someone who has funds, you are going to have a hard time trying to set up a system to make a lot of offers. You cannot fake this point, and if you do not have the ability to make offers in person or by submitting pricing along the lines of what I described above, then you are going to have be very cautious about how you make your offers.
You cannot fake proof of funds. Do NOT try to do this. You cannot fake having the dollars available to close the properties you put under contract. From the day we started, we have had the funds to close a lot of properties even when a lot meant a handful a month. Today, we operate on millions of dollars, and those funds are always available and proof of funding is easy to do. We also earned that right with the listing agents by never backing out of deals. When you build that kind of reputation, you will find that listing agents will accept your offers without proof of funds as long as the owner of the property does not require it. You will have earned their respect and therefore the ability to put those offers in.
From Big Concerns to Big Dollars
The other big concern from investors revolves around using all of their funds up quickly and still holding a pile of contracts that they accepted. Welcome to a quality wholesaler‘s dream — a pile of accepted offers, well below listing price and at or below the cost per square foot that most investors are buying in the same area. If the deal is good enough, you can always find a buyer! You may not make a killing, or you may make a ton of money for relatively little work. I’m not promising you will do either. But if you’re willing to put in a little effort, you can turn a pile of accepted offers into a great business.
I had lunch with an investor yesterday who told me a story of a property that he paid less than $50k for after it was listed for $110k. He wholesaled the property quickly to another investor for an incredibly good profit. How did he get it for below half price? He simply made the offer. Over a matter of minutes in negotiations, he had a property that no one else was bidding on because they thought it was overpriced and they did not want to embarrass themselves or the owner. That is the reality in this business. Those willing to work for it and who keep a positive and almost naive frame of mind can accomplish anything they want! It is when we convince ourselves that we know the answers without asking the questions that we get into trouble.
This one was a relatively long article, and I am sure there will be questions in the comments. I’ll be glad to answer them all. I will simply remind you here that the simplest way to making a lot of offers with confidence is to track everything you do from day one. You can learn a lot about tendencies, trends, and formulaic buying patterns that will make your life easier. You will not need the details that make so many of us feel all warm and fuzzy. You will have the most important metrics at your fingertips, and then you can let the odds help you turn those metrics into dollars.
[Editor’s note: We are republishing this post in order to help those who have joined BiggerPockets more recently make more offers and land more deals!]
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