This Simple Advice From Warren Buffet Guides Me to Deals No One Else is Finding
When it comes to real estate investing, most of us find ourselves in a love/hate relationship. If you’ve experienced the power that a good deal can have on your financial life, you’ve likely come to love the feeling of buying a new property. If you’ve experienced the frustration, rejection, and lost time that can occur when looking for your next deal, you’ve likely come to hate the process.
I too have experienced these highs and lows, and after eight years of investing in real estate, I’d like to share one of the most powerful pieces of advice that have helped me stay positive and motivated (and successful) when others have given up or thrown in the towel.
One of the greatest investors of all time, Warren Buffet, is credited with the quote:
“[Be] fearful when others are greedy and greedy when others are fearful.”
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I have come to absolutely love this logic, and I’ve found myself following it in almost every area of my life. I’ll admit, when I first heard it, it seemed counterintuitive. Following the crowd feels like a safer bet. As we’ve all heard, “there is safety in numbers.”
The problem with this line of thinking is that “safety” won’t always lead to success. When investing, safety is meant to keep you from losing money, not to help you make it.
If you ask around, you’ll find that most new investors are seeking out how to find deals. It’s the number one question I’m asked here on BiggerPockets. When I ask these investors what they are doing to find deals, their answers are almost always the same. They are looking for something on the MLS or buying lists from various vendors of owners who are likely to be in distress.
I also use these two methods to find homes. In fact, I have never once bought a property I myself found off market. The majority of homes I’ve bought have been located with the help of a real estate agent. I’m using the exact process others are trying, and I’m having success with it while they are failing.
Why is that? What is my big secret when it comes to finding deals that others miss?
It’s actually really simple. I’m following Buffet’s model and looking for homes other investors aren’t. That’s it.
I’ve narrowed my overall strategy down into three specific topics that I’ve developed from Buffet’s advice. By zigging when others zag, I’ve found ways to find deals when everyone else is saying there are none (and I’ve never spent a dime on direct mail, SEO, or any other kind of personally funded marketing).
The Properties I Target
When I ask others to show me what houses they are evaluating to write offers on, one thing jumps out at me right away as something very different from the houses I write offers on—the pictures of the houses look really nice! Most new investors are intimidated by a significant rehab project and want to find something that needs minimal work.
The problem is they are looking for a significant discount and writing offers well below market value for the property. Minimal work plus a significant discount is a very tough strategy to find long term success with. The problem with looking for properties that don’t need much work is that everyone else is looking for them too.
When you look at homes the masses are also looking at, you’re not doing anything different than the group. When several other people are willing to pay more for a property than you are, you don’t have a right to complain that there are “no good deals.” The sellers of the properties want top dollar for their properties. When you go to sell, you will too! If you’re looking at properties that look nice online and don’t have any major problems, you’re thinking like a consumer, not an investor.
As a real estate agent representing clients in the hot San Francisco Bay area market, it is very challenging to find my buyers anything they can close on. There are so few homes and so many buyers that everything that shows even decently well is selling immediately for over asking price and with significant offers (and when I say over asking price, I mean $50k, $60k, or $70k over!).
When I first meet with my buyer clients, I’ve learned that we need to have an expectation talk. This is the part where they convey their expectations, and I let them know what is realistic to expect. Every inexperienced buyer wants a move-in ready house for below market value. If I were to allow them to maintain those same expectations, they would become extremely discouraged after writing offers 50 times in a row on houses they were constantly outbid on.
As their agent, it’s my job to help them come up with a strategy to get a house in a market where they are facing an uphill battle. This often means targeting homes other buyers are overlooking, then fixing them up to make them the kind of home my clients would be happy living with. Of course, this isn’t anybody’s first option. But in a market like this, you have to play the hand you’re dealt. My clients who see the value in this end up getting a home, letting me help them fix it up, and are super excited when the process is over. The ones who don’t take my advice make effort after effort until they give up.
Now, if a client buying a house to live in can take my advice and look for homes that no one else is, what excuse does an investor have not to?
Simply put, when you’re looking to pay under market value for something, you need to be looking for something with hidden value others aren’t seeing. You will more often than not need to be targeting houses with issues.
- Ugly houses
- Smelly houses
- Ugly, smelly houses
- Houses with roof issues
- Houses with mildew or mold
- Houses with outdated appliances, nasty wall paper, or walls in places they shouldn’t be
- Houses that would not be eligible for an offer that requires a loan
- Houses that need a bedroom or bathroom added
Nobody wants to take on these projects—but taking on these projects is the way you’re able to pay under market value. If you want to find good deals, pay under market value, and build wealth, you need to be greedy when others are fearful.
Others are fearful of houses that need work or don’t look nice in the pictures. Learn to solve those problems (often by hiring someone else, like a contractor), and you will be well on your way to putting deal after deal together.
The Markets I Target
As I mentioned earlier, the market where I live is red hot, and there are people fighting hand over fist to get their offers accepted. A huge lack of inventory and a booming economy have created a strong seller’s market. Now, this isn’t to say you can’t find a deal in the San Francisco Bay area. As in any other market, there are deals to be found.
But is it really the best use of my time looking for deals in the same place everyone else is?
Investors are a different breed. If we are looking to buy homes in the same market where everyone else is looking to buy a house, what makes us any different than the person willing to spend top dollar for a home they want to live in?
I understand that so many people are afraid to buy houses “not in their own backyard.” I hear this so much. Investors are afraid they will be taken advantage of, swindled, or forced to hope the deal they are buying is a good deal because they don’t understand the market anywhere else.
