What to do after I find a lead?

16 Replies

Let's assume I've found a motivated seller.  This person responds to a letter: they call, we chat about their motivation for selling, I ask about the property details (address, equity percent, condition, etc.), and I ultimately determine this is a good prospect.  Where do I go from here?  Is my first step to go see the house?  At what point do I send them a contract?  I'm really just trying to wrap my mind around the process I'm going to follow if/when I start getting calls from interested sellers.

How did you determine it was a good prospect? DId you analyze the property and look for comps? Did you discussed price?

Next step is to see the house. Take lots of pictures or videos and ask lots of questions. Also, bring a contract with you so you can get it under contract.

Hello @Dallas Martin

I would go see the house, once you see the house then get the comps for ARV for the home (get three good ones), get a contractor to meet you at the home (if severe rehab needed), and once you have all that information then I would contact a agent/buyer/flipper to see about getting them to purchase the property.

Once get them on board write a contract up with all the necessary language and a correct price for a wholesaler fees within your area.

@Dennis Canon - A good prospect to me means the seller is super motivated (kinda subjective but I've never seen any objective measurement for this), they have at least 30% equity in the property (based on ARV and mortgage principal remaining), and their price point is in the neighborhood of what my offer would be (i.e., they aren't expecting retail value for their home). So you basically are prepared to make an offer right there on the spot when you go see a house? Do you still include an inspection clause in the offer or is going to see the house considered the inspection?

@Peter Mckernan - thanks for the response.  You answered another question I had about taking a contractor along with me.  The repair costs are one of the biggest unknowns for me right now so I'm glad to know that bringing a contractor along is not taboo.

Hi @Dallas Martin ,

We are missing what your goal is. This is listed in Starting out, however some people are assuming you are wholesaling it. Do you plan to fix and flip/wholesale/Rent out? The steps will vary greatly depending on the end goal.

Thank you

@Mike Cumbie - Thanks for the input and good observation; I didn't specify my end goal because I honestly didn't think it mattered.  My intent is to buy and hold the properties for cash flow; I'm specifically targeting small multi-families (2-4 units).  Wholesaling is a secondary option that I would use if for some reason I couldn't purchase the property myself.  So what would be the differences between these two exit strategies when working on closing the deal?  Besides including an assignment clause in the contract (which I would most likely do regardless of which option I'm pursuing) is there a better approach or different steps to take depending on what I plan to do with the property?

I think the initial steps are fairly similar whether you wholesale/flip or keep, but my pricepoint, terms sought and due diligence will differ.

We always qualify initially over the phone, then go see the house if we determine it won't be a waste of time.  If you're brand new - go see the house anyway.  Always something to learn and you can use the practice.

My offer (and even the contract itself) will differ depending on my exit. If buying for myself, I usually use an LOI and offer 3 scenarios (cash, with seller-financing or a lease option).

If wholesaling, I may have a simple assignable PSA - pretty much just trying to get a certain price like 70% minus repairs (rarely works, IMO). An LOI can be a little slower. A wholesaler will want to lock it up on the spot. I leave my LOI with the seller to consider.

In general, that's the difference to me.  Without @Mike Cumbie asking the critical 'what is your goal?' question I wouldn't have known what to add.  The offer itself is definitely different depending on what my goal is for that property.  Being flexible with your exit (having a pony that does more than 1 trick) gives you more options and a higher conversion rate!

this is a "ready fire aim" approach. I really believe that you should have an attorney if you're going to be doing "terms deals" in Pennsylvania.

Here are my rules of thumb if you will...

If it's mostly "landlord tenant area",  a C D area then I will only think about buying and holding and renting out or wholesaling flipping.

If the property is more of an A B area, chances are it doesn't need a lot of work, it's a pretty house in a good area, not a lot of rentals, mostly owner occupied.

If it's a pretty house, then you need to have some tools such as subject to, wraparound mortgage, lease option, etc. to make some money.

New people need to know their "market rent" and their "fair market value" really well, and having access to sold comps is really helpful so that you can do your research.

If you're serious about this business, you will devote your time and walk through 100 properties as fast as you can so you know what "asking prices" are and to know what "actually sold prices" are

The fall and winter are excellent times to go after expired listings and canceled listings, and help the homesellers solve a problem using creative financing. 

No banks and no credit strategies I prefer:)

@Steve Vaughan - thanks for contributing. I suspected the initial steps should be fairly similar no matter which exit strategy. I hadn't considered the differences for the offer process though. What's the purpose of using a LOI vs a purchase and sale agreement? What advantage is there to using one over the other? Is it just to be able to offer 3 different options? Also, if you don't mind sharing, how does the LOI work? I've never heard of doing that before. Are you giving the seller a choice between the 3 options, or are you just stating that if you buy it will be using one of the 3 options and here's the price regardless of which option is used?

@Brian Gibbons Do you really think seeing 100 properties is necessary? I mean, where does someone with a full time job find time to do that? Any suggestions? I ask seriously because I agree that us new guys need to walk properties, see what the market looks like and learn to recognize a deal when we see it but how does a guy with a full time (50 hour a week) job, an 18 month old baby and all the other stuff find time to walk 100 properties? On top of that, what are we looking for beside the type of property vs sales price (or sold price if we're walking a contracted property) and the area?

