Newbies: What is the competitive advantage?

Question

(Hopefully) Soon many of us "newbies" will be making their first moves in the REI world. It's quite a daunting idea that seems to overwhelm a lot of first time buyers for various reason. One reason that I have recently run into whilst searching for my first MFH home (specifically in Louisville, KY) is, what exactly gives me a competitive advantage? What sets me apart from an experienced investor in my area? How can I find a good deal when I am going against the "top-dogs"?

Sure, sitting at home alone browsing the computer/phone for potential deals and running the numbers can be easy/exciting, especially when you find one that makes sense! However, someone else is likely doing the same exact thing and has found the same exact deal. That being said, the question that I would like to open up to the community is:

How can or how do you think a newbie investor, with little (or no capital), can have any sort of competitive advantage in a market with experienced investors in the midst? What can a newbie investor do to set themselves apart to potentially land a "killer" deal? How can one proactively better themselves to achieve those better deals?

Specifically related to my situation (finding a multi-family home to house hack for a year), the only way I can imagine I find what I would consider to be good deal is that if the numbers (such as DSCR) do not work for an experienced investor and they pass it along for the newbie investors to feed on.

OR, I am not too familiar with the clause, but I heard on a BP podcast that there was something that allowed first home buyers the opportunity to bid on the property before other investors could (I believe it was something like a 30 day time window for new buyers only).

Lastly, this just came to mind whilst typing, but could newbie investor may be able to get a deal over an experienced investor if the property does not have much value-add potential? Just a thought.

I understand there are countless variables that can be discussed, so I would love to hear your feedback.

Thanks!

Bob Okenwa · Answer

@Corbin Wafford

What will set you apart is how determined you are to get things done. Lots of people talk about doing things, and yet such a small portion of the talkers will back it up with getting out and hustling. You can find deals by door-knocking, driving for dollars, direct mail marketing, chatting with wholesalers, and so on. You should attend local REIA and real estate meetings and meetups as well to get to know some of the locals who are doing deals and pick their brains. Knowledge is power, and the most powerful investors became successful because they were willing to do the dirty work and get their hands dirty. As they grow over time, you will see that the most successful people do not have to do all of the little things as they have built systems and automated their processes to run like a machine.

First time buyers usually get first crack at HUD houses or HomePath houses. Can't remember exactly which one.

Don't accept a bad deal just to get in the game. A bad deal is bad regardless of your experience level.

Chuck B. · Answer

@Corbin Wafford I think you're smart to buy a duplex.  I lived in three different ones over the years, financed as owner occupant, which is the best financing you'll ever get.  I moved into one giant old place and then put an apartment on the third floor using a construction loan that I got at the same time as financing the house.  It was a LOT of paperwork and hassle and hustle, but for a 30 year old without the funds to do it out of pocket, it was the only route I had.  That property today leases out for 3 to 4 times what my other rentals do.  (Everyone loves to hate on the govt., but that was a govt. secured loan and I'm ever thankful for it)

A bad deal, financed well, can still be a good deal.  A local guy at the REIA always says he'll give you a million dollars for a $100K home, but under financing terms that won't be very attractive to you.  Ha!

Do pay attention to "Firstlook" homes on HudHomestore.com.  Not all of those houses are wrecked, but many are fixer uppers that can be had at good prices and they're reserved for owner occupants for the first few weeks or so that they're listed.

PS. It's truly a terrible time to be a buyer, so my best advice is to be very patient in looking for a good deal right now.  Even the experienced guys are having trouble finding the volume of deals they could even two years ago.

Good luck!

James Wilcox · Answer

@Corbin Wafford I agree with what @Bob Okenwa has stated. Your willingness to work harder than everyone else and take action makes a big difference.

My biggest advantage has always been my age (28 currently) and enthusiasm for the industry. I have made some deals by just appealing to older/tired landlords that are looking to get out of the game. I come prepared and knowledgeable about the possible property purchase and likewise, that helps win them over. They see a lot of themselves in me and want to pass that property onto a like minded individual. Real estate is a people business!

The "First Look" program that you are referring to is through government homes on HomePath. You will need a licensed real estate agent to help you with submitting bids. A little harder to find MFH on there but they do come up from time to time. I just even bought one a few months ago from HomePath! These properties will probably need a lot of work. However, they could be a great opportunity there for the right buyer. Working with the government will likely be a pain though so be ready to adjust on the fly.

HomePath.com

Chuck B. · Answer

@Corbin Wafford - Regarding analyzing deals... for buy and hold, my quick and dirty rule is to not ever buy anything less than a 1% (monthly rent to after-repair-value) deal.  So if you find a duplex that is going to cost you a 185K and you're going to need to put 15K into it to get it up and running, that's an all-in cost of $200K.  I'd need to make 1% of that a month in rents ($2,000) or more before I'd consider buying it.  1% deals can work with long-term (30 year fixed) financing, but they typically do not work with 10 and 15 year variable rate portfolio loans as you'll be coming out of pocket to support the house, capex, vacancy, etc.  For these sort of properties you'll need to do better than 1%.  Think 1.2%, 1.4%, 1.6% etc (or 2%+ in the west end)...

Happy hunting!

Best, - Chuck

Corbin Wafford · Answer

@Joshua Dorkin @Brandon Turner

Appreciate you guys using this question on episode #239!

The question was a bit drawn out and unclear but it was awesome hearing you guys talk about it.

Thanks!

Ben Leybovich · Answer

A proper house hack is my strategy of choice right now. My brand of it calls for an upscale market, which I am not sure Louisville is, but look into it - may work :)

Good luck!

Ray Lai · Answer

@Corbin Wafford

Campaigns typically run for at a minimum 4 mailings. Most people do 5-7 mailings in a campaign, spread out with a mailing every couple of weeks. Timing really matters as peoples circumstances change over time, and you need the mail to arrive at the right time to get a distressed situation where you can get the best deal. A lot of people quit after 1-2 mailings with illusions of amazingly high response rates. Most people aren't in a tough spot and need help, and how many procrastinators do you know in your own life? Even people knowing they are getting foreclosed may not want to think about it or are too paralyzed to do anything.

Tax delinquent lists are a good example of this. Still may take a few mailings before people respond.

Brett Snodgrass · Answer

@Corbin Wafford

First. I’d encourage you to try all you can to get a marketing budget. Now there are a lot of ways to get started in real estate investing using other people’s money, but there is nothing wrong with the old fashion way of saving up and paying for things on your own. That said, I think one of the easiest ways to find deals is to go to Craigslist and filter through all the

crappy stuff to find the gold. In my market at least, there are still great deals to be had on Craigslist, it just takes a lot of time to find them. If you dedicate yourself and create a system, and you stick to it, Craigslist can be a source for your first couple of deals until you can save up for a direct mail campaign. A good guide to help with this is:

https://www.biggerpockets.com/renewsblog/2014/04/2...

Kraig Kujawa · Answer

Good stuff guys. I bought a couple buy-and-holds in Austin. This time, in Orlando. I am looking for cash flow in Central Florida. It's super daunting -- so much information -- and everything is so fluid. I look forward to landing my first deal, but I am being super diligent, thanks in large part to this board.

Brett Snodgrass · Answer

@Corbin Wafford I am not sure exactly what you mean in this question, but for time sake, We mail the same list every 2 months, and we do a 12 month campaign.  So the person is getting 6 pieces of mail from us in 1 year.  It’s costs us about 50 cents for postcards, and .85 for letters each.  Hope this helps.

I think this sounds a good plan!!!!

Brett

Newbies: What is the competitive advantage?

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