If you can't beat 'em, join 'em?

Question

So I've been direct mail marketing for about a year now.  I've had pretty bad results, but this post isn't necessarily about that.

I've come to discover that for nearly all of my "decent" direct mail leads I'm getting outbid by the same company, consistently.  I'm analyzing all these leads as either a flip, or a BRRRR, so obviously I'm trying to add value.

Here's an example from an actual lead:

ARV of $290k

Estimated rehab of $70k

MY Offer price = $150k

So, I've found out that this other Central PA company always outbids me on these properties, close on the deal, then immediately list it on Craigslist/Zillow/FSBO marked up like crazy (without putting any work into it).

For the example above, they bought the example above for $175k and then listed it FSBO for $250k!!! They just put in the comments "needs a little TLC". I don't know who ends up buying these properties, but I'm assuming they are homeowners who don't care about making a profit or newbie investors who don't understand the numbers.

Has anybody else done this, or run into this type of situation? How can I compete against this? Or should I just start playing the exact same game?

I'm half-kidding about playing the same game - it seems like this strategy would only work in a market with tight inventory where buyers are willing to buy a property "needing a little TLC" but if the market turned it seems like they'd be stuck with a lot of properties and not a lot of equity (and not a lot of buyers).

Bob Woelfel · Answer

@Kyle M....every market is different, but yes I'm starting to see this in our market as well.  It has a lot to do with the market and how competitive it has gotten.  The reality is if investors can sell for higher to an end buyer, even without doing anything then they are going to do that.  When the market wasn't as good investors would sell to other investors who flip.  The wholesaler would make some money and there would be enough left on the bone for the end investor as well.   This obviously still happens today.  I think today there are obviously a lot of buyers who aren't afraid of doing some work/rehab especially if it allows them to buy a house or move to an area they want to be in.  I don't know anything about your market, but if there is a market of buyers for this then I don't see any reason why you couldn't do the same thing.  As long as you close and actually buy the property, you can really do whatever you want with it.

May Emery · Answer

@Kyle M. One key is to mail to DIFFERENT people than everyone else. Since the majority of investors are mailing to Absentee Owners, if you mail to them, you will be running into a lot of competition with companies with the deep pockets that can buy these properties regardes of the cost for fixing.

Think about working with a list broker who can suggest other segments of sellers who aren't getting multiple offers to buy their property every month. These might include Seniors with Long-Time Ownership or Owners with Low Financial Stability Scores (FSS).