Will I ever be able to find a good deal on a house? And if I do, will I be able to find more?
These are questions I struggled with when I got started and I am sure that 99.9% of investors go through this doubting stage. It is very important to keep the right mindset. The mindset that you will find a deal.
The deals are out there and are waiting to make their presence known to you.
At the very beginning, your marketing efforts are only allowing a small amount of people to get your message that you buy houses. It takes a while for the marketing to start to reach enough people for there to be a possibility of getting the message in front of the right person at the right time. The right person being anyone that has a house to sell and is willing to sell at a deep discount in exchange for a fast, hassle-free sale.
Get your message in front of enough people and you will get that first deal. Most investors agree that a very basic rule of thumb is that out of 100 calls from sellers, 10 will be possible deals. Of those possible deals (deals that have enough meat on the bone) you should be able to buy 1. Following this rule, you should be buying 1% of the houses you are told about.
So if I told you that I get 15 calls every time I put out 25 bandit signs [signs people post on utility poles], it would follow that I should have a deal after putting out roughly 167 bandit signs. If I were to go out and put up 167 (over time of course – don’t want to piss off the county too much), I should land a deal. It’s not guaranteed, but you sure have a better chance than if you were to go out and put up 50 and complain that it didn’t work because you didn’t land a deal.
You have to give your marketing enough time to really build. Some of the signs you put up will stay. Some people will write down your phone number or keep your letter and call you a year from now. This all adds up over time and starts to allow you to generate those 100 calls a lot faster and even to increase the percentage of deals you get from those 100 calls.
I am amazed at how many people don’t keep track of their marketing and the results they are getting from their efforts. Simply ask each person that calls you how they found about you and write it down. Keep a spreadsheet with how many calls came from each of your marketing efforts. Also, make sure to keep track of the amount of offers you made and deals bought for each marketing strategy.
In the beginning you will be tempted to review your results every couple of months, but keep in mind that it takes time for some marketing strategies to start pulling. Give them time (at least 3-6 months). Every year I review my marketing numbers and determine where the best bang for the buck is coming from and adjust my strategy for the new year. Put more money and time into the better producing strategies and dump the poor performers.
You have to believe that you will find a deal. Otherwise, you will likely quit after minimal effort, like 95% or better of new real estate investors. Knowing you have done a deal makes it much easier to have full faith another deal will come. With this mindset, you will attract more deals and in shorter amounts of time.
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Comments (4)
Great site. A lot of useful information here. I was hoping that you might be able to give me an example of how you might do the deal below.
I am looking for properties to rent out and I found a guy who is retired and wants to move to FL. Before he goes he wants to sell his last two rental properties. He is asking $95k (tax value is around $104K). The property is completely paid off. He recently painted and put in new carpet and linoleum in the kitchen and bathrooms. My one concern is the heating/ac is all electric and is 30 yrs old.
I would like to talk to him about seller financing but I am more sure how to present it or structure the deal. My first thought was to offer $90K (offer less because of eventually replacing AC), with monthly payments around $600-$650 (rents for $975-$1050) for 10 years with a balloon payment at the end.
Have you structured any deals like this?
Thank you
Mike
Mike,
I structure properties I am going to rent (not often, as I don’t like rentals) so that the monthly rent covers my monthly debt service with loan term no longer than 8 years (amortized over 8 years, no balloon). This is not how most people value rentals so I cannot give you the normal answer.
You should figure out how much cash flow you want and make sure to include local vacancy numbers, insurance and taxes, and maintenance in your calculations. You can ask the seller for anything. Ask for owner financing with a good rate (always ask for more than you expect to get – you never know when you may get it and you won’t if you don’t ask for it). You should get a better idea of the value of the property as well. Do not go off of the tax value. Get a Realtor to give you a CMA (comparative market analysis).
My biggest disclaimer for people wanting to pick up rentals is that you really need to have cash reserves. Rental vacancies and destructive tenants can really drain your bank account, especially when you build a big portfolio.
Hope this helps.
Thank you for the quick response. I will let you know how it turns out. Could you use a CMA in replace of an actual appraisal or are they completely different?
CMA and appraisals are similar in that they look at comps to determine values of properties, but a CMA is more casual. You cannot use a CMA for loans through normal lending institutions and such. Private lenders are usually ok with CMA’s.