This Simple Advice From Warren Buffet Guides Me to Deals No One Else is Finding

by | BiggerPockets.com

When it comes to real estate investing, most of us find ourselves in a love/hate relationship. If you’ve experienced the power that a good deal can have on your financial life, you’ve likely come to love the feeling of buying a new property. If you’ve experienced the frustration, rejection, and lost time that can occur when looking for your next deal, you’ve likely come to hate the process.

I too have experienced these highs and lows, and after eight years of investing in real estate, I’d like to share one of the most powerful pieces of advice that have helped me stay positive and motivated (and successful) when others have given up or thrown in the towel.

One of the greatest investors of all time, Warren Buffet, is credited with the quote:

“[Be] fearful when others are greedy and greedy when others are fearful.”

I have come to absolutely love this logic, and I’ve found myself following it in almost every area of my life. I’ll admit, when I first heard it, it seemed counterintuitive. Following the crowd feels like a safer bet. As we’ve all heard, “there is safety in numbers.”

The problem with this line of thinking is that “safety” won’t always lead to success. When investing, safety is meant to keep you from losing money, not to help you make it.

If you ask around, you’ll find that most new investors are seeking out how to find deals. It’s the number one question I’m asked here on BiggerPockets. When I ask these investors what they are doing to find deals, their answers are almost always the same. They are looking for something on the MLS or buying lists from various vendors of owners who are likely to be in distress.

I also use these two methods to find homes. In fact, I have never once bought a property I myself found off market. The majority of homes I’ve bought have been located with the help of a real estate agent. I’m using the exact process others are trying, and I’m having success with it while they are failing.

Why is that? What is my big secret when it comes to finding deals that others miss?

It’s actually really simple. I’m following Buffet’s model and looking for homes other investors aren’t. That’s it.

I’ve narrowed my overall strategy down into three specific topics that I’ve developed from Buffet’s advice. By zigging when others zag, I’ve found ways to find deals when everyone else is saying there are none (and I’ve never spent a dime on direct mail, SEO, or any other kind of personally funded marketing).

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The Properties I Target

When I ask others to show me what houses they are evaluating to write offers on, one thing jumps out at me right away as something very different from the houses I write offers on—the pictures of the houses look really nice! Most new investors are intimidated by a significant rehab project and want to find something that needs minimal work.

The problem is they are looking for a significant discount and writing offers well below market value for the property. Minimal work plus a significant discount is a very tough strategy to find long term success with. The problem with looking for properties that don’t need much work is that everyone else is looking for them too.

When you look at homes the masses are also looking at, you’re not doing anything different than the group. When several other people are willing to pay more for a property than you are, you don’t have a right to complain that there are “no good deals.” The sellers of the properties want top dollar for their properties. When you go to sell, you will too! If you’re looking at properties that look nice online and don’t have any major problems, you’re thinking like a consumer, not an investor.

As a real estate agent representing clients in the hot San Francisco Bay area market, it is very challenging to find my buyers anything they can close on. There are so few homes and so many buyers that everything that shows even decently well is selling immediately for over asking price and with significant offers (and when I say over asking price, I mean $50k, $60k, or $70k over!).

When I first meet with my buyer clients, I’ve learned that we need to have an expectation talk. This is the part where they convey their expectations, and I let them know what is realistic to expect. Every inexperienced buyer wants a move-in ready house for below market value. If I were to allow them to maintain those same expectations, they would become extremely discouraged after writing offers 50 times in a row on houses they were constantly outbid on.

As their agent, it’s my job to help them come up with a strategy to get a house in a market where they are facing an uphill battle. This often means targeting homes other buyers are overlooking, then fixing them up to make them the kind of home my clients would be happy living with. Of course, this isn’t anybody’s first option. But in a market like this, you have to play the hand you’re dealt. My clients who see the value in this end up getting a home, letting me help them fix it up, and are super excited when the process is over. The ones who don’t take my advice make effort after effort until they give up.

Related: What Warren Buffett Just Told Me About Real Estate is Great News for Investors

Now, if a client buying a house to live in can take my advice and look for homes that no one else is, what excuse does an investor have not to?

Simply put, when you’re looking to pay under market value for something, you need to be looking for something with hidden value others aren’t seeing. You will more often than not need to be targeting houses with issues.

  • Ugly houses
  • Smelly houses
  • Ugly, smelly houses
  • Houses with roof issues
  • Houses with mildew or mold
  • Houses with outdated appliances, nasty wall paper, or walls in places they shouldn’t be
  • Houses that would not be eligible for an offer that requires a loan
  • Houses that need a bedroom or bathroom added

Nobody wants to take on these projects—but taking on these projects is the way you’re able to pay under market value. If you want to find good deals, pay under market value, and build wealth, you need to be greedy when others are fearful.

