What Makes Motivated Sellers Want to Sell to Investors?

Question

I've learned a bunch over the course of the past few months, both by reading whatever I can get my hands on, as well as some of the great posts on this site.  For someone like me who is just starting out in real estate investing, the overwhelming majority of material I've read suggests that finding motivated sellers so you can get a great price on a property.

I understand that things happen in life.  People need money, or they miss some mortgage payments, and maybe they're going to be foreclosed on.  My big question is... even if someone is about to be foreclosed on... why wouldn't they just sell their home and get fair market value for it?  This is the part that just doesn't make sense to me.  Even if they're under water on their mortgage... why would you take an extremely low offer from an investor, over just putting it on the market and getting way more?

Is there something I'm missing?

Dev Horn · Answer

The people you are mentioning CANNOT take a discounted offer from an investor, because they are underwater.  A person who owes 110% of the value of their home - or even 85% - cannot take a 40% discount off ARV offer unless they are prepared to bring a bucket of money to the closing.  And underwater people in foreclosure won't have a bucket of money.  As an investor - those are not your prospects - they cannot "buy" what you are selling.

There are 3 MOTIVATORS leading someone to sell to an investor at a discount:1) SPEED - they are in a hurry, cannot wait to sell via retail, because they need...2) CASH - for some reason, perhaps medical, business related, who knows, plus3) DISTRESSED PROPERTY - they either don't want to make the repairs or simply have no money to make them, so their house is unlikely to pass an FHA inspection, so people cannot buy it with an FHA or conventional home loan (hence, the need to sell to a cash buyer).

As an investor, you want to reach out to people with the message that you can deliver FAST CASH and there is NO NEED TO MAKE REPAIRS, you buy "as-is".  And you only want to market to people with at least 40% equity, otherwise you are wasting your time and marketing dollars.

P.S. People that contact you and have a great house, they are in no hurry, and they have plenty of $ --- with those you are exactly right - they have NO REASON to sell their home to an investor at a discount.  When I discover those, I may make them an offer just for the heck of it, but mostly I just I hand them over to my agent partner to talk about listing their house.

Curt Smith · Answer

Phil K.  What hasn't been said is:  think competition avoidance.  If a room full of investors say ABC you need to go do XYZ.

Folks in Atlanta say work a 5 mile radius from your home.  Others say work your county.  I work OUTSIDE my counties, up major roads in small towns 45 min drive to the metropolis.  The hedge funds love over paying for 1995-2005 3/2-4/2.5's so I offer on 3/1's  to 3/1.5s 1960 to 1975.  A not very sought after class of home on the investor side.  A lipstick rehab these will sell to first timer buyers just fine!!!

Avoid competition!

If you don't believe there are cash buyers up the freeways to small towns put TEST ADS up in craigslist.  Don't mention an address or put a picture up, just say good wholesale deal of $XX price near city.   I always test demand with pictureless test ads.

Call your county tax commissioners for the delinquent tax lists.  Some are online, some are for the asking, some counties don't make the lists available... :(

Buying lists that represent seller 'stress" is a whole secret science that folks charge good training money for.  IE the magic select criteria in listsource.com that captures high motivation,,, if you mail enough letters.  IE the "quit claim" as last transaction + equity + possible adding age of borrower (older is better)...  To get into a bit on the buying the list tips.

Justin Silverio · Answer

Phil K.

I'll do my best to answer your questions.

A lot of people ask the same question because they have never experiences tough times or gone through a bad situation in their lives.  Unfortunately, not everyone is so lucky. Usually when bad situations occur, the top priority for people is to solve their issue.  Money is secondary factor for them.  Here are some situations that people were in when I purchased their property:

- A pipe burst in a house and the older woman who lives there alone doesn't have the money to fix it.  So she shuts off her water and uses a bucket to go to the bathroom.  After the water has been sitting in the lower floor (house is a split entry), mold starts to take over the house.  And because she is also a hoarder, she can barely get around.  She is in an out of the hospital with respiratory issue for several months and then receives one of my letters.

- An investor has a fire in a rental house.  After getting a settlement from his insurance company, he is looking to sell rather than rebuilding as he doesn't have the time or patience.

