The most valuable lesson I've learned in real estate investing.

Random Ramblings
1

The first question I get asked by people that want to get into real estate investing is how do you find great deals?
As any seasoned investor will tell you that question is the entire business.

So how do you?

I have found that a few things are key. First, you need other people. These people will be your eyes and ears. They can be anyone and everyone. My favorite play is to find a crappy looking house in a nice area and knock on the door of the poor bastard that has to live next to it. This guy is MOTIVATED to get that eyesore fixed. The mistake I see people make is they go to the crappy houses!!! That usually goes nowhere. BUT…The neighbor can be a huge asset. I offer them a finders fee of $2000 if they help me buy the property. They can offer incredible intel on these situations. They know the entire history of the property. “Yea, the owners son lives in it. He’s a dead beat, the mother would LOVE to get him out of there but has no where to put him.” BINGO!!! No more phone calls!! We have a WINNER!!

The next phase is to SOLVE THE PROBLEM!!!

Let’s use the example above. “Junior” is living rent free in his mothers old house. He does nothing, not even cutting the lawn. I get the phone number from my new best friend (the neighbor) and I make the call.
Hello Mrs. Smith?
My name is Joe Blow, I’d like to see if I can help you out with your property on Elm St. I understand you have a tenant in there?

Yea, it’s my dead beat son.

Ok, is he paying you rent?

No, nothing.

Oh, I’m sorry to hear that. What If I could help you put a big check in your bank account and help your son learn I good lesson in the process?

How?

I’ll buy the house from you, pay you CASH. AND…I’ll find a decent place for your son to live. BUT…None of this will work without your help.

I’m listening…

I’m going to find a nice cheap mobile home for your son to rent.

Ok, but he has no job.

No Problem. I’m going to prepay one years rent for him at the trailer park. It’s going to come out of the money I give you for the house, but think about it. Right now you’re paying property taxes, sewer, water, insurance, repair bills, etc. And you’re getting NOTHING. This way you get a pile of money, your problem property goes away, and your son learns a great life lesson.

At this point I will run the numbers with them. EXACTLY day by day what that house is costing them. This is critical. Taxes are $3000/year, water/sewer $1000/year, insurance $1000/year, repairs $1000/year. TOTAL is $6000/year divided by 365 = $16.43 EVERY SINGLE DAY!!!

I like to break it down this way for them.

Here’s exactly what I say…

Right now, here’s what you’re doing. You wake up every single day, take $16.43 out of your wallet, drive out to the highway, roll down your window, and THROW that $16.43 out on the highway…EVERY SINGLE DAY…Monday, Tuesday, Wed, Thurs, Fri, Sat, and SUNDAY.

Think about it. EVERYDAY you are throwing that money away. Let me help you.

Then STOP TALKING.

At this point, you’ve got their attention.

If they bite, you make an appointment to look at the property, get your offer accepted, and then WHEN YOU KNOW THE TITLE IS CLEAR…and only then, you have YOUR realtor, find Junior a mobile home to rent. He moves out BEFORE the closing. Even if that means I have to pay for a few days at an extended stay hotel. I want him OUT before I close. Once he’s gone, I’ll have a moving company take his stuff out and move it to the mobile home. (usually about $600)

Mom’s got a pile of $$$$ in the bank. She’s never been happier. JUNIOR’s OUT, and I’ve got a great deal on a great property in a great area.

BUT…If you had knocked on the door of that house??? The deadbeat son would have told you…ITS NOT FOR SALE!!!

IT WORKS…I’ve done it…OVER and OVER and OVER!!!

2

Thanks for sharing.

I’m very new to the business of real estate investing and your message has not only provided a great strategy, but also given a some inspiration to a newbie whose feet are barley wet. Who are the main people I need on my team to make a deal like this (or any wholesale deal)?

3

I read your posts years ago fdjake and others but didn’t proceed. Now I am ready since I have a better understanding. What are your opinions of the market currently?

4

Current market conditions are excellent. So good in fact that deals are harder to find in my area. BUT…Deals are always around, you just have to look harder.

Get out there and STAKE YOUR CLAIM!!!

As to WHO you need on your team?

That question drives me NUTS…Please don’t take that the wrong way. Its a GREAT question. BUT…I see too many people worrying about “their team” than about FINDING A DEAL.

First person you need to find is a decent real estate lawyer. It’s money well spent and they only get paid when you have a closing. If you don’t know a good lawyer, ask a good realtor for a recommendation. You don’t need to over complicate this stuff. There’s no need to pay an attorney hundreds of dollars to write up a sales agreement for you. There are hundreds of boiler plate sales agreements online. Your lawyer is important because when you get your first deal signed, the sellers are going to be nervous. I hand them my attorneys card after they sign, and tell them he will be calling them TODAY!! Once I drop off the agreement, that lawyer has strict instructions. CALL THE SELLERS NOW!!! This calms them, and reassures them that everything I told them is happening. Sounds simple, DO NOT under estimate it.

Now here’s why the “team” thing is a joke.

If you found a 1965 Shelby 427 Cobra in a shed and the owner wanted it gone and was willing to take $2500 for it…Would you need a “TEAM” to sell that car for 7 figures???

NO…You could just take it to Barret/Jackson and watch the world go nuts over the barn find of the century.

Property is the same way!!!

If you FIND a great deal from a source that just wants out…Get it into a sales agreement, get it closed, and then clean it out, LIST IT WITH A REALTOR, and let them fight over it!!! I list everything I get. I can’t tell you how many times I’ve had a property that I figured would sell for $99,000 and ended up being bid up to $150,000. It does’t happen on everyone of them, but it happens enough to make it well worth the 5% commission to the realtor. The reason?? You’re making EVERYONE compete for that property. The rehab guys bid, the flippers bid, the parents buying for their kids bid, the guy who thinks he’s an investor bids, the people who want to live in it bid. In the end it DRIVES the price.

I am a firm believer in INTENTIONALLY under pricing properties that I list. Put it on for a number that gets people WORRIED about losing it!!! Let them see 12 other people in the house looking at it. Let them experience losing other properties because they didn’t step up. It works!!! It transforms peoples mindset from, it’s fully priced and I’m not interested, to…It’s a screaming deal and I don’t want to lose it!!!

5

Great post, thank you :beer

6

thank you! Good info. HOW do you find good properties? That’s my problem as a “wanna be” investor…

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dabbsinvest The way to find good properties is to look for the 3 D’s (Death, Disease, Divorce). That said every good deal is found a different way. Everybody in town needs to know what you are looking for and that you can close on it. Real estate is a contact sport. The more contacts you have the more successful you will be. But contact the appropriate people. In the investment real estate world everybody know each other. The total real estate world is difference from the investment real estate world. We are not talking about the Realtor driving around in a Lexis wearing $1000 suits. We are talking about bird dogs, and realtors that have no problem with the commission they will receive by selling you a $50,000 house.

8

Great post and great read! Thanks for sharing some insight! I love reading other real estate professionals experiences.

9

Nice little method! Thanks for sharing. You could also use google earth to speed up the process and make a list without even have to get out and put gasoline in your car.

10

Just found this, thanks for sharing how you break it down. I also like the 3 D’s.

11

We’ve closed deals from:

driving for dollars (found our personal residence that way after finding a house with a pile of brush in the driveway)
door knocking
letters left on doorstep
direct mail to expired listings, probates/inherited properties, absentee owners
friends/family
Craigslist for rent

The big lesson I’ve had to learn is be consistent with marketing activities.

12

Yes, contacts are very important. Maybe this forum will also help to connect with each other.