How do We Choose The Best Deals to Invest in These Days?

During the real estate boom period of the early 200′s it alomst seemed as if every real estate investment opportunity that came my way was worth getting involved with, mainly because profits were plentiful on just about every deal. Today however things have changed a lot and the backlash of the real estate boom has caused a lot of under educated real estate investors to really strugle, not only with buying & selling houses, but also choosing the best investment opportunities to commit their time and resources to. During the boom years you could purchase all types of properties and there always seemed to be a buyer for them that would pay more than you did…..however nowadays if you buy the wrong property you could very easily get stuck with it or have to sell it for a sustantial loss in order to get it off the books. It’s because of this that I believe opportunity management is one of the most important skills that you must posses in order to successfully run your real estate investment business.

Within my own personal house buying business there is a constant stream of seller leads that flow into the business on a weekly basis. Some of these leads are quality and some are just a waste of time, but one of the most important jobs in my business is to sort these leads to determine which will potentially be the best financial opportunity for us. Being able to qualify leads is one of the most important skills you must posses in order to make your REI business a success…..and this is not somthing that you should be outsourcing to a virtual assistant somewhere like some supposad gurus may suggest. You can outsource a lot of things in your business, but this is the one thing that you should be doing yourself or having your well trained 2nd in command dealing with. The only way to get good at qualifying leads is through experience and even though I hate to say it….making mistakes that will ultimately cost your business money. You can however limit any potential financial losses from making bad purchases by investing in the right education and continuing to increase your real estate investing knowledge (by reading my blog of course).  So with that said here is a short list of profit saving tips that I consider to be some of the most important rules for residential investing in the current real estate market.

Rule #1:

If the house is on a road with double yellow lines down the center you probably shouldn’t buy it! I have had busy roads eat up too many profit margins in the last few years to even think about buying another house with a double yellow in front of it. The only way I might consider it these days is if the price is just rediculously cheap, but even then I would immediately look to wholesale the property and let another investor deal with selling the property on any sort of retail level. Bad real estate markets cause buyers to feel they are entitled to a great deal, and when retail buyers are looking at houses on busier roads they feel they should recieve an even better deal. Now I have sold a few houses on busier roads and made some good profits from it, but I have had far more dissapointing projects than good ones when it comes houses on busy roads.

Rule #2:

If you are going to invest in single family houses really try to make sure that the house has at least 3 bedrooms and is over 1,000 square feet. Now the minimum square footage may differ slightly from market to market, but in my area a 3 bdroom house under 1,000 sq. feet would be considered very small. If you are going to flip houses that are less than 1,000 sq. feet your retail buyer pool is going to be substantially smaller than if you were flipping larger homes. Generally if people are looking for a smaller sq. footage property they will be interested in a condo or townhome and not a house, which is why smaller houses can be difficult to sell. Also most buyers of single family homes will be looking for least 3 bedrooms, so a 2 bedroom houses will always be much more difficult to sell.

Rule #3:

Buy houses where people want to live! When I started flipping houses I would buy houses in any part of town just because they were cheap. Now I also didnt have as much funding then as I do now, so I really didnt have much choice but to start with the cheapest houses my market had to offer (which generally came with the worst neighborhoods my market had to offer). There is money to be made with hood houses, but retail buyers of these houses also feel they should be getting an amazingly cheap deal for buying a house in the current real estate market. Also you will most likely have so many inspection addendum items to repair it will make your head spin. For my business the retail buyers of rehabbed hood houses have been the most difficult to sell to due to all of the tedious repairs that have been requested over the past few years. Generally this can be attributed to the fact that 99% of these buyers are first time homebuyers, and they just really dont know what is a big deal and what is not when it comes to home repair. In addition to this the other big issue with these first time buyers is that they will listen to everything their home inspector says like it’s the Gospel….and as any of us who have flipped houses know, most inspectors (at least in my makret) dont really know what they are talking about. So the bottom line is if you are going to flip houses in the hood, just make sure you are buying those houses at a much bigger discount so that your profits are well worth all the effort.

There are a few other rules that I also use as a guide when investing in single family houses, but hopefully these 3 that I have shared here will save you some serious money in the future by improving your opportunity management $kills. It can be easy to get caught up in the excitement of a deal when the lead shows up in your business, but it’s crucial that you stick to your rules of investing and properly qualify a prospect before you decide if the project is worth taking on. It can also be fairly easy to talk yourself into doing a deal (that you normally wouldn’t take on) if your pipeline of deals is looking a little slim….but trust me when I say its better to pass on a deal than to take on the wrong one on just because you need a deal to work on. Being disiplined and managing the investment opportunities (leads) that come into your business is second in importance only to actual lead generation. If you dont have leads then you dont have deals, but if you pick the wrong deals then your profits will suffer and that will ultimately make it hard to stay in this great (but challenging) business……now get out there and put some great deals together using the 3 rules as a giude!

CASE STUDY: The Probate Wholesale Deal!

This case study is going to pull back the curtain on my probate business and go through in detail how we managed to wholesale another probate deal last week for a solid five figure profit! My real estate investment business is set up so that we can renovate between 5-7 properties at any given time, and every time we get a deal as a result of our marketing beyond that amount we will look to wholesale the property to one of our experienced cash buyers. Since we are rehabbers first and absolutely know what a great deal looks like, buyers jump at the opportunity to buy our overflow deals because they know we only sell deals that will make them money!

