Looking for strategies in a seller's market
Architect · Grand Rapids, MI · Member since 2017 · 3 posts · 1 vote
I am living in Grand Rapids, Michigan and am interested in investing locally. I have yet to do a deal because I am nervous to pull the trigger when I consider the current housing market. In Grand Rapids, houses go on the market and are sold for over asking price the next day... I have put in offers on several duplex's, and have been out-bid by 5k + / all cash deals.
I am reaching out for advice on how to get into my first in such a crazy market. I am open to any kind of strategy - but would be most interested in a duplex, triplex, quad, or single family flip. I am an architect, so new-builds would also be an option (although I would need to reach out for other financing options as I could not afford to do that on my own). Any suggestions would be much appreciated!
Usually I'd recommend direct mail but in your situation I'd actually recommend door-knocking. Why? Because you're in one of the hottest markets in the country right now and MLS is complete no go for deals, and direct mail is being used extensively in your market as well. What works for this situation? Door-knocking. But door-knocking is only effective if you have a good pitch and are willing to listen to sellers and solve their problems. So for example, door-knocking a pre-foreclosure would be a best bet but it's full of emotional landmines. So here's an epic post from Ken Min that shows you how to do just that:
"First, I knew it was a pre-foreclosure so I knew there would be a lot of emotion involved. My first goal was to defuse the emotion. I would knock, and say that I was buying houses in the neighborhood and offering a variety of ways to buy the house.
That would usually pique their interest. Normally, they would say "what do you mean by that", which is a perfect opener for the various techniques I use (Subject, To, Wrap, Lease Option, etc) and that it didn't require fixing up the house or house "showings". I told them I am not a real estate agent so those fees could be saved. That would usually get me in the door if they were inclined to talk.
Once I was at the dinner table talking, I'd ask them what their goals are. (Solution selling.) I'd let them talk until they were finished. I'd write down on my pad what seemed to be their key points. It showed I was listening.
I would then ask them how much they thought the house would sell for. Then I would ask how much the principal is. That ALWAYS confused them. Which is good. They didn't know if I knew they were behind on their mortgage and weren't sure of the number.
So, I would simply take my pad and say "let's figure it out". I would write down principal, I'd ask if that included taxes, "does that include insurance", do you have an HOA, is there a second loan on the house, a HELOC or any unpaid child support liens, and then I would say, very casually "about how much will it take to bring the house current?, does that include legal fees? On rare occasion, someone would say "the loan is current" so I put down zero for that number without questioning them. With the others, I would put in the