Anyone ever try this strategy?

Question

I was listening to The Norris Group's radio podcast show today and the guest on the show was a real estate investor who talked about an interesting strategy he uses for buying properties. He mentioned that a high percentage of properties that go under contract end up having the deal fall apart for one reason or another. So he writes to the listing agent of the properties that are already under contract, and basically tells them that he's an investor and to keep him in mind if the deal falls through and they need someone else to step in and buy it. Says he buys most of his properties this way.

Sounds like a good strategy to me. I know I come across a lot of properties that I'd like to buy, but they're already pending (sometimes before they even hit the MLS). I wonder if it would be worth it to write to the listing agent and just tell him or her that I like the house and I'd be interested in buying it if the current deal falls through, plus I'll buy it "as is" and can close quick.

Anyone ever tried it and had any success? I know every listing in my area gets multiple offers, so I'm not sure if my letter would get a second look if there's already backup offers on file. Of course, by the time the deal falls through, those backup buyers may not even be interested anymore. So who knows.

If nothing else, this strategy might be good for establishing relationships with a few more realtors.

Thoughts?

Chris Kennedy · Answer

I've heard of investors doing this in my market, with a decent success rate.

Kyle J. · Answer

That's what I'm talking about Pat.  I think I'm going to give it a shot.  It can't hurt.

Pat L. · Answer

Yes
I have done it a number of times usually when the investor lacks the financing etc to close or a bad inspection report scares them away. 
We have picked up some nice deals at much lower prices than they originally sold for because the seller/heirs just want out, esp in NY when the next tax bill is coming due!!!!

A home in foreclosure for several years entertained multiple offers that failed conv financing because of the deteriorating condition of the home. We stole it with cash, no conditions & close asap. The rehab cost was insignificant & we already had a young buyer committed with cash in escrow.

I also have my agent look for contingency sales, that just sit there. I have found you can buy it for less if you have cash & if the seller is motivated.

Kyle J. · Answer

Good points Ed.  No one wants to overpay; however, since I don't flip or re-sell the properties, I'm not as concerned with "profit" as I am cashflow.   So even if I had to "overpay" by a few extra thousand dollars, as long as I could still make the numbers work on the monthly cashflow and they met my minimum criteria for percentages, I'd still be interested in buying the house.

I realize the ideal way to buy is probably to do exactly what you suggested, which is find the sellers before everyone else does and the property even goes on MLS.  However, real estate investing is more of a passive activity for me since I already have a full time job, and I have neither the time nor desire to do the amount of marketing required (i.e. getting lists, sending mailers, putting up signs, taking phone calls, etc) to find these hidden sellers.

I just bought a house from a wholesaler for the first time, and that seemed to work out okay.  Maybe I need to look into working with birddogs and/or wholesalers more.  Let them do the work and earn some money while they're at it.

Ed B. · Answer

Consider this: If most of those listing go pending even before they hit the MLS and/or they have multiple offers, that's usually a sign that excessive competition is driving up the price. You think you can come in and tell the agent you're interested in buying if the deal falls apart?  Sure, you'll probably get some takers, but they're probably going to want to sell at price and terms similar to what fell through.  If you go  through with that, you'll probably end up with an overpriced property where there's zero to little profit potential.  Is that what you want?  The idea is to buy a profitable investment, not to simply buy.   I think that strategy would be better in a neutral or buyer's market, not a seller's market.  Sadly, when you've got ruinous competition, you need to figure out a way to get to the seller before everyone else, or  have a plan to increase the property's yield that most other buyers have not considered,  or are not willing  to pursue.