direct marketing for good-condition properties - good idea?

Question

I'm a newer investor and am considering using direct mail marketing for lead generation.  I'm trying to decide if this makes sense given the types of properties I'm looking for.  I would appreciate any insights you might have.

I'm looking to buy 1 or 2 buy and hold single family homes near where I live within the next 12 months.  The neighborhoods I'm interested in are desirable, well-established ones with good schools.  Average home price is about $200,000 which is upper mid-range for my city.  My assumption is there are probably fewer great deals in this area than in other lower priced areas.

I'm not looking for home run deals.  I would be ok buying 8-10% below market for a house in good condition.  That would give me $15,000-$20,000 additional equity.  If the house needs repairs I would lower my offer by that much.

My logic is that if a seller uses a broker, they would be paying 6% commission plus all the hassle of getting the house ready to show.   If I offer them 8-10% below market that is only 2-4% less than they would get going through a broker.

From what I've read, it seems most investors using direct mail marketing are looking for seriously distressed properties. So I'm wondering if anyone has had success using it for properties in good condition.

Here are my questions:

1) Does this strategy make sense or am I missing something?

2) Has anyone tried direct mail to target these types of sellers?  If so, what were the results?

3) If I try direct mail, should I do a blanket mailing to the neighborhoods I'm interested in or targeted mailing to absentee owners and landlords?  Or is there another approach you would take?

Thanks in advance for your insights.

Peter Brinton · Answer

@Ray Lai  Thanks for your great insights!  Very helpful.  I see the value in the dual potential of offering realtor services for properties in good condition and rehab/wholesale those that need work.  If I don't want to be the realtor myself I suppose I could make a referral arrangement with a realtor where I refer sellers with good condition properties to them and they pay me a referral fee?

Can you explain why you follow up on postcards that bounce?  I assume when you say bounce you mean get returned to sender.  Is that correct?  What is your thinking in following up on these?

Ray Lai · Answer

@Peter Brinton

Sure, both don't be stingy with imaginary internet points for good info that will save you time and money haha. You're always welcome.

When a postcard bounced, a newbie wholesaler will give up when it bounces. You have several options when a postcard bounces. You can skiptrace, use Intelius to draw out a family tree and contact their family members (time consuming but worth it if the house has been sitting), ask neighbors for their contact information, post a sign on the property "I WILL BUY YOU HOME" or any other way to contact to the homeowner.

The thing you have to balance is creativity versus reward/unit of time. If it's a property that's been abandoned for awhile with plenty of direct mail piled up, you SHOULD be creative because other non-creative people couldn't get the deal, doesn't mean you can't.

As @lloyd stanton would say - GO FULL STALKER MODE! lol

Are you considering a dual offering wholesaler/realtor? Your profile is blank so IDK what you're up to.

Ray Lai · Answer

@Peter Brinton

1) Your math is not conservative enough. You need to buy ~70% ARV to build in a profit margin if you want more exit strategies than just holding. Also, another part of your strategy that might be improved would be to get a real estate license. Typically when you're targeting homes in good areas, they are better served going through a realtor unless you do get lucky doing a driving for dollars and see some real beaters in the area. Basically your tool belt should be expanded. If a homeowner has a house in excellent condition they need to sell, you can be their agent. If they have a beater that needs work, then you can BRRRR it by doing the wholesaling process with a cash offer.

2) Direct mail works if you're not limited to only buying at super discounted prices on beater properties (wholesaling only). You should be able to market yourself as someone that can solve their problems and sell them home regardless of condition (realtor if it's pristine, wholesaler/rehabber if it needs work).

3) Depends on the size of the neighborhood. Direct mail to a whole neighborhood is inefficient, but if the neighborhood is small then it makes sense because you don't get the highest response rates and need a large target size.

My approach: Do direct mail on the houses that look absentee / beat up and buy a list of code violations/tax issues and target those first if it's a huge neighborhood. If it's a small neighborhood, I'd just blanket the neighborhood with 1 batch of postcards, then yellow-letters. I'd skip-trace the letters that bounced if it's a large neighborhood, or just door-knock the ones that bounce if it's a small neighborhood.

Make sure to track your response rates. If you need any more help, feel free to add me. There's a ton that I couldn't cover in one post.