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Finding Deals vs. Making Deals: How to Shift Your Strategy to Be Successful in a Hot Market

David Greene
3 min read
Finding Deals vs. Making Deals: How to Shift Your Strategy to Be Successful in a Hot Market

I want to point out something that I’m noticing a lot of newer investors (but sometimes they’re not newer) experience: running into trouble when it comes to finding deals.

Once Upon a Time, There Were Deals Everywhere

There was a period of time—mostly between 2009 to 2015 or so—when you could find a deal. And what I mean by “find a deal” is you could go out, look really hard, and end up finding a property that would cash flow and allow you to gain equity very easily.

You could even get it under market value if you had something that a seller wanted. Maybe that was cash. Maybe that was the ability to get a loan. Maybe that was just the ability to close fast.

Related: “Dear Seller” Letters: The Tool You Need to Win Deals in a Hot Market

There were all kinds of things sellers wanted when there were fewer people looking. And there was more opportunity.

Now, what this led to was people that give advice—like me, Brandon Turner, other podcast hosts, other real estate investors—they came up with criteria to help you filter your way through all your options.

You’ve got this option that cash flows, and this option that doesn’t. We throw that one out.

You’ve got this option that cash flows really good, and this one that cash flows OK. We throw that one out.

And we would come up with these things that we would call “rules” or “rules of thumb.” They weren’t laws, but they were a good place to start.

Related: 3 Rules of Thumb to Size Up Deals Quickly (& Land Properties Before Anyone Else!)

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One of them was the 1% rule and another was the 2% rule, meaning that if you can buy a property that will rent itself out every month for 1% of what you paid for it or 2% of what you paid for it, you are more likely to cash flow. And that property was worthy of a deeper analysis.

Now, the 2% rule became a thing when there were just deals everywhere and people had to figure out, “Well, which of these houses do I want to buy?”

When I say deals, I mean, there was cash flow opportunity all over the place! I want to buy this one. I want to buy that one.

Say one was a 2% rule and another one was a 1.5% rule. Odds are the 2% one’s going to cash flow, so you look at that one first. It doesn’t mean you automatically buy it, but it would mean you would give it priority.

Where Did All the Deals Go?

It’s different now. There are not as many opportunities, because there are not as many buyers that have things that sellers need.

Tons of buyers can get a deal. The economy is much better. We’ve seen a run-up in prices. Everyone’s confidence is high.

You can’t find deals like you used to. Period.

You don’t need screening criteria—like is it 1% or 2%—to filter through all your options. The problem is now you don’t have options. There are not as many deals to be had.

OK, so the strategy of go find, find, find. Get that out of your head. Stop thinking that way. That’s not what you need.

You don’t need to find the deal. You need to make the deal.

And that’s what Brandon Turner and I talk about a lot.

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How to Land a Deal in Today’s Market

Now, what you’re looking for is something that other people don’t see—the diamond in the rough mentality. You’re looking for a property that’s managed poorly. One that could have square footage added to it to make it worth more. One that is in terrible shape and can be fixed up. One that’s going for below-market rent.

You’re looking for inefficiencies in the way it’s managed and the way it’s marketed and the property itself. You’re looking for its highest and best use. That’s what you’re trying to do.

These days, you’re looking at stuff from a perspective of: “How can I make that better than what it is now?”

Don’t look at it like it already needs to be great right out of the box. Don’t come at it like, “I want to find the best thing.”

So, you don’t need screening criteria like you used to. Where’s all this opportunity? And what’s the best one? No.

Now you just have to find something that other people are missing.

So, what I want to say is shift your mindset from find a deal to make a deal, and you’ll start to have success when it comes to investing.

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What strategy (or strategies) are you using to find or make deals today?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.