Five Ways to Find Deals from MLS
At every single REIA meetup someone inevitably exclaims, “You can’t buy deals off of MLS anymore!” Considering our last four properties, and we have one under contract currently, were from MLS, I respectfully disagree. While there may not be as many deals as in 2008-2010, there are still plenty of deals on the MLS, you just need to know how to look! This article will cover five ways we are currently sourcing deals from the MLS.
Starting with the most obvious way to look is by Days on Market. Any property that is sitting for a long time, most likely has an eager Seller behind it. This is not always the case, however, the probability is more in your favor than a recently listed house. Taking that approach one step further by examining how many price drops a property has had while on market, is also a good indicator of the Seller’s eagerness. I am sure I don’t have to tell you that a property with multiple price drops over the course of a year on market is more likely to accept a low ball offer than a property with no price drops over the same duration. By looking at these two factors, you can easily identify several prospective properties that might be worth visiting, or re-visiting!
Another way to identify properties from MLS is to look for properties where you can repurpose a space. In other words, would the property value increase if it had another bathroom, bedroom, office, etc.? By taking existing space and converting it to provide the most value, you can easily go from a mediocre investment to a highly profitable one. In order to do this successfully, one must understand the buyer pool in the target area. For example, if it is a warm area with a very young population, perhaps an office would be more desirable than a garage. If you truly understand your buyer market, finding value in conversion (and not just thinking how do we make this an open floor plan) can prove to be very beneficial.
Similar to the example above, adding space is another great way to find properties from the MLS. When adding space, one must consider a few factors: 1) Cost/Benefit, and 2) Time. The cost/benefit factor is easy to determine, as you should already know the value you get per SF in that area. Therefore, if it costs $100/sf to build, and you are getting $200/sf on your sale, I think most people would agree this is a good idea to consider. The second factor is time, and one that cannot be overlooked. When adding square footage, you must obtain permits, and sometimes even go before a board to review for impervious ground coverage (see your local municipality’s regulations). The other “time” component to consider is that additions take time, and not only can you miss the prime time to sell the house, but the market overall could have changed during the same period. This is definitely more risky, but potentially more rewarding. To be honest, I don’t think this is the best time in the market cycle to be deploying this strategy; however, we have used this strategy in the past and it has proven to be very lucrative, thus the reason for its inclusion on this post.
The above examples are pretty common, however, I don’t know a lot of people doing the following method, which is looking for properties that are listed for rent. Yes, you read that correctly, I said, look for properties that are listed for rent. Why? The majority of properties listed for rent, were previously listed for sale! Since they didn’t sell, and the owner is desperate the owner listed the property for rent! Just one word of advise...if you thought getting a potential flip was time sensitive, getting an offer on a rental property before it gets rented can be even more time sensitive!
Ok, so before you go looking for properties for rent, here is the last strategy. The final method is definitely the hardest to do, but if done correctly can yield a huge profit! This method involves looking for the path of progression. Take two areas, one which is significantly higher than a bordering area, and see if there are any areas that you believe should be priced higher than it is currently. For example, if City A medium home price is $750,00, and the bordering city, City B, has a medium home price of $350,000, it is possible that houses on the border between these two cities might support a price point of $550,000 even if they are in City B. If you think this is impossible, know that what I just gave you was not an example, but a story of a property we did.
Hopefully one of these strategies assists you in the purchase of your next investment! Happy Hunting!