Others are fearful of houses that need work or don’t look nice in the pictures. Learn to solve those problems (often by hiring someone else, like a contractor), and you will be well on your way to putting deal after deal together.

rehab-exit-strategy

The Markets I Target

As I mentioned earlier, the market where I live is red hot, and there are people fighting hand over fist to get their offers accepted. A huge lack of inventory and a booming economy have created a strong seller’s market. Now, this isn’t to say you can’t find a deal in the San Francisco Bay area. As in any other market, there are deals to be found.

But is it really the best use of my time looking for deals in the same place everyone else is?

Investors are a different breed. If we are looking to buy homes in the same market where everyone else is looking to buy a house, what makes us any different than the person willing to spend top dollar for a home they want to live in?

I understand that so many people are afraid to buy houses “not in their own backyard.” I hear this so much. Investors are afraid they will be taken advantage of, swindled, or forced to hope the deal they are buying is a good deal because they don’t understand the market anywhere else.

Well, I’m here to say that if you’re relying only on your own expertise to buy properties, you’re not doing it right.

You are one person. You have only so much time to learn, and there is a lot to learn. If you aren’t leveraging other people’s experience, wisdom, and expertise, that might be one of the reasons you aren’t having the success you want.

Who is out there looking for deals for you right now? Who is doing the research, digging, and due diligence to bring you the information you need to feel comfortable buying your next property? If the only answer you have is yourself, how can you expect to reach your potential?

I buy houses in other states—several other states, in fact—and I have deal finders in those states actively looking for me, including real estate agents, wholesalers, newbie investors, and more. There are lots of different people who would benefit from me buying my next place. I leverage those people to my advantage, and when they find me a deal, I tell them what information I need in order to feel comfortable buying it.

There are too many details to list here, but the point is, if you feel like you don’t know the school districts, crime rate, property tax, zoning, or economic indicators well enough to buy in another market, have someone get that information for you! We live in the information age. There is information everywhere for you to access if you really want to. The agents who bring me deals are more than happy to look up whatever information I need to feel comfortable buying in their market. Wouldn’t you be happy to do so if it meant you got paid?

Within five minutes, I can find out what the rent will be, what my tenant base will be, what the rental demand is, and what the ARV is. Within 48 hours, I can have a bid from my contractor for the entire job. Within an hour of receiving this information, I can have my agent write up a contract and electronically sign it. Once under contract, I typically have 7-10 days to have the house professionally inspected so I can make an educated decision on if I want to buy it.

We are not in the dark ages. I’m not “hoping” a property in another state will work out. I’m researching, putting people in place to give me the information I need, and making an educated decision on what I want to do, exactly as if the property is in my own neighborhood.

Now, how does this give me a competitive advantage? Others are fearful to go into the markets I’m not. I live in a red hot market, but that doesn’t mean I need to be investing in one. I go places where others aren’t to find deals others aren’t. I run away from the pack, the crowd, and the competition, and I look for markets other investors aren’t thinking about.

Do you think that might make it easier for me to find deals, when I’m one of the only people looking and the masses are all busy following the latest market report telling them where prices are rising?

Related: The 3 Types of Asset Classes (& Why Investors Like Warren Buffett Don’t Put Their Money in Just One)

You should be looking for houses others are missing. You should also be looking in markets others are missing.

The People I Target

Most investors are told they need to find an investor-friendly agent. This is true. An investor-friendly agent will do a lot of your work for you and make the process easier.

Unfortunately, if they are good, a whole bunch of other investors will also be using them.

Do you really want to be the fifth guy to look at a deal that four others have passed on? I sure don’t.

I want to be number one.

In order to be number one, I have to target the people that others are overlooking. This goes for more than just agents.

  • I want a contractor/handyman who isn’t booked up from other investors’ projects.
  • I want a lender able to actually return my calls.
  • I want a property manager who doesn’t have a portfolio so large that they can’t even tell me when I have a vacancy because they are too busy.
  • I want a handyman/repair guy who can go immediately when something significant breaks.

In short, I don’t want to find the guy that everyone else has already found. He may have glowing reviews and therefore feel “safe,” but that means he’s much more likely to have a really long wait before he can help me.

I want the guy who is talented, dependable, and hungry for more of my business.

Now, I’m sure we would all love these guys, but how do you find them? Well, they are out there, and my guess is you don’t spend much time looking for them in the first place. We all love to look for houses, but we don’t love to look for people.

