Did I locate a good Farm Area

[Nemi W.]

Hi All,

I'm a first-time poster, long-time reader, new to real estate investing.

Here's where I am in my venture: I've researched RE wholesaling for weeks now and feel I'm ready to take real action. I know I won't make money unless I make offers, but I won't make offers unless I have at least a handful of active buyers and a good farm area. The problem is that I don't feel confident about the area I've chosen, therefore, don't feel good about spending the next couple of weeks following the suggestion/rule of looking at 100 houses.

Steps I took:

1. Came across a website that lists bank foreclosures for sale by zip code.

2. Chose the zip code that had the most in my city.

3. Checked out the demographics (40,000 people, 17,000 households, $145k median home price)

4. Drove around the area.

I was confident as I drove to the area; less confident as I drove away. Here's why:

1. After deciding to divide the code in half and focus on the northern half, which are low-end homes that appear to need repair (plus I decided to take Steve's suggestion and focus on appr. 10,000 homes), I began to notice all the bandit signs were "for rent".

2. I saw no "i buy houses", "cash only", "investor special" signs.

3. I only saw one home being remodeled.

4. On the way home, I drove through other zip codes that had MANY signs.

Please help me learn to identify a good farm area so that I'm not wasting time. Given what I've shared, do you feel as though I may have one? Is there more research I need to do before investing time into looking at the 100 homes...or is that the research I need to do before choosing a farm area? I'm a little confused about that one.

Any comments will be much appreciated!

[Ryan Webber]

This is kind of funny to me. So you are worried because you don't see much competition in your farm area? Well let me say that you need to make sure that you aren't looking at a war zone, but if its not a war zone then you could have found a niche area.

I would research the MLS sold listings for that area to determine if its a war zone. War zone's typically have very few MLS sales. Less than 5 sales per square mile per year starts to alert me to a war zone.

On top of researching the MLS sales I would take a close look at the houses in the area. How well are they taken care of? How many are abandoned or boarded up? When you see trashed out houses, lawns, and cars along with 20-30% of the houses abandoned and/or boarded up AND low MLS sales, then you got a war zone.

Most of the war zones I've seen don't even have many For Rent signs up. Its just a blinking neon sign for a homeless crack head to break in.

After you've determined its not a war zone, then I would spend some time researching who owns the houses in that area. How many solid investors are buying over there and who are they?

I personally don't think that just finding investors and then finding what they want is the most profitable way to wholesale. There are certain areas of town that will be extremely well tailored to wholesaling (high equity and highly motivated sellers), and figuring out those areas is key. Then you can find the investors that like those areas.

Many times these well suited wholesale areas are not the most popular areas for investors to buy in. Many times they aren't the "in" area, but that does not mean that there aren't very solid investors in those areas that are willing to buy hundreds of deals from you.

I've done about 80 deals in a 1 square mile area of my city. If I were to line up 10 investors, at least 7 of them would tell me that they won't buy in that area of town. Another 2 would tell me that they don't like the area but they might look at deals there. Probably only one would tell me that they like to buy in that area. And yet, I've wholesaled 80 houses in that exact area.

Now let's compare that with a war zone. The war zone in my city I've only found 1 single investor out of talking to hundreds and hundreds of investors that said they actually wanted to buy in that area. I've only found 2 or 3 out of those hundreds that would even look at deals in that area.

The prime wholesale areas are lower end, older areas that have a sufficient amount of sales on the MLS. Once you've found those areas, find the investors in those areas. They're there. The investors are there because there is money to be made in those areas. You just have to work to find them.