Great response to direct mailers, nothing is cash-flowing!

19 Replies

So I've sent out two rounds of direct mail totaling around 1,000 letters. I've got a 1% response rate. I've made 6 offers. All of those offers were below market value and only cash flowed $100 per door (all duplexes) and had a mere 3-4% cash on cash return. I'm using the BiggerPockets calculators. It appears all the duplexes sold on the MLS are not making sense as investments. How do I get these off-market sellers to sell to me when the market is on fire? I'm in New Hampshire on the seacoast. I only market to 2-4 unit properties.

Hi Mike,

consistency is key! Especially in a competitive market like this. I have done four off market deals, and two large Multi-family deals this year that will all exceed the 1% rule once stabilized. The key is finding and solving the problems but also being willing to say no and trust your Process. With that said, I would also look at your numbers, running a duplex for Example is not the same as running a 24 unit multi. This is my issue with rules of thumb. I would go back and look at what you are underwriting to. Might be a deal in there. 

I've only bought a handful of deals from my own marketing so take this advice cum grano salis but I believe it's a combination of volume and credibility:

Volume: Everyone's numbers are different but I seem to get 1 deal for every 40 sellers I speak to from my marketing. The majority of them aren't really motivated, some I lose to competition. 1,000 letters really isn't a high volume even when you're using a targeted list. With that response rate, I'd expect to get 1 deal every 4 months if things went perfectly so after 2 months I wouldn't be surprised to have not gotten anything yet. Considering increasing the amount of mailers or marketing channels.

Credibility: The way to get a homeowner to sell you a property for a discount in today's hot market is to solve their problem. They have to have some motivating factor in their life for it to make more sense for them to sell it to you, knowing they're likely leaving money on the table, instead of listing with an agent. Whatever that problem is: they need to close in 10 days, the house is such a wreck only an investor would buy it so why pay an agent, they inherited a hoarder house and don't know where to begin to deal with it, etc. You need to tell them how you'll solve their problem and more importantly convince them that you're able to do what you say. If they don't have a motivating factor, there probably won't be a deal there.

Another thing to consider: There are ways to optimize your costs to improve your offers: Use cash or cheaper financing. Use cheaper contractors or do some work yourself, etc. Examine everything constantly.

    @Mike Street

    Hey Mike

    Long time no see! Hope all is well with you. I have not found much(or anything) on MLS since the end of 2019 that hits my target COC return. I find that I continue to tell everyone what I am looking for and more people think of me when they find something. However I believe patience is key in today's market. The guy or gal with a pocket full of cash ready to deploy will capitalize at some point. This hit market won't last forever. If you ever want to talk RE let me know I'd love to grab a beer PState style! Best of luck man.

    @Jon K. thanks! I’ve been thinking I need one more “stressor” when I filter sellers with PropStream. Right now I’m doing 25% equity and absentee owner. The problem in my market is as soon as you filter for tax liens or code violations the list drops to literally less then 40 properties.

    Mike,

    I have about 140 units I own/operate across multiple markets, including the seacoast area, throughout NH. If you are only getting $100 per door on a duplex it is either that purchase price is too high like you suggested, or you may be running Open too high. For example, unless heaven deferred Maintenance, a duplex shouldn't be anywhere over 40% opex. 

    Mike

    So just to tease you a bit, you are asking "Why oh why won't anyone sell me their property for a fraction of what they can get by selling it on the open market in a weekend?"

    Which is sort of your answer. The current market is so wildly overheated that even the worst dog of a property can trigger a bidding war, with offers that come in over asking, over appraisal, and no contingencies. Shockingly, the owners that respond to postcards want to sell for prices that simply don't crunch as rentals.

    I can tell you that from the other side of those brightly-colored post cards (the one the I tossed out today was bright green), that property owners are being flooded with postcards from all over the country (green was an outfit in FLA). Out of curiosity I called a couple. They all seem to be just kind of desperately hoping that I'll be willing to sell at 2017 prices. Now you have to understand that every week my mailbox is full of over-colored, oversized post cards from local Realtors telling me how much my neighbor's houses have sold for in a matter of a few days. Why would I be willing to sell to some random guy in Florida at 70% of FMV, when I can get 110% by next week with a local Realtor?

    Be realistic,  be patient, and be creative. Think out of the normal boxes.  Possibly you can figure out unconventional terms that will fit the needs of some of potential sellers, such as being willing to do below-market rent-backs to owners.  

    You might also just have to sit out the market for a bit while until things cool off a bit. This market won't go on it's current trajectory forever (though whether it's a rerun of '06 or '71 remains to be seen). 

    My deals have been via networking or being in neighborhoods and getting leads from word of mouth or taking to people in target neighborhoods. 

    I just bought a condemned house for 12k. I have been trying to buy this house for over a year. I talked to the owners and the husband was holding out.  Code enforcement finally was pressured to get a tear down order after some anonymous calls. The owners called me as motivated sellers because they knew the house would be torn down soon.

    I bought it and gave them more time to get their junk out and they knew I would fix up the house instead of it being torn down.

    I solved problems for them.

    You have to be a problem solver and not just a guy trying to buy for pennies on the dollar. 

    Probate, divorce, jail, delinquent taxes, code violations, condemned, IRS tax liens etc is. Short list of where to find motivated sellers.

    Driving for dollars may be helpful in finding a distressed property that isn't on a purchased list yet.

    I am seeing this too. The prices are too high. You need to get them significantly under assessed value. Or have a significant amount of cash invested in the property so your debt service is low.

    @Mike Street yeah the MLS price usually has nothing on what happens once multiple offers are placed on the home so if the sellers you are contacting knows what's happening in the market...they are more than likely going to be aggressive with their price as well. My advice is to keep trying. Their has to be someone that needs to sell quickly.

    @Mike Street this is really simple and so far only 1 person touched on it (@Michael Ketchen ), but the short version is because your completely disconnected from reality in what your expecting. 

    Your stated direction is why won't anyone sell to YOU, for far FAR less than what they can sell that property at market for? Because they are not clueless morons, I would thought that is an obvious fact. 

    The entire problem in what your doing is your not solving any problems. So guess what, that day and age when people have limited information, limited resources, limited networks, the internet has ended that age. Anyone has the most expansive EASY access of information, resources and networks imaginable so those people are connecting with countless professionals all happy to help them get their FULL VALUE POTENTIAL and here you come, with a mailer, and than say "hey, this dosn't make me enough profit, you need to accept $50k less than what everyone else will pay you so I can make as much $ as I want". Just how connected to reality does that scenario sound? Exactly what list filtering will make that real? 

    It's your foundation that's manure. 

    You need to bring value to the table, and when you do that's when you will be rewarded with profit. Remove bringing value (ie problem solving) and your just a bottom feeding carp complaining there is nothing but trash and no caviar laying around waiting for you. 

    It isn't complicated, it's a business and if your business is not of value or service, yeah, it's not viable and dies as it should.