How to Fail 90% of the Time and Still Be a Wildly Successful Real Estate Investor

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I think the prevailing question I received last week in response to advice in another one of my articles was, “How in the heck do I make 100 real estate offers a week?” and there were many off-shoot questions from there. I am going to try and write this so that it progresses from what you do as a beginner to what you do as an experienced investor.

Understand right off the bat that as a beginner, you are looking for one property. That is what you need to find in order to get started. Stop dreaming about 10 properties and 20 properties. Heck, stop thinking about two. Just remember that you need ONE property to get started. In order to find that one property, you have to make offers.

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Track Every Piece of Data

We started making offers on the MLS from day one, and we tracked everything. A simple spreadsheet was how we operated for years. We kept a record of every offer we made. We tracked the address, zip code, date of the offer, square footage, offer price, and offer price per square foot. The price per square foot is a common denominator that you can track for any property in any location and any given time period. It will be a constant that you can compare on many different levels.

When we would purchase one of those properties, we would create a second spreadsheet where we kept that data. We added the actual contract price, closing date, renovation cost, and renovation cost per square foot. We also started in very narrow areas. When you hear the terminology “farm area,” it is referring to the very specific and usually narrow area of town that you want to learn like the back of your hand. So our initial farm area was fairly small, and the data we were keeping was very helpful.

In a relatively small time period, we had dozens and then hundreds of offers to be able to look back on and track what price per square foot we were offering in an area. Then we could see what price pre square foot we were actually paying when we won a contract. In turn, we could see what price per square foot were we paying for renovations. The next progression was to add rental rates for each property since we were tracking management from early on.

You should be able to tell fairly quickly why this is important and how powerful a tool like this can be. We knew what price to pay for properties in those areas based on what the data told us. We had offers on properties that were rejected or sold to someone else. We could easily pull the wining price from public data and calculate what price per square foot a property eventually sold for. More importantly, we knew what prices per square foot we were paying on properties that we were getting. Then we knew what price we were paying per square foot on renovations and eventually even what price per square foot properties were renting for.

It did not matter then and it does not matter today if an investor is brand new or has years of experience. Simply tracking important data for your business is step #1 to really ramping up your business and growing into a well-oiled machine.

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Increasing the Number of Offers You Make

There are a lot of ways you can increase the number of leads you make, especially on MLS properties. We do two things to accomplish this. First, we develop relationships with the big listing agents or brokers. When I say “relationship,” do not read anything more into that. It means that they have to know who you are and that you are serious about buying property. Introduce yourself and ask how they routinely operate. Many will publish a list of all of their listings on a weekly, if not more regular, schedule. So they will publish every property they have and send them out by email to a list of potential buyers. You want to be on that list.

Related: How to Overcome Your Fear of Making Low (But Fair) Offers to Sellers

When the lists are published, one of the things we learned to do early on was to take each list, mark through the price on the houses we wanted to buy, and write in the price we would be willing to pay. We would then fax/scan/email that list of properties and our offers back over. In a matter of minutes, we could calculate our offer price based on the square footage of the property and then send that back over to the listing agent. This has two big advantages. One, we are not wasting our time or their time by sending in an individual offer on every property. Two, they are able to tell us very quickly which pricing may work, and they will always say at that point to send it over in an offer format with earnest money.

If the agent is listing 100 properties and sends that list out, we may only be interested in 15 of them. Instead of preparing 15 offers, we only send back his list with the prices we would pay on those 15 — thus making 15 offers — and then we wait for the agent to tell us where we’re close. How do we start? We simply ask the local real estate agent group for a list of their top performing agents and then a list broken down by those that specialize in foreclosure sales. Then we contact those particular agents and begin to inquire how we could buy their properties. From there, the conversation grows, relationships are developed, and we begin to offer on dozens of properties each week.

