Over the years, I’ve utilized many strategies to get my hands on good rental properties. And some of them have been pretty bizarre.
For example, one strategy I had was for all of my tenants to be looking for deals for me, and I would incentivize them by taking $500 to $1,000 off of their rent.
The idea for this came to me one day when one of my tenants called me about the house next-door, which was inherited by two brothers after their parent had passed away, and neither of the brothers wanted the property. When they asked my tenant about buying the house, he said he would give them $18,000 for the house “as is.” The only problem was that he didn’t have any money, so he called me to see if I wanted the property.
I guess he liked me since I hired him a few times to install some carpet in the house he was renting from me. I asked him what he wanted for finding me the deal, and I laughed to myself inside when he said he’d be good with a case of Budweiser. This house ended up being worth $55,000 with only a little amount of work needed, and I was able to rent it out for $850 a month.
Although I’ll pay any of my tenants if they find a great deal for me, there’s something to be said for traditional methods of getting properties as well.
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Traditional Ways to Get Properties
You see, I have a “move in all directions at once” philosophy. I utilized any strategy I could think of, and my theory was that if I did that, something would pop up eventually, and it usually did. Naturally, I did some things that most folks shied away from.
For example, since I was a real estate agent, I literally sent out hundreds of Letters of Intent to other agents, especially for properties with a long amount of DOM (days on the market), estates (executors and administrators), nursing home situations, out of state owners, expired listings, dilapidated properties and even FSBOs (for sale by owners). I love “as is” properties, or in other words, the properties no one else wants.
Early in my real estate investing career, I made the common mistake of buying properties where there wasn’t a very motivated seller. I soon realized that you may get a better deal by buying a property that has problems from a seller who’s having some problems too. Then, it became my job to try to help solve the problem and create a win-win scenario for myself and the seller.
Some of the common situations for a motivated seller are divorce, repair problems, having two homes or mortgages, relocating for another job, medical issues, short sales and even foreclosures.
Obviously, special terms can work just as well as finding that special property. With the right terms, any property can be a deal. I love getting owner financing, or at least getting the seller to carry a second mortgage.
Owner financing is cheaper, as it doesn’t typically include any origination fees, processing fees, or points. Also, there are fewer lending requirements, making it less strict and less stressful. If the seller carries a second mortgage, oftentimes you can get this to cover the down-payment, closing cost, repairs, etc., so you’re purchasing the property with little or no money.
If the property didn’t need much work, I’d try for a lease-option. On the other hand, if it needs a lot of work, I’d want to take title, because who wants to fix up a house they don’t own?
If the property had some equity, I’d even try for a “subject- to” deal, which is essentially buying the property and taking title subject to paying the seller’s existing mortgage payments.
The perks of a “subject-to” deal are that you don’t have to qualify, it doesn’t report to your credit, and if they’ve been paying it for a while, you would be paying more principal than interest. You have fewer bank fees, and the seller doesn’t have to pay a realtor.
Even if it was a hot property and I really wanted it, sometimes cash was king. I used to love beating out the competition by making a cash offer with no inspections, even if I ended up coming to the settlement table with a mortgage. That always seems to blow everyone else’s mind.
Buying the Note
But if you really want a unique way to get the property, try buying the first mortgage. If the property is vacant and you buy the note, there’s a pretty good chance you’ll end up with the property.
For example, if the property is vacant, it will most likely be an uncontested foreclosure process, and you should be able to accelerate the timeline in some states. In the United States, the average cost of an uncontested foreclosure is roughly between $2,000 and $3,000.
Also, a buyer is typically purchasing a first lien as a percentage of BPO (Broker Price Opinion) value. Since a drive-by BPO isn’t as accurate as a full-blown appraisal, the local real estate investor may find opportunity in the discrepancies.
When you buy the note, in a way you are ahead of the courthouse list, the “I buy houses” folks, and any of the other investors trying to get the property.
Letting your tenants find properties for you, pursuing special terms, or even buying the note are just a few of the strategies I’ve seen over the years. The most unique strategies come from working with motivated sellers, and these can be some crazy scenarios.
I’d be interested to hear what some other BiggerPockets folks are doing.
What are some of the unique strategies you use to get a property?
Let me know with a comment!