The wise investors have learned it’s the people who help find them deals.

When I am looking for a real estate agent to help me find deals, I understand they may be new, inexperienced, and unfamiliar with what I need. I am going to need to take some time to train them to help me.

I would encourage you to do the same. Quit thinking your agent is a waiter who is supposed to bring your deal right to your table where you can dig in. You need to train them on what you want, how to deliver it to you, and maybe even where to find it. If you’re willing to put this time in, you may end up with some top-notch talent you have all to yourself.

overcome-fear

Find the Unbeaten Path

I understand that looking for houses in markets you don’t live in isn’t the easiest road to take. It can feel uncomfortable and challenging in new ways.

But how is that different than the actual houses we buy as investors?

Investors make their money because they buy houses others don’t want and solve problems others can’t. If you extend this same principle to the rest of your business, you’ll see there are lots of ways you can start finding deals where others are missing them.

Not all markets are created equal. Some are great for income producing rentals, some are great for house flips, and others are pretty much only good for home buyers who want to find their primary residence. If you are looking in the same markets my clients are, do you think you’re statistically likely to find a great deal?

You’re on BiggerPockets because you’ve realized the power that real estate investing has, and you want to tap into that power. That alone makes you different than the masses.

If you’ve already bought a rental property or just saved up the money to buy one, that makes you different than the masses too.

If you are willing to read through this entire article just to learn something that would make it more likely for you to find your next deal, that makes you even more different than the masses.

If you’re already different than the masses, why don’t you just embrace it and go all in?

  • Stop looking for deals in houses that everyone else wants.
  • Stop looking in markets where everyone else is looking.
  • Stop looking for talented people where everyone else is looking.

When you carve your own path, you’re much more likely to find success than when you’re following a trail of people all looking for the same thing. Being different is what brings you opportunity. It’s what allows you to build wealth while others are falling into debt. It’s what allows you to create a positive stream of cash flow while the rest of the world becomes slaves to their jobs.

Warren Buffet figured this out with equity investing, and the advice rings true for real estate investing as well.

Zig when others zag, and you’ll find the process to be much more rewarding!

How do you go against the grain and see what others might be blind to?

Let’s discuss below!

About Author

David Greene

David is a real estate investor/agent/author/entrepreneur/police officer in the CA SF Bay Area. David's goal is to achieve total financial independence through real estate and to help as many others do so as possible. When not hunting bad guys, he hunts deals and loves talking real estate. To learn more about David, visit his website where you can also sign into his free investor's newsletter and follow along as he walks you through his deals and shares his latest projects.

31 Comments

  1. Bill Neves

    Thanks for the article.

    I took Warren Buffett’s advice (Clayton Homes and 21st Mortgage) a step farther and have only done mobile homes as investments for the past 4 years. Watch other investors fighting over all those rehab deal bones and go a different way.

  2. Christopher Smith

    I have a Buffet experience that just a little different than those above. I bought several properties in the far East Bay during the 2010 to 2013 time frame. Prices were totally crushed, some properties were selling for 35 to 40 percent of the previous highs, and these were nice newer homes in wonderful neighborhoods.

    Now you might think there were buyers everywhere with such deals, but that was not the case. It was the height of the financial crises and everyone was totally paralyzed with fear, plus banks weren’t lending so cash was king. I can’t even begin to recall all the folks who thought I was the Village idiot for buying en masse when the entire financial system looked as if it might crash and burn.

    Ironically, many of those same folks are now standing in line to buy at prices more than double what I paid.

    Once the East Bay prices started to get totally out of sight I started buying in the Midwest and have had great luck there as well. What’s that old saying “fortune favors the bold”.

    • David Greene

      You’re story is very similar to mine! I hear so many people saying they are waiting for the next crash to buy. Watch and see, when the crash happens, they won’t be buying at all because everyone will be saying to wait, or real estate is a terrible investment, or the next depression is coming, etc.

  3. Christopher Smith

    I have my own Buffet story (or two). I started buying properties in the Far East Bay in 2010/11. It was the very depth of the financial crises and nice newer homes in great neighborhoods were selling for 35 cents on the dollar from their 2007/8 heights.

    You would think there would be a blue light sale rush to buy, but not so. People were absolutely paralyzed by fear thinking the entire financial systems was about to implode. I can’t count the number of folks who thought I was the proverbial Village idiot for buying while prices were crashing. Ironically some of those same people are standing in line now to purchase for better than double what I paid back then.