The second thing we do is to find an agent that really, really wants or needs to get some business going. We essentially hire the agent to make all of our offers for us. For us at this point, we were already growing and our “farm area” had grown into several different areas of the city. So we essentially found someone who could legally make all of our offers for us and paid them to sit at a desk all day and prepare offers. They would also get a piece of any commissions earned. This was actually a very lucrative setup for them. At the same time, we were letting listing agents actually represent us on the contract.

Why was that important? They were earning the listing, and then they were earning the sales commission.

Do you think they were motivated to let us make offers, even low offers, on their properties? Of course they were, and they were appreciative of the up-front manner that we operated in.

We were interested in making their life easier, but also in making sure we did not overpay. So even if an agent thought the offers were too low, they were willing to look at them and submit them. Some were even surprised when the seller accepted the offer. Either way, we figured out how to get those offers entered and accepted.

One quick point to note: I am not a real estate agent. I do not have my license. We simply searched for the right setup and opportunity, which included adding an agent to our team who was hungry and willing to earn our business.

Making More Offers in Today’s Environment

You will never hear me say that we had this master plan and followed each step and that is how we reached where we are today. It took good decision making mixed in with some luck for us to have the success we have had. It also took the right environment, and we recognize that our market helped us develop. All of these things have combined to develop our systems and processes.

Our reputation has helped us increase our offers by enabling us to make offers directly over the phone in some instances. Today, we have our own realty company, and our broker is the one who makes all of our offers. He spends a lot of time on the phone, on the streets, and can often be found in the offices of listing agents. He is armed with our reporting of years and years of data. He knows month to month the exact pricing we are paying for properties on certain streets in certain zip codes and has been given the green light by us to offer on properties in those areas at those rates. So on any given day, he may make a dozen offers while standing in the offices of a local listing agent.

We also have members of our team who look at 8-12 houses a day. In those cases, they are looking at houses where the listing agent has asked us to remove any inspection contingencies from our contracts. They want us to look at properties before offering.  We can thank hedge funds and bulk buyers for that request, but we are OK with it. We look at properties first and then offer on them. It does not change our strategy; it just means that we had to create a position on our team where we have an experienced rehab foreman looking at properties before we make offers.

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Cash Reserves and Proof of Funds

There is no sugar coating these two points. If you do not have funds and you do not have a partnership set up with someone who has funds, you are going to have a hard time trying to set up a system to make a lot of offers. You cannot fake this point, and if you do not have the ability to make offers in person or by submitting pricing along the lines of what I described above, then you are going to have be very cautious about how you make your offers.

You cannot fake proof of funds. Do NOT try to do this. You cannot fake having the dollars available to close the properties you put under contract. From the day we started, we have had the funds to close a lot of properties even when a lot meant a handful a month. Today, we operate on millions of dollars, and those funds are always available and proof of funding is easy to do. We also earned that right with the listing agents by never backing out of deals. When you build that kind of reputation, you will find that listing agents will accept your offers without proof of funds as long as the owner of the property does not require it. You will have earned their respect and therefore the ability to put those offers in.

Related: 8 Tips to Put Your Real Estate Offer in the Best Light — And Get it Accepted

From Big Concerns to Big Dollars

The other big concern from investors revolves around using all of their funds up quickly and still holding a pile of contracts that they accepted. Welcome to a quality wholesaler‘s dream — a pile of accepted offers, well below listing price and at or below the cost per square foot that most investors are buying in the same area. If the deal is good enough, you can always find a buyer! You may not make a killing, or you may make a ton of money for relatively little work. I’m not promising you will do either. But if you’re willing to put in a little effort, you can turn a pile of accepted offers into a great business.

I had lunch with an investor yesterday who told me a story of a property that he paid less than $50k for after it was listed for $110k. He wholesaled the property quickly to another investor for an incredibly good profit. How did he get it for below half price? He simply made the offer. Over a matter of minutes in negotiations, he had a property that no one else was bidding on because they thought it was overpriced and they did not want to embarrass themselves or the owner. That is the reality in this business. Those willing to work for it and who keep a positive and almost naive frame of mind can accomplish anything they want! It is when we convince ourselves that we know the answers without asking the questions that we get into trouble.

