If you’ve ever attended one of the weekly BiggerPockets Live Webinars that I host each week, you’ll recognize this concept:
Finding deals is a funnel: It’s wide at the top and narrow at the bottom.
In other words, my goal is to get as many raw leads as I can into my funnel—and then filter them out until I’m left with just a few deals.
For example, I might start with 1,000 leads (I’ll talk about each of these items in detail in a moment) but only end up buying one property. That makes sense, right?
But the funnel is more complex than just “leads” and “buying properties.” There are a lot of steps in between!
If you want to build a scalable system for acquiring real estate deals (or even if you just want to buy one deal per year), you need to work all your leads through the following six-layer funnel.
The 6-Layer Funnel for Finding Great Real Estate Deals
1. Raw Leads
Your funnel begins with your “raw leads.” This is any property that could be a potential deal.
For example, maybe you spend the afternoon driving for dollars and write down a list of 100 vacant houses in your target area. These 100 vacant houses are now your “raw leads.”
Related: 5 Deal-Finding Tricks I Use to Buy Around 100 Properties Per Year
2. Hot Leads
A “hot lead” is any lead where interaction has happened with the owner.
For example, if I send a direct mail letter to 1,000 landlords in my area asking to buy their house, and 50 of those landlords call me, I now have 50 “hot leads.”
Or perhaps your agent sends you a list of every duplex in a 20-mile radius (your “raw leads”) and you take special interest in pursuing a dozen of them; those are your “hot leads.”
Understand that not every “hot lead” is going to be worth actually pursuing any further. Most of them, in fact, probably won’t warrant a lot more work.
- Maybe the location isn’t ideal.
- Maybe after one conversation you realize that they want WAY too much money.
- Maybe the property style is different than what you currently are looking for.
However, of all your “hot leads,” we can assume a certain percentage of them are going to be worth investigating deeper. For these, the next step is to analyze them to determine the maximum offer price.
For every property, there is a value that will make it “worth buying.” Your job is to discover that number through a detailed analysis of the property.
While you may have started with 1,000 raw leads from your direct mail list, which narrowed down to 50 hot leads, you might only actually analyze half of them, or 25 properties.
Of course, I’d recommend using the BiggerPockets Property Analysis Tools to help with this step. You can analyze a deal in under five minutes to estimate potential cash flow, cash on cash return, total return, and more.
After analyzing those 25 deals, it’s entirely possible to submit an offer on every single one. After all, as I just mentioned, for every property here is a value that will make it worth buying.
But in all reality, you probably will discover that some just don’t make sense to waste time offering on. Maybe they are asking $200,000 for a duplex, but,when you analyzed the deal, you discovered that it would likely take $150,000 worth of rehab and would therefore only be worth paying $50,000 for. Or maybe the maximum allowable offer is actually a negative number (meaning they would have to pay you to take the property of their hands!).
This is why only a certain percentage of the deals you analyze will likely result in you making an offer, which is our next step.
4. Offer Made
Next, it’s time to make an offer! Now, there are a variety of ways you might make that offer (formally through an agent, online through a real estate auction site, or maybe just casually in a conversation with a seller), but the point is if you want to buy a deal, you have to make the offer!
5. Offer Accepted
Here’s a rude awakening for you: Most of the offers you submit will likely never get accepted.
In the words of a good friend and real estate agent I know, “If I make an offer and it doesn’t make me blush, I offered too much.”
Of course, I’m not suggesting you go out and submit “low-ball” offers on every single deal you find, but I am suggesting that you shouldn’t get all your offers accepted. In real estate, regular rejection just means you are doing a good job hunting for the best.
For this reason, I love rejection! Every “no” is just a step on my path toward hearing a “yes.”
Related: 7 Resources You’re Probably Not Using to Recruit Deal-Finding Bird Dogs
Some of your offers will get accepted! For me, it’s about 10%. This means 90% of the time, I am losing when I submit an offer—and that’s perfectly fine with me. It’s the 10% that matters.
6. Deal Closed
Finally, even after you put a deal under contract, there is no guarantee that it’s going to result in a closed deal. Things come up all the time!
Last month, I put a deal under contract, only to find out later the seller was lying about not having a mortgage on the property. When we tried to close, we found out he owed more money to the bank than I was paying him! He couldn’t sell the property to me and was just hoping “I wouldn’t notice.”
Therefore, the bottom of your funnel is to actually close the deal.
Don’t Worry About Your Goal. Focus on THIS Instead.
And that, my friends, is the funnel that is going to help help you achieve your grandest dreams and goals!
Of course, there is more to real estate than just the funnel (for example, you still need to come up with a way to pay for the property), but this is the process that all the best real estate investors use to consistently fill their pipeline with potential deals.
It may not be easy, but it truly is that simple:
- If you want more deals, you need to get more offers accepted.
- If you want to get more offers accepted, you need to make more offers.
- If you want to make more offers, you need to analyze more deals.
- If you want to analyze more deals, you need to get more hot leads.
- If you want more hot leads, you need to get more raw leads.
That is how you find deals in a crowded market—by having a process.
Rather than relying on “hope” and “wishes,” you are relying on a system, a daily set of tasks needed to get you there. You don’t need to worry about your goal, when you focus instead on the process.
In the words of Hal Elrod, author of The Miracle Morning:
If you want to buy more deals this year, stop wishing and hoping. Stop obsessing about your goals. Stop complaining about what you don’t have. Instead, just start your process:
Get more raw leads.
Make those leads hot.
Analyze those leads.
Offer on those leads.
Get those leads under contract.
Close on your new deals!
Does your deal funnel look similar to the above?
Let me know your experiences with a comment!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.