Beginners Guide to Finding Wholesale Real Estate Deals
Copyright © 2012, Lex Levinrad, The Distressed Real Estate Institute™
Many beginning real estate investors make the mistake of starting out with foreclosures. Just about every new real estate investor that I have trained asks me about investing in pre-foreclosures or one of the foreclosure listings services.
Typically you pay a monthly fee to use these services and then you get a list of foreclosures in your area. The idea is that you will find a “foreclosure deal” and be able to make some money with it.
This approach is how I and many other people started out in this business. When I first started out, I had subscribed to a service which at the time cost over $300 a month for Palm Beach County, Florida (including the comps and foreclosures filings). The service is pretty good if that is what you specialize in. I used to visit homeowners at their houses and talk to them about their foreclosure and how I could offer to help them by buying their house. The most common scenario was a homeowner that wanted to avoid foreclosure and was willing to “walk away” from the property.
The problem with this approach of soliciting homeowners in foreclosure can be summarized by the following:
- Too much competition – I was not the only one knocking on their door
- Too slow – someone often got to them before I did
- Uncooperative and hostile homeowners – wouldn’t you be if everyone was knocking on your door?
- Hard sell – approaching homeowners in foreclosure is a very aggressive tactic and they usually don’t want to talk to you
- Home owners are often not home during the day since they work – so you have to go after hours which can be very uncomfortable for them (and you if you disturb their dinner)
An often overlooked approach by beginners is to utilize the classified ads both online and offline. Investors are quick to dismiss this strategy. I often teach it but very few real estate investors try it for themselves. You should try it because it really works!
Search the classifieds both online and offline for words like “owner financing”, “owner will carry”, “must sell”, “make offer”, “any offer considered”, “handyman special”, “needs work”, “investor special” and so forth. You need to be looking for distressed sellers. When I first started looking at the classifieds it took less than one month of trying out this approach for me to find a wholesale deal. It was not one house but three houses which were located inPort StLucie,Florida. All of these houses were for sale by a wholesaler that had signed a contract to purchase all three houses and wanted to “flip” the contract. The houses were worth around $140,000 but had sustained some roof damage from one of the hurricanes. I agreed to buy the houses for $95,000 a piece and after paying for the roof repair and some basic cleanup I figured there would be around $90,000 in equity on all three houses. My partners still own those houses and they have been great rental properties. Kind of hard to believe that you could pick up $90,000 in equity from a classified ad but you can!
You can also advertise your services to potential sellers by placing a classified ad in the newspaper. Simply place an ad that says “I BUY HO– USES FOR CASH” with your phone number. The phone will start ringing immediately and you might get as many as 3-5 calls per day. That might not sound like much but when you consider that each phone call could potentially be a desperate seller willing to sell their house at 65 cents on the dollar or less then you will realize the potential.
You might find that this soft sell approach will work better for you than soliciting homeowners in foreclosure. You won’t have to cold call them. The home owners will be calling you so psychologically you are in the drivers’ seat. They are calling you because they want your help. They want you to buy their house. It is up to you to decide if you want to or if it is even feasible. You can write down the address and pull up the “comps” (comparable sales). Then you can give them a ballpark idea of what you could probably offer for the house (usually around 65% of after repair value less repairs). At that point the homeowner would usually either tell you that they were not interested (no deal) or they would ask you to come and take a look at their house (deal).
At that point, if you decide to buy the house then once you have the house under contract you can decide whether or not you want to keep the house yourself or assign the contract to another buyer for a fee (or double close).
In addition to classified ads, I have found the following to be very useful:
- Car Magnets – We Buy Houses For Cash and your phone number
- Yard Signs – If you want to use the signs that we use here is a link: http://www.supercheapsigns.com/partners/lex-levinrad
- Postcards – mailed to your target area or zip code
- Yellow Letters – mailed to your target area or zip code
- Attorneys – probate, foreclosure defense and real estate attorneys
- Network At Real Estate Clubs – title companies, mortgage brokers, wholesalers, anyone related to real estate
- REIA – go to meetings held by your local Real Estate Investment Club and network with buyers and wholesalers http://www.distressedreia.com is our meeting in South Florida held on the first Tuesday of every month
- Bird dogs – hire other people to do all of the above and pay them a percentage on the deal or pay them by the hour.
When you have sellers coming to you, you have all the control. You decide which deals are worth pursuing and which are not. You won’t be dealing with hostile homeowners, rather with people looking for your help. Be honest and sympathetic to their needs and let them know if you cannot help them. Don’t let them think that you will buy their home if you will not.
You also need to make sure that you are aware of local new laws for your state such as CS/HB 643 and CS/SB 992 which are Florida laws since October 1st, 2008. Each state has different laws and the laws are always changing so make sure you are aware of the ramifications of talking with homeowners in foreclosure. If you buy a house from a homeowner in foreclosure and they claim after the fact that they didn’t know that they would lose their home then you will have a big problem. Make sure that you have a real estate attorney prepare or review any documents that you intend to use.
Taking some of the steps that I have mentioned above will mean spending some money on advertising and marketing. Distressed sellers will not find you if you don’t advertise. Most beginners don’t want to take this first step. Remember that you have to spend money to make money. That is the difference between finding a deal and not finding a deal. If you made $5,000 on an assignment fee that would pay for a few years’ worth of classified advertising. And which is better – sitting around waiting for the phone to ring or fielding calls from desperate sellers all day where each call could mean more money in your pockets. If you are serious about being a real estate investor then you should be prepared to spend some money advertising yourself and your services to sellers.
If you use bandit signs or classified ads and it works well for you shoot me an email and let me know. We always like hearing about success stories.
To your success in real estate,