This one was a relatively long article, and I am sure there will be questions in the comments. I’ll be glad to answer them all. I will simply remind you here that the simplest way to making a lot of offers with confidence is to track everything you do from day one. You can learn a lot about tendencies, trends, and formulaic buying patterns that will make your life easier. You will not need the details that make so many of us feel all warm and fuzzy. You will have the most important metrics at your fingertips, and then you can let the odds help you turn those metrics into dollars.

[Editor’s note: We are republishing this post in order to help those who have joined BiggerPockets more recently make more offers and land more deals!]

Any questions about this process?

Be sure to leave your comments below!

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

39 Comments

  1. Chris-
    “Heck, stop thinking about two. Just remember that you need ONE property to get started.” I love it! Thanks for another great article. Can you share the number of active listings on your market on a good day?

    • Chris Clothier

      Hey Sharon – When I sit through masterminds with investors who are struggling, they seem to all be struggling with the same thing – they do not make enough offers. YOU simply are not going to be able to buy real estate on a consistent basis unless you figure out how to make offers or you make a conscious decision that you are going to pay too much.

      Thank you for your comments!

      Chris

  2. Thanks for an excellent article. I went to look at some houses today. The realtor chastised me and told me not to make low offers because she had lots of buyers paying higher prices! I believe with that attitude that I need to find someone a little more aggressive. Your article was very informative and I look forward to adopting some of your strategies.

  3. Tom Sylvester

    Excellent post Chris. I use a similar idea with tracking data/spreadsheets to understand market rents. Each week we would grab the local newspaper (which is where almost all landlords advertise their units) and enter information about each property (town/zip code, bed/bath, what’s included, rent, phone number/owner). This only takes a few minutes a week, but then provides a ton of data about who the most active landlords are, average rent prices in areas, etc. Because our units are better than 90% of the properties, we then price our rent slightly higher. We can then also use this as a marketing tool by calling those landlords to either network or see if they are interested in selling.

    It’s amazing what data can do for your business, and at a low cost with a little bit of work.

    • Chris Clothier

      Hey Tom –

      You illustrate a great point about data. The unfortunate part is that too few investors understand that data is everywhere – it is literally all around us every day and our most important job is figuring out what to track and how to use that info to better your business.

      You have obviously figured that out!

      Thanks for the comments – Chris

  4. Good article Chris! Like Brandon said, I like seeing how others do things and maybe apply some of the ideas to my own business model. I’m definitely not at your level, but our company makes about 20-30 offers a month, and we’ve been getting about 15-25% response rate. We are very targeted, pre-foreclosures that have been pre-qualified where we know about 80-90% what is going on with their property, any liens, taxes due, etc. So if we get a call from one of our touches, we have the information and know already we can pretty much help them unless there was a missing piece of the puzzle with didn’t know about, but that’s where the sit down “tell me your story” comes into play.
    It’s a numbers game all the way around. And as you do it more, you will find ways to streamline, make it happen faster and more consistently. And if you don’t then you’ll be finding out that the JOB is still waiting for you to come earn that paycheck. (Shudders)

        • Chris Clothier

          That is one of Kent’s first products that was not modeled after a Memphis Invest process, but we have had great success using it. I have used different lists, but I will tell you that however they are compiling all of that data, it spits out about as good a list of motivated sellers as you could come up with. Not all 100%, but I don’t feel like I am wasting my money chasing rabbits either.

          Be sure and reach out if you have any questions. – Chris

  5. Chris,
    Very inspiring two part article. 🙂 I’m a beginning investor; it’s very insightful seeing the processes successful investors have in place and how applicable they are regardless of your level.

    Thanks for sharing!