    Once the East Bay prices went totally out of sight price wise I started buying in the mid west and got some really solid deals there as well. I built a solid team in that distant locale so I could buy with confidence on an ongoing basis and picked up a couple of properties there just a year ago despite rapidly rising prices.

  4. Cindy Larsen

    David,

    Thanks for the inspiring article. great advice. i especially liked your advice aboit finding people. I have done that with contractors and handymen: it really helps if you know how to do the work that you are paying someone for, both because it is easier to evaluate the people’s skillset, and because they are less likely to try to charge inflated costs for the work. HOw domImgo about finding an investor friendly real estate agent? I am about to put a property on the market, in the hills just outside of Prunedale, CA that has a 1 bedroom/1 bath cottage (currently renting below market at $1330/month) as well as a 3bed/2 bath house. I need both a real estate agent who knows how to market this property, and an appraiser that understands small multifamily and can give me an accurate appraisal. Any clue how to find these people in the next couple of weeks?
    Thanks,
    CJ

  5. Brian H.

    David,

    I really loved this post. It is exactly where my head was at when I first started entertaining the idea of REI. The issue is that most any property I find that seems like something no one else wants and would be a good house to fix up for rentals or to flip always seems like it is just in a generally undesireable area. The potential tenants in that area would likely not get through my screening process and in terms of flipping, I’m not sure it would sell well because of the location. I have been pretty frustrated by this because I’m not sure how to approach this. The investors in my area all seem to go for the houses that are already nice and ready to go… so it’s hard to find anyone to lean on for advice as a new investor when it comes to this!!

    • David Greene

      Hey Brian,

      My advice to you would be to look for a market that you are more likely to find a house that will work for you rather than frustrating yourself looking for homes where nothing works. That’s what I’ve done and it worked great.

      Don’t follow the pack.

  6. Mary White

    Thanks for the great article. We closed on a moldy 4-plex in an awesome location on Monday. Where others saw mold and hassle, we saw that 3 units are almost rental ready (cosmetic repairs only). We are using a local hardware store for the cosmetic repairs (plus carpet and new windows) and I have a very good friend who’s husband has been in construction management for a long time. He happens to be on the Dave Ramsey plan and is looking for some side work. I now have a very experienced licensed contractor to work with my husband and I to renovate the moldy unit. In working with him, we’ll add to our knowledge base and get the job done. In my location there are tons of flippers and tons of turn key buy and hold investors. There are very few fix and hold investors. This article is right in my wheelhouse. When I think I’m sure about the path to take, I flip it on its head and evaluate a completely different direction. We walked away from a nice turn-key property that everyone wants to buy this place instead. They’ll be worth the same amount when we’re done ($325,000) but we bought ours for $116,500 while others are currently fighting over the other one. It’ll likely get bid up because it’s very attractive! Cheers!

  7. Nobody is fearful right now. That is the key point you neglected to mention. There is a time to buy and a time to sit and wait and save up for the inevitable downturn. Now is not the time to buy.

    • Nick James

      I wouldn’t say now is the time to sit and wait. No one can accurately predict the next down turn. It could be this year or 5 years from now. By waiting for a downturn, you are sitting on the sidelines missing out on cashflow and potential appreciation. If you do your due diligence and find a good property that makes money, I say go for it. When the inevitable down turn does come, the extra cashflow from the properties you bought in todays market will help you pick up even more properties when everything is discounted. Assuming you are saving the cashflow. Great article as always, David.

      • No I am not missing out. I bought 3 properties in the last 3-5 years when there were deals to be had. Every property I bought has gone up 30-60%. I just think it has gotten to a point where I can rest up and gather my strength and keep my powder dry.

        In my opinion you are fighting the Fed at this point because they are dead set on bringing interest rates back into line with historical norms and that is bound to do a number in prices.

    • David Greene

      Not sure I agree with that Kurt. There are lots of great opportunities out there.

      It may be true that now is not the time to buy in your market, or in your preferred neighbors, or your preferred types of properties, but anytime is a good time to buy if you are getting a good deal.

      If you’re having trouble finding deals, you may be looking in the wrong places.

  8. Michael Woodward

    A word of caution….. One of the main reasons that most investors look for houses that need minimal work is because major renovations can reveal a plethora of unforeseen problems that can destroy the budget. The savvy investors leave the hard stuff for the uninitiated or ill-informed.

