Build or Buy Off-Market Marketing List?

Question

I'm starting to systematize my fledgling real estate business so that I can scale it in the coming years. Listed deals in my area almost never pencil, so I'll eventually need outbound marketing to scale. I'm debating whether to build or buy my marketing data , and I'm leaning toward build for a few reasons, but here I'll focus on the economics. Can anyone experienced with outbound list-based marketing help me better understand the economics or if there's a different/better approach or provider (I used listsource as my reference example)? I do plan to initially use a list provider for proof-of-concept, so my question is about the long-term.

Since list providers charge for usage, they seem to exhibit diseconomies of scale and I worry that will limit growth in the long-term. When pulling sample lists, the juiciest data is very expensive and leads to a cost decision between highly-targeted small list or poorly-targeted large list, each of which is likely to yield few deals. Let's say the list provider has 50 criteria - my marketing budget would fund a list with 1000 targets across 3-4 categories or 200 targets across 6-7 categories. I'd like to be able to target across all 50 criteria and also to experiment with different levels of targeting. If I build my lists in house, this would be a one-time fixed expense and my ongoing marketing costs would be limited to direct outreach costs. There is also some data I'd like to use for targeting that just isn't available at any price if outsourcing.

Can anyone with experience doing it yourself versus outsourcing comment on these and other tradeoffs?

Curt Smith · Answer

Yes costar is the king of commercial data and is insanely expensive for the small operator.   But I know folks who have actually bought deals off loopnet.com.  Yes lots of bad deals, but make offers based on YOUR metrics, math, cap rate goals.  Often you'll offer 1/2 of the ask.  LOL.  Always include proof of funds, and ability to close the whole deal with your offer!!

Propstream.com is great (good enough) for SFR.   I just checked its filters AND data set.  For my GA county I tested, Gwinnett,  I clicked the MF 5+ doors, and in this couinty there's 724 leads.  FWIW   Propstream is $99/mo.   And comes with 10k leads pulled / mo (I believe).   Propstream (like several other similar products) you can filter on age, value.  You can't filter on roof type (to eliminate flat roofs).  But there's pictures and age (newer then 1975 ish) can filter out bad things like clay/iron sewer, galvanized plumbing, flat roofs just on age.  BUT older are more likely to be wanted to be sold by older owners...  Sooo.

Re MF/commercial.  Please PLEASE pay for education in MF/commercial deal analysis and most importantly proper contract construction (often >>35 pages) and due dilligence steps.  IE a 16 door to 50 door due dilligence will easily cost you $5k out of pocket MINIMUM.  This is sunk costs even if you back out.   New folks make bad offers, or don't do dilligence thoroughly and end up with bad properties they struggle to get cash flowing;   old and soon collapsed sewer line, flat roofs (stay away from flat roofs),  old plumbing,  landlord paid water,  old applicances,  old R22 ACs,,,  etc etc.   The post closing maint can sink the ship, tenants move out, you find they aren't paying (in reality) and have to struggle to evict in a post CDC eviction moratorium where the courts are still slow / reluctant to evict (unless you are in a landlord friendly state/county).

Search in youtube for multifamily coaches.  I always reco folks take specialized deal types (MF, self storage, hotel etc) expert education.   I can't find my notes on the best MF trainer I've heard of.   Search BP commercial for multi family trainer/coach.  And youtube.  That $2k (includes travel and hotel stay) is well worth it.

REI is a knowledge business so also focus on knowledge AND your network of other MF buyers.  Check meetup.org for local REI groups to join.  REIAs are where old timers hang.

Best of luck, curt

Jim Pellerin · Answer

Yes, the type of property and exit strategy will greatly influence the type of outreach you do and the cost, For example, Costar, Reonomy and Yardimatrix are for larger commercial deals. Propstream, batchleads, flipster are more for SFH and smaller MFUs. All of them have build in outreach capabilitiies such as direct mail, sms, email. And the life-time value of a deal and your conversion rate will determine how much you are willing to spend. For example, if you are doing a buy and hold, your life-time value is a lot higher than if you are doing a wholesale or fix and flip. In your case, I would think you can spend a bit more becasue you are focusing on MFUs.

Dan Cioaca · Answer

@Curt Smith

I took a look at Propstream and it seems like a great value and provides a surprising number of services under one umbrella, so I'll probably start with that - thanks!

Thanks also for the very detailed response on MFRs more broadly. As far as the risks of MFR and the value of education, I take your comments to heart, hence why I'm here. I've been a SFR landlord for 10 years and have found that the business runs itself once good systems and team members are in place, which is part of my motivation to expand. SFRs where I live don't pencil and are much harder to scale, hence my interest in MFRs.

Now, I understand MFRs are a different animal, so I've started to get educated and am looking at buying my first property in the next 6-18 months, so there's no hurry. I listen to a handful of MFR podcasts and have read maybe 30 books on the various aspects of MFR over the past 3 or 4 months and I've gotten to the point of diminishing returns. I'm love learning, but I'm seeing decreasing marginal returns on education, and I think it's time to move on to hands-on learning. I hadn't seriously thought about coaching, but I'll take your advice to heart and look into it.

I'm also taking some steps to limit my risk. I'm starting local, so the properties are drivable, with small deals so I can afford the early mistakes. My target properties are 2-4 unit to avoid the commercial financing and so I can sell to a house hacker if absolutely necessary, and are in the range of 15-25% of the value of my primary residence, so they won't ruin me financially (or make much money) regardless of the outcome. I've also started finding partners for the parts I'm less experienced in, specifically construction/rehab. The job of deal #1 is to road test my team and systems, since those are hard to do in the abstract, and streamline operations for growth later on. The first property gets as long as it takes until it's stabilized and cash flows smoothly, and only then do I move on to the next deal.

I've also reached out to a few people already, e.g., investors, bankers, agents, etc., and I sense that doors will open much more easily once I can credibly say I'm already an active investor and landlord in their market. I've felt some skepticism from initial conversations and I get a sense that a lot of people think they want to build a real estate until the start to understand the messy details and various complexities, and then they back out. I'm hoping that by starting slow and steady, I'm able to have staying power and build my credibility and network over time.

Dan Cioaca · Answer

@Jim Pellerin

Focused on MFR for long-term buy and hold. Based on my personal experience, I'm planning to start with a few outreach channels and then expand and experiment over time. I'll initially handle inbound calls personally until I can iron out the script sufficiently to hand it off to a call center or dedicated salesperson on my team.

What's your underlying question? Does the effectiveness of direct marketing vary wildly based on property type? And why does exit strategy matter when considering the cost effectiveness of outbound marketing for purchases?

Jim Pellerin · Answer

@Dan Cioaca what type of properties are you looking for? SFHs? MFUs? What type of marketing do you plan on doing? Direct mail? email? Cold calling? What is the investment strategy you are using? wholesaling? fix and flip? buy and hold?

Build or Buy Off-Market Marketing List?

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