    • Chris Clothier

      Hi Allan –

      Many of the things in this article are simple steps that are performed at a higher level or with more actions as an investor wants to do more business. So I am glad that you recognize these are simply processes that any investor, regardless of size or activity, can follow and be successful.

      Chris

  6. Hi Chris,

    Thanks for the great article!

    “It is when we convince ourselves that we know the answers without asking the questions that we get into trouble.”

    Quite of the century right there. I have been so guilty of this on many occasions.

    Regards,
    Dmitri

      • Chris Clothier

        Hey Adam –

        That was a while ago, but i can tell you pretty accurately that we were looking in 7-10 block square areas and we focused on 2-3 to start with. They were big areas but small enough to be able to drive through daily checking on houses, making notes on new happenings and just learning every detail we could about the area.

  7. Alejandro Casablanca on

    Chris,

    This the best second part of an article that I have ever read. The market is getting hotter every month (especially in Florida) and the more offers you can write the higher the probability of getting at least 1/10 accepted. I’m also using one agent to write all of our offers and it’s been proven a good strategy. I am also using the price per square feet benchmark to categorize how far we can go in certain areas. I’m still very far from being able to write 100 offers per week but I hope to be there some day.

    I was looking into your website the other day and I noticed that you guys have properties in Texas. I would like to know more about the Texas market, especially cities like Houston, Austin, Forth Worth, and any other city that might provide good investment return in a more stable market than Florida. I am considering going there soon for some kind of market exploration, thus probably I could be in contact with you guys to get some feedback.

    • Chris Clothier

      Alejandro –

      Those are some great comments (and the compliment to my 2nd part article!). We are in Dallas and are stating to ramp up in Houston as well. I’d be happy to share any data with you on the markets and why we like the market so much. Also, feel free to contact us if you are going to be investigating markets down there and we’d be happy to meet with you and help if we can.

      As for your ratios of offers to contracts, just make sure you track. The real key to all of this is tracking important metrics like price per square foot and which offers you win AS WELL as which ones you lose. You can glean a ton of great information if you track data and really improve your business.

      Chris

      • Alejandro Casablanca on

        Chris,

        Thank you very much for your readiness to help, I really appreciate that. Actually, I am thinking going to Texas sometime in January 2014, once I have the specific dates I will let you know since I will definitely like to meet you or someone of your team there.

        Regards
        Alejandro

  8. Thanks for another article Chris,

    In the last one we seen an agent chime in that had been tracking MLS sales and offers accepted on a regular basis. The result is hardly any in the .3-.5 list range making this effort a waste of time. I’d assume here that you specific data could be misleading based on the premise of your business model that being ‘people are too embarrassed to make low ball offers’ which sounds farfetched to me. When it comes to people saving money I have a hard time believing embarrassment is a factor.

    It stands to reason this model may have a better success rate in a buyer’s market, in areas where sales are slow. As far as building a future with this model I am still struggling with the premise that people are, or will remain to be, too embarrassed to make offers and the competition in most areas of the country is higher than yours. Perhaps you just happen to be in an area where this model works which is not the national norm? Also, after all fees are paid what is your average ROI?

    Seems for one to get started and determine if this model will work and where their ‘farm area’ is, getting a license and access to the MLS is the first step. It shouldn’t take long to put a bunch of low ball strategic offers in (based on existing MLS data) and see if your success rate is too low for time and money spent, an ROI, and continue to monitor it. I’d imagine price point offers accepted has a lot of variables.

    • Chris Clothier

      Hi Terry –

      I really appreciate that you read both articles and the comments and took the time to leave your own. I want to make sure that one very important point is not missed. Investors have to remain inquisitive if they want to be successful. It is what leads us to make a lot of offers on properties. As soon as we think we understand something or have some knowledge which tells us what a seller (or even buyer for that matter) is going to do before they do it, then we are going backwards. I have worked with hundreds if not thousands of investors at that point – some looking for advice, others just wanting to have conversation. And I can say without a doubt that FEAR is the leading reason why most never get past the ‘Go’ square. Fear of rejection, fear of embarrassing themselves, fear of actually winning a deal and not knowing what to do next. All of the fear comes from thinking we know more than we do and deciding before we ever put in an offer that we already know the outcome.