 

Our most recent wholesale deal came from the constant stream of probate marketing campaigns that we run in my business. Like I mentioned in the previous blog post on marketing for probate deals, we use a variety of strategies to get probate leads coming into my business on a daily basis. However for this particular deal the lead came from one of our marketing campaigns where we mail the personal representative of every new probate files, and inquire about purchasing any real property that the estate may need to sell in order to close the probate. This Personal Representative received our letter (the type of letter you send is very important), and then gave us a call and left a message on our dedicated marketing line (you need to make sure you have one of these if you do your own marketing for deals!). My marketing manager then quickly called the PR back and set an appointment to view the property.

 

 

Before we go out into the field to view any prospect property  I always complete all of my online research (# of bedrooms, # of bathrooms, square footage, year built, open permits, crime map search, lot size, zoning, ARV, underground oil tanks, ect.). So after researching this property I quickly determined that it was a great prospect and that we would definitely buy it if we could get a price that made sense for us. Upon meeting with the Personal Representative (PR) it became obvious that he was tired of dealing with the property, and really would be more than delighted if someone would just make him a fair cash offer and take the property off his hands. The PR had already dealt with a dead beat tenant and a lot of family drama and was pretty much sick of his duties as the PR at this point. The house was livable, but in need to some major updating and floor plan re-configuration in spots….which made it a great candidate for a discounted cash offer. The Estates Attorney had suggested that the PR list the property with a realtor (which does happen a decent amount of the time), but the PR just didn’t feel like dealing with the lengthy sales process that could come from choosing that route. In fact I even discussed with the PR  the potential issues that could arise if he decided to go that direction….and fortunately he agreed with everything I had to say.

 

These are a few of the difficulties that we constantly see when PR’s decide to list their Probate properties with a realtor: First they have to find a realtor that is competent enough to actually sell a property that is in need of renovating and/or major updating…..and trust me when I say this is harder than you would think. Then you run the risk of Realtors telling you they can sell the property for more money in order to help ensure they get the listing….however after the market speaks they will most likely end up having to come back to you and ask if they can reduce the price. Then if you do finally get a buyer to purchase the property you run the risk of financing falling through because the property is not in retail condition and the lender may have issues with it. All of these hurdles can make for an absolute terrible experience for a seller who is eagerly waiting for their inheritance.

So after taking all of these things into account the PR decided that it would be in his best interest to entertain a reasonable cash offer….and that is where we came in! Fortunately there was only one other investor that the PR was also talking with, however that investors follow up was not as good as ours, so ultimately we ended up not really having any real competition to buy the property.  After touring the property and building some strong repore with the PR we put together a cash offer along with comparable and a break down that helped to justify our offer. One thing that we always make a point to discuss with the seller is the fact that we are in this business to make money…..your potential profit margin is kind of like the giant pink elephant in the room, so most of the time it’s better to address it than pretend its not there. Now there are definitely some tricks that should be used to make the seller think your profit margin will be smaller than it most likely will be, but its important to address it none the less.

 

After presenting the offer we got the standard probate seller response which is “I need to talk with the other beneficiary’s and then I’ll get back to you”, but this is by no means a bad thing. Most of the time the seller in a probate situation is going to need some time to think about your offer, in order to decide whether or not its in their best interest to accept it. In this case we followed up with the PR after a couple days and he let us know it was going to be in the estate’s best interest to accept our (justified) cash offer. At that point I made sure to meet once again with the PR as quickly as possible to execute the purchase and sale contract and drop it off at the title company so that my escrow agent could start getting all of the closing paperwork in order. At the same time I began to start marketing the property to 3 rehabbers that I knew were in need of a deal to work on…..and within 24 hours I had verbal offers from all 3 of them at and above my asking price! The reality is that most rehabbers dont have a marketing department in their businesses (big or small), so they rely heavily on more developed Real Estate businesses like mine that have a dedicated marketing department that continually markets for deals. This is why when we market wholesale deals like this one, we get so many rehab buyers chomping at the bit to buy the property.

 

Within a week of signing the purchase and sale agreement with the seller all of the closing paperwork was in order not only for myself but also for the rehab buyer who would be purchasing the property from me with a Hard Money loan. So on last Thursday morning I purchased the property from the Estate and that same afternoon I sold the property to my rehab buyer for a solid five figure profit! This was a great example of a deal that was good for everyone involved. The Estate was finally able to sell the property without any hold ups and close the probate….I was able to purchase the property for a low enough price to quickly flip it to a rehab buyer for a solid five figure profit…..and my rehab buyer got a great buy on a simple ranch rehab that will ultimately make him $25,000-$30,000. Investing in Probate Real Estate is a great way to generate deals like this on a weekly basis for your REI business….so what are you waiting for to start investing in probates?

 

Make sure to sign up for the My Investing Mentor Newsletter on our home page so that you will be notified of our game changing Probate Marketing and Coaching Program that will be released later this year! It will be a 6 month program offered at a ridiculously cheap price! My Investing Mentor Education will be providing you with all of the step by step instructions and proven marketing material you need to make your business a Probate Profit Monster! There are definitely other probate products on the market today….but what sets us apart is that we are actually using everything that we will be providing our students to make a killing each and every month in our own market of Portland Oregon! Our strategies and marketing material are working now in today’s economy and real estate market! In the mean time however, if you have any questions about probate investing feel free to leave a comment and we will do our best to respond quickly.

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