I love the rest of your advice. I just finished a training course at KnoxREIA on Lease Options and it opened up a door to another great way to gain rentals without putting up a lot of money if any.

@Steve Vaughan I love your advice man. But let me ask, why a LOI ? What are you using it for? Also, in my case I'd be wholesaling, @Dallas Martin had a question that I've been trying to get some guidance on. A lot of other wholesalers tell me that the inspection clause is a way to get out of the deal if it won't work (can't find a seller in 30 days, for example) but what if you have already gone to the property and seen it. Say I met the seller at their house, walked it, and then they signed an assignment contract? What other provisions or clauses can I put in place just incase the deal won't work? Or if I get a deal under an assignment contract and I have a 30 day clause and the 30 days run out, can I walk then? Like you said, if I have a potential deal I want to lock it up on the spot but may not have a huge buyers list since I'm starting out. Am I making sense? I hope so. If not, I'll explain.

@Brian Gibbons Any suggestions on where to find expired listings? Also, what do you think about 60+ days old listings on Redfin or Zillow? I've come across a bunch of FSBO SFR that are well below market value (like 50% or less of ARV) that are not being bought? I was thinking of trying to get them for a wholesale or (if the reno is minor) get them under a lease option or seller finance. They're all mostly advertised as "great investor starters" so I'm thinking they belong to retiring landlords.

Originally posted by @Benjamin Barredo :

@Brian Gibbons Any suggestions on where to find expired listings? Also, what do you think about 60+ days old listings on Redfin or Zillow? I've come across a bunch of FSBO SFR that are well below market value (like 50% or less of ARV) that are not being bought? I was thinking of trying to get them for a wholesale or (if the reno is minor) get them under a lease option or seller finance. They're all mostly advertised as "great investor starters" so I'm thinking they belong to retiring landlords.

 I have a BP blog "make money with out credit or banks" that talks about lease options, sub2, wraps, private lenders, joint venture partners and more :)

What's the purpose of using a LOI vs a purchase and sale agreement? What advantage is there to using one over the other?

@Dallas Martin  @Benjamin Barredo I wouldn't use an LOI for wholesaling. No point. The only thing you offer is cash at a discount. Just use a PSA.

I like using a letter of intent because I can personalize it and offer different options at different prices. I can offer cheap for cash, more with seller financing and more still with a lease option. By the time I draft the LOI, I know their debt load and payment amount, if any, and what they want to see happen.

When they select which option they want to move forward with (often forgetting 'no thanks' is a 4th option:), then I know how to structure the PSA or Option agreement.  

I still remember presenting my letter of intent to a listing agent of a 3-family a few years ago.  She called back next day and said 'They picked option B.  I had no idea they would carry that way.'    We then did a formal PSA and moved to closing.  No back and forth or 'bring your highest' and best bs.  

Another time a seller called back 4 months later and he liked option B also.  Had to ask what it was again because I'd forgotten.

Cheers and happy hunting!

@Dallas Martin

If I was buying for myself I would have the following steps (in general)

1) Financing secured

2) Find property and put it under contract

3) Attorney approvals

4) Inspection within 7 days

5) Mortgage commitment (if using bank money)

6) Title work

Where if it was a wholesale deal it would look more like this

1) Find property and put it under contract

2) Find buyer before whatever inspection period expired (They are not going to trust your guy anyway)

3) Assign over to them 

@Steve Vaughan also brings up a great point about the LOI. Contracts normally have a "life of offer" because they are binding. You have offered to buy something and if they sign here you guys are off to the races. You can't use that same money for anything else in case they do decide to sign. A LOI is nice if you are not in a hurry (and of course offering a nice low price). Let them shop around a bit trying to find something better. Let them sleep on it and ask friends/family. You as the person who wrote the offer can still shop for other things because it is a "lets talk letter". If you end up finding something else and spending the money you had earmarked for that... then so be it. It's the "slow hand of poker" in homebuying.

You might want to consider investing in some good quality training.  If you are marketing for sellers and once one calls, you don't know what to do with the caller, you are wasting your money sending out mailers.

Conversely, maybe find someone at your local REIA who will work with you on your first deal?

@Steve Vaughan I got you on the LOI. I have a template for something like that. It has exactly what you said, several different options for the seller to choose from, each giving them more money but taking away the "instant" payday and giving the investor more time and a lot more ROI and cashflow. I like that. I'll implement that thing when I get more seasoned. For now I just want to flip.

As far as lease options and such, I'll attempt that if a flip isn't possible and it'll be my last desperate fight for the life-raft...but only if it makes sense, of course.

@Brian Gibbons Do you really think seeing 100 properties is necessary? I mean, where does someone with a full time job find time to do that? Any suggestions? I ask seriously because I agree that us new guys need to walk properties, see what the market looks like and learn to recognize a deal when we see it but how does a guy with a full time (50 hour a week) job, an 18 month old baby and all the other stuff find time to walk 100 properties? On top of that, what are we looking for beside the type of property vs sales price (or sold price if we're walking a contracted property) and the area?

@Benjamin Barredo you either have

1. Time and no Money

2. Money and no Time

3. No Money and No Time

You say you have no money and no time, I would get a RE sales license and look up expired listings, then see the person and the house, no matter how busy you are.  See my BP Blog for learning about Terms Deals.  Look at offering sub2, wrap purchases or lease option assignments.

Wholesaling is another animal.  I would read @J Scott s books here

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