Well, I’m here to say that if you’re relying only on your own expertise to buy properties, you’re not doing it right.
You are one person. You have only so much time to learn, and there is a lot to learn. If you aren’t leveraging other people’s experience, wisdom, and expertise, that might be one of the reasons you aren’t having the success you want.
Who is out there looking for deals for you right now? Who is doing the research, digging, and due diligence to bring you the information you need to feel comfortable buying your next property? If the only answer you have is yourself, how can you expect to reach your potential?
I buy houses in other states—several other states, in fact—and I have deal finders in those states actively looking for me, including real estate agents, wholesalers, newbie investors, and more. There are lots of different people who would benefit from me buying my next place. I leverage those people to my advantage, and when they find me a deal, I tell them what information I need in order to feel comfortable buying it.
There are too many details to list here, but the point is, if you feel like you don’t know the school districts, crime rate, property tax, zoning, or economic indicators well enough to buy in another market, have someone get that information for you! We live in the information age. There is information everywhere for you to access if you really want to. The agents who bring me deals are more than happy to look up whatever information I need to feel comfortable buying in their market. Wouldn’t you be happy to do so if it meant you got paid?
Within five minutes, I can find out what the rent will be, what my tenant base will be, what the rental demand is, and what the ARV is. Within 48 hours, I can have a bid from my contractor for the entire job. Within an hour of receiving this information, I can have my agent write up a contract and electronically sign it. Once under contract, I typically have 7-10 days to have the house professionally inspected so I can make an educated decision on if I want to buy it.
We are not in the dark ages. I’m not “hoping” a property in another state will work out. I’m researching, putting people in place to give me the information I need, and making an educated decision on what I want to do, exactly as if the property is in my own neighborhood.
Now, how does this give me a competitive advantage? Others are fearful to go into the markets I’m not. I live in a red hot market, but that doesn’t mean I need to be investing in one. I go places where others aren’t to find deals others aren’t. I run away from the pack, the crowd, and the competition, and I look for markets other investors aren’t thinking about.
Do you think that might make it easier for me to find deals, when I’m one of the only people looking and the masses are all busy following the latest market report telling them where prices are rising?
Related: The 3 Types of Asset Classes (& Why Investors Like Warren Buffett Don’t Put Their Money in Just One)
You should be looking for houses others are missing. You should also be looking in markets others are missing.
The People I Target
Most investors are told they need to find an investor-friendly agent. This is true. An investor-friendly agent will do a lot of your work for you and make the process easier.
Unfortunately, if they are good, a whole bunch of other investors will also be using them.
Do you really want to be the fifth guy to look at a deal that four others have passed on? I sure don’t.
I want to be number one.
In order to be number one, I have to target the people that others are overlooking. This goes for more than just agents.
- I want a contractor/handyman who isn’t booked up from other investors’ projects.
- I want a lender able to actually return my calls.
- I want a property manager who doesn’t have a portfolio so large that they can’t even tell me when I have a vacancy because they are too busy.
- I want a handyman/repair guy who can go immediately when something significant breaks.
In short, I don’t want to find the guy that everyone else has already found. He may have glowing reviews and therefore feel “safe,” but that means he’s much more likely to have a really long wait before he can help me.
I want the guy who is talented, dependable, and hungry for more of my business.
Now, I’m sure we would all love these guys, but how do you find them? Well, they are out there, and my guess is you don’t spend much time looking for them in the first place. We all love to look for houses, but we don’t love to look for people.
The wise investors have learned it’s the people who help find them deals.
When I am looking for a real estate agent to help me find deals, I understand they may be new, inexperienced, and unfamiliar with what I need. I am going to need to take some time to train them to help me.
I would encourage you to do the same. Quit thinking your agent is a waiter who is supposed to bring your deal right to your table where you can dig in. You need to train them on what you want, how to deliver it to you, and maybe even where to find it. If you’re willing to put this time in, you may end up with some top-notch talent you have all to yourself.
Find the Unbeaten Path
I understand that looking for houses in markets you don’t live in isn’t the easiest road to take. It can feel uncomfortable and challenging in new ways.
But how is that different than the actual houses we buy as investors?
Investors make their money because they buy houses others don’t want and solve problems others can’t. If you extend this same principle to the rest of your business, you’ll see there are lots of ways you can start finding deals where others are missing them.
Not all markets are created equal. Some are great for income producing rentals, some are great for house flips, and others are pretty much only good for home buyers who want to find their primary residence. If you are looking in the same markets my clients are, do you think you’re statistically likely to find a great deal?
You’re on BiggerPockets because you’ve realized the power that real estate investing has, and you want to tap into that power. That alone makes you different than the masses.
If you’ve already bought a rental property or just saved up the money to buy one, that makes you different than the masses too.
If you are willing to read through this entire article just to learn something that would make it more likely for you to find your next deal, that makes you even more different than the masses.
If you’re already different than the masses, why don’t you just embrace it and go all in?
- Stop looking for deals in houses that everyone else wants.
- Stop looking in markets where everyone else is looking.
- Stop looking for talented people where everyone else is looking.
When you carve your own path, you’re much more likely to find success than when you’re following a trail of people all looking for the same thing. Being different is what brings you opportunity. It’s what allows you to build wealth while others are falling into debt. It’s what allows you to create a positive stream of cash flow while the rest of the world becomes slaves to their jobs.
Warren Buffet figured this out with equity investing, and the advice rings true for real estate investing as well.
Zig when others zag, and you’ll find the process to be much more rewarding!
How do you go against the grain and see what others might be blind to?
Let’s discuss below!