      My advice for someone getting started is to forget about getting your license, forget about monitoring your ROI for time and money spent and start making offers. IF you are at the point where you are ready to get started and find yourself creating next steps to be absolutely, positively, 100% positive that you are ready…then stop creating steps and start making offers. If you never get started then who cares what your ROI is – you’ve spent whatever amount of time and money to do nothing. (When I say YOU I am speaking about any investor not you, Terry).

      As for the MLS and differing markets around the country. I don’t have any data to prove it, but I know investors in every corner of the country and all the little areas in between and using a numbers based approach on making offers in the MLS works. I am doing today in three different markets in two states. I did it when i was buying and selling in Denver, CO. I did it when buying and selling in south florida. I know there will always be examples of markets where there simply are not enough houses listed in the MLS – but, the fact remains that the MLS is where a vast majority of sales occur and if you ignore it, then you reduce the number of opportunities available to you as an investor.

      Again, thanks for your comments.

      Chris

  9. Great article Chris.
    So many people will ignore the MLS since they don’t see a “deal” at the asking price and can’t fathom offering low enough to make it a deal.
    While you aren’t going to get tons of people saying yes some will and it is worth getting out there any making the offers.
    I have gotten most of my better deals off of MLS and usually pay in the 55-65% of the current list price.
    Of course I WISH I had a 10% success rate, but who cares as long as you get enough of them!

    I didn’t buy as many properties as I had hope this year and not nearly as many as I did in 2012. Looking at YTD numbers I have made over 1,000 less offers this year.
    Hmmm… Wonder why I bought less properties????

  10. Chris, yes a really good article and really made me think. I was wondering where I would go to learn to analyze mls data and figure out what properties to make offers on??? Is there anyone that, in your opinion, does a good job of teaching how to do this????? I would really appreciate your advice.

  11. Simon Elwardany

    I truly appreciate all the information that has been given in this article and all the comments that all of you leave. I have been investing in RE for about a year now and I have done a tan of reading and webinars to learn as much as I can about how to get started. I only have two rentals so far but I really want to pull the trigger on a flipping. My biggest problem so far has been finding someone to fund my deals since I am a newbie, not one would offer to help in that regard. What would be your guys advice to get started?? I am really eager and I have most of the tools I need to get going.

    Thanks in advance,

    Simon Elwardany
    Investor out of Southern california

  12. Chris,

    I like your system of tracking offers etc….this organized approach to business would be very useful.

    I don’t like to hear you suggesting that we start a profiteering business. Throw a hundred super low bids out there and hope to catch 10 people so desperate that they cannot afford to say ‘no’ to an unreasonably low offer. That is a cruel way to make a living.

    You tell a story about an investor who bought a property for less that $50k when the property was listed for $110k. I have to believe that your investor friend is nothing more than a shark feeding off of people who are too vulnerable to tell him where to go with his offer. There are people like this investor who have no conscience and enjoy stepping on the backs of unfortunate people to get a leg up. This is nothing to be proud of. We are all trying to get ahead and people that prey on the weak are sad human beings.

    I would have approached the owner with a deal that would have me rehab the building for a fee. Register the deal on title for my protection and do the work. That way I get business, the trades get work and the downtrodden owner can get a better deal on their property. (maybe keeping them out of the poor house and off the public payroll) Good for everyone.

    Personally, I prefer to make money by providing a fair deal for everyone. We’ve all heard of the win-win scenario. That way, nobody gets hurt and we can all sleep at night. I make enough on every deal to make a very good living and I am proud to say I don’t kick people who are down to make more. Hard work is more honorable than profiteering.

    Is there no room for ethics in business anymore?

    How would you feel if someone took advantage of a person you love?

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