- A couple is moving to Hawaii and they put the house, which needs a good amount of work, on the market.  They receive several offers, including mine but see that I will buy with cash and let them live in the house until they leave.  There is no uncertainty that I can't perform and they won't have to rent a place between when they sell to when they leave.

So as you can see, investors come to the table with a lot of benefits.  A good investor will know how to structure a deal to best benefit the situation of the seller.  For us, we can be more creative than your traditional buyer.  Also, from a financial perspective, here's an example:

Seller wants to list house for $300k

My offer (walk away price) - $250k

Looks like a $50k discount right?  Here are the hidden costs when they list:

Average Sale Price to List Price in the Market (96%) - $12kCommissions (6%) - $17.3kCarrying Costs (70 day average) - $1.7kAverage Repair Costs - $2.5kClosing Costs - $3kNet Amount to Seller after costs - $263kAfter all costs, I was would be $13k off from what they would get if their house sold based on averages.  To many people, that $13k would be worth it to sell now instead of going through the process of listing their house.

Next, on the marketing front, many investors, including myself use direct mail to find distressed homeowners.  This has proven to be my most effective and profitable way to get deals.

I hope that helps.

Daniel Nolan · Answer

Jay, You don't let them know it's a fictitious add. Just tell them it's no longer available  but assure them you can help them in the future  by keeping  an eye out for what they want if they  can pay cash. Build rapport, get their criteria and find them a house. You just started building your buyers list as well!

Maxwell Hunter · Answer

Great tips @Curt Smith.  I may need to reach out to you regarding your listsource tips.  This is still an area that I'm trying to figure out.

Owen Dashner · Answer

Some sellers don't want to list a property because they do not want to deal with getting/keeping their house in show-ready condition, and have to deal with people constantly walking through their house.They may also dislike/distrust Realtors, or have a big sticking point with paying commissions.Sellers may also prefer to deal with investors because the property would not qualify for an FHA or conventional buyer due to the condition of the property.And some homeowners are trying to sell an inherited property, and just do not want to deal with the overwhelming/emotional task of dealing with listing a property, so they would rather sell quickly for a discount and be done with it, rather than drag it out.

Account Closed · Answer

@Robbie Reutzel - that makes sense, but on the marketing part of your comment, that's actually exactly the topic of another question I have been meaning to ask.

What exactly would an investor be spending so much on "marketing" for?  I know this sounds like a terribly silly question, but how exactly would you be spending that much to find a property?  My understanding to this point is that to find a motivated seller, you basically have to network your butt off to connect with folks that have an ear on the ground.  What types of strategies are investors (both in the Boston area and outside) using to market their "service" to distressed sellers?

Thanks very much!

Account Closed · Answer

Interesting - thanks Dev.

I guess what's tripping me up is that in the Boston area, there's almost zero reason for someone not to just list the home, even if they're in a hurry for cash.  I've seen absolute DUMPS of a property get picked up in a weekend after being put on the market, so even if those sellers were in a hurry... they probably got an all-cash offer, or at least one not contingent on an inspection (and sometimes not even contingent on financing).

So what you're saying totally makes sense - I think I just need to mentally step out of the bubble of the New England area, where putting a home on the market tends to mean you will get 10 offers in a weekend.

Thanks again!

Robbie Reutzel · Answer

Phil K. said, you need to be doing direct mail to get in front of the sellers themselves.  Considering most campaigns have a 1-2% response rate and you will need to mail to your list several times, you're looking at a minimum of ~$1000/month in marketing to have a good shot at getting deals and many wholesalers are spending 10-20x that/month.

There are more inexpensive ways but they generally take much more time so either invest the $$$ or the minutes.

Jonathan Lipson · Answer

Phil K. - The most obvious marketing expense is going to come from direct mail.  Unless you plan on spending a lot of your own time collecting leads, creating letters and preparing them for delivery, even a very small, multi-touch campaign is going to cost you several hundred dollars.  If you plan to scale that up to develop a consistent stream of calls coming in, it could easily get up into the thousands of dollars.

What Makes Motivated Sellers Want to Sell to Investors?

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