So many people are paying more for investment houses, whether for house flipping, renting or anything else, than they have to. In this post, I’m going to discuss how I beat the competition and get better deals. These are strategies that I am actively using in my own house flipping business.
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Avoid the Competition – Target Motivated Sellers
The first way to beat the competition is to avoid the competition as much as possible. This is exactly why I target motivated sellers instead of chasing listed properties. This isn’t to say that great deals can’t be had when dealing with houses listed by Realtors, it’s just that you are likely to face more competition and will have a harder time getting a better deal.
There was a time when REO agents were calling me with great house deals that they were listing for banks. REO’s are bank-owned properties that can usually be bought at a discount.
When the housing market plunged back around 2008 a lot of investors decided to sit it out for a while. Whether this was voluntary or not depended on whether they needed to do deals or not from a financial perspective. A lot of the investors that had the ability to ride it out without doing deals did so. I could not believe it when the investors that I looked up to were suggesting that I do the same.
Why not just change my buying criteria?
Instead of buying at 70% of after repaired value, less the cost of repairs, I could buy at 60% or less (minus the cost of repairs). The investors that blindly just kept doing what they had been doing and paying what they were paying quickly found out that losing money or making too little money just wasn’t worth it. These guys dropped out.
So now the experienced guys and the big group of newer investors that were paying too much to begin with, were not buying houses. There wasn’t much competition and times were great.
The Realtors needed somebody they could count on to close these deals and there weren’t a whole lot of us around that were capable of doing volume. It wasn’t very difficult to get great deals at prices that still worked in the slow market.
Times have changed.
Fast forward a couple years and everybody is back in the game. Now that people have realized the sky wasn’t actually falling, they are back offering crazy prices for houses that we used to buy dirt cheap.
The calls stopped coming in from our favorite Realtors. We were no longer in favor because we offered too low. They had people willing to pay way more than we would ever imagine paying.
I got sick and tired of going out and looking at 8-12 houses in a day and submitting offers right away, only to be told that there were multiple offers and to submit our highest and best. These all on properties that were just listed that day or the day before. (Note: you can still find some good deals on houses that have been listed for a while. The new ones that are listed at great prices get much more attention.)
There are always motivated sellers.
Though we never quit marketing to motivated sellers, it was time to switch back to focusing on them 100%.
I am constantly amazed these days when investors act surprised that I buy most of my houses directly from homeowners. It’s like they didn’t know it was possible or just haven’t heard much about going that route. When I got started flipping houses about 10 years ago, it’s what everybody was doing.
Maybe some of them just decide to go the route of buying listed properties because they don’t want to deal with sellers. Buying from a bank is one thing. Buying from someone that is crying and stressed out because they are facing foreclosure is another. But, I’ve found that this is not really the case. Most of the people we buy from are extremely happy with the transaction. Foreclosure is not the only reason why people sell cheap.
Some of my favorite ways to market to motivated sellers:
- Direct mail – Mailing direct mail letters to people is also a great way to find good deals. Great people to mail to are absentee owners, owners of vacant and run down houses, people that owe property taxes, properties in probate, and just anybody that is facing a situation where they would likely be motivated to sell a house at a discount.
- Website – I generate most of my leads from my website. This is a great way to market because I don’t have to put out signs or mail letters for these leads.
Schedule An Appointment Right Away
When motivated sellers call you about a house they want to sell, it’s best to set up an appointment to see the house during that initial phone call. The reason is that it makes it more likely that they will feel that they’ve accomplished what they set out to do and may not call that many more people.
If you are able to determine that there is no possible way a deal can be made (due to not enough equity or other reason), then don’t set the appointment. If you are unsure, set the appointment and do the research immediately after getting off the phone. If there is potential, go ahead and meet the seller as scheduled. If, after research, you determine a deal is not possible, call up the seller and tell them that there is just not enough equity to meet your investment criteria and cancel your appointment.
In my experience, the typical seller usually only has about three people make offers on their house. If you schedule an appointment right away, you will become one of those few people. If you wait and decide to schedule one later, you will likely be competing with more investors as the seller may have continued calling around until they had three scheduled appointments.
This isn’t to say that all motivated sellers do this. Some will call and schedule 10 appointments. Some will call until they have a single appointment. Don’t you want to be that single appointment?
On the appointments where they have a few investors, some of them may not even make an offer. Which brings me to the next point.
Always Try To Make An Offer During the First Visit
This may not be something you are capable at first, but something you should try to get to as quickly as possible. Some sellers are willing to take the first offer that sounds reasonable to them.
I’ve had sellers actually call and cancel all the other appointments after I made an offer they liked. They didn’t even want to see what the others would offer!
To do this:
- Do your research before arriving to see the house.
- Run your comps and determine your after repair value, if you are going to flip it.
- Drive the best comps before going to the prospect house and verify that they are comparable.
- While at the house, you will need to determine the cost of repairs required to make the house sellable.
- Calculate your maximum allowable offer (usually After Repaired Value * 70% minus repairs).
- Offer less than your maximum allowable offer and put it in writing if possible (even if just a simple note on a piece of paper).
Sometimes they just feel that they only want to work with me and don’t even bother with the other appointments they were going to make. Which brings me to my final point.
Really Connecting With The Seller Goes A Very Long Way
This final point is huge. People want to sell to who they feel comfortable with. It’s just the way people are.
I’ve bought a lot of houses where I offered less than someone else and the seller still chose to sell to me. Many have even told me that they just didn’t like or trust the other investors that made offers.
The best way to connect with them is to shut your trap and really listen to them. Let them tell you everything about how they ended up in a situation where they had a house that they wanted or needed to sell quickly. Ask simple open-ended questions to get them to share with you.
When they talk about something that you can relate to, let them know that you can relate. You have to be real. Don’t do this unless you can do it in a natural way. If it feels wrong and you feel like you are being fake, they will also feel your phoniness.
Don’t be ‘that’ guy.
My approach is always to be personable over corporate. You can be professional and still be personable. I don’t think people like when someone comes in acting like they are the best thing since sliced bread and how lucky they are to even be in their presence. This happens with all the talk about how awesome you or your company is. They don’t really care most of the time.
Don’t tear the house apart.
Never go in and tear a place apart as you look it over. They know the house needs a lot of repairs. You pointing out every water stain on the ceiling and talking about how structurally unsound the house must be because of it is not going to help your chances. Many sellers are pretty embarrassed about the state of things and can be put at ease simply by stating things like, “this house has a lot of potential” or, “this is what I would do here”. You get the idea.
These are the ways that I consistently am able to beat the competition and buy houses at a deep discount. Sellers are happy to work with me and sell me their house.
I’d love to hear your tactics on beating your competition. If you are wiling to share, please do so in the comments below. Thanks.