    Case in point…. I just finished a project that I classified as a “medium” level renovation during my initial inspection and evaluation. The plan was to replace the entire kitchen, gut and replace the bathrooms, and add a couple walls plus the normal paint, carpet, etc. Long story short…… The crawlspace access door was too small for a person to fit through so there was no way to inspect the underside of the house but I had no reason to suspect any major problems. In the end, I had to gut the entire interior of the house because ALL of the floor joists were rotten. In the 47 houses I’ve renovated, I’ve never seen anything like it and there was no way to anticipate it. That is officially the LAST major renovation I will ever do! The project was three months and $30k over-budget because of the extra problems that is typical of older houses. EVERY time I buy an older house that needs a lot of work, there are many surprises that pop up in the middle of the project that causes it to go drastically over-budget and destroys the profit so I’m done wasting my time with them. I’ve found that I’m better off outsmarting and/or outpacing the competition to get the best projects. It’s really not that hard.

    Another (general) word of caution is that if no one wants something, there’s usually a really good reason for it. The same is true for contractors that aren’t busy. If they don’t have any work in front of yours (in this market), there’s a reason for it. This is not conjecture from me….. this is first-hand experience. Beware!!!

  9. Susan Carlton

    I’m a newbie, haven’t bought anything yet. I’ve just been studying the market and getting educated. What I am seeing is as soon as a property is listed, within a day it becomes contingent. There are still a lot of investors making cash offers. I’m talking about the lower priced condos in my area. Many of them need cosmetic repairs and are in older run down areas and they are dated and also have high HOA dues, like over $200/month. I don’t have any idea how much updating and repairing actually cost and so have been reluctant to buy anything. When I look at the pricing history often times I see that they have gone into contingent status 3 or 4 times already which makes me think there must be a reason that they haven’t sold and so why should I waste my time and money going through the whole process of making an offer and paying for an inspection (which is big in my area), only to find out it’s a bad deal?

  10. Andrew Ziebro

    I haven’t looked on the MLS for months. How do I find deals? I talk to everyone I meet. I email, call, network, talk with every single person and tell them what I’m doing, make conversation, give them a card, smile, act positive, ask if I can help them or a family member/friend/co-worker, whatever. I GET OUT THERE AND ENGAGE ALL DAY LONG, EVERY DAY.

    I also look on Craigslist, Connected Investor. I jot down addresses of vacants when I’m in the car and look them up when I get home. I go down to housing court and ask landlords if they feel like getting rid of their headache and if not now, call me if they ever do. Just picked up a house this week that way.

    The whole world is looking at the MLS. I tried that for months as a new investor and got NOTHING. Now I have more deals than I can handle.

    Just my 2 cents. I’ve only been investing for 8 months so what do I know? 😉

    • Susan Carlton

      @ANDREW ZIEBRO

      You are in this for a full time career. I’m not. I’m retired with a small amount of money I thought I’d invest in one small property to rent out. I’m not interested in fixing or flipping. But thank you for all of your advice.

    • Spearit Becton

      This is just what I needed to hear! That a bit of creativity is always necessary especially when starting out (such as myself). I believe in doing the ground work, my due diligence. However, I am a little stuck as to how I can “bird dog” and get paid my worth. Can you help me w/this question? Also, your response let me know that by being exceptional in REI doesn’t mean I’m not following the REI system (systems are known for delivering success). It just proves I “zig” when others “zag”. Thank you for any response.

  11. John Murray

    Great article! I must disagree on some very key points. Knowing the local market forward and backwards is the key to success. I have 8 SFH homes in the same zip enables me to research heavily in place. To become an expert in one zip enables the investor to have knowledge that few have. The history of construction practices as well as local codes and building materials is the key to success. Knowing local economic trends and how they can evolve can make you wealthy. Knowing what others do not know as well as learning from other experts you trust is the key to success. There are no surprises just profit. If you cannot make money in one zip or area because these is little chance of success the investor should move to be successful. Last word of advice, don’t believe all the information on the internet is true including real estate information.

  12. Shirley Gregory

    @susancarlton

    Susan, ask the listing agent why all the previous offers have been rescinded; it could be something as simple as financing falling thru but if there are major issues with the property then those are material facts that must be disclosed, which in the long run always benefits all parties, if people are being honest and doing their job lawfully.

  13. John Barnette

    Buying homes or condos with tenants in them will be a discounted 9 times out of 10. They usually don’t show well, hard to schedule viewings, retail owner occupied buyers don’t want to deal with getting tenants out. Even in San Francisco with extremely cumbersome rent control laws I have done quite well over the years with this strategy. MLS listed as well. Just passed over by most buyers. Also add to my list. Out of area listing agents, no photos or very poor photo presentation online. I am a Realtor by “day job” as well, i find these good methods. Not easy though and you have to be willing and able to pull the trigger quickly when an opportunity is presented. Often without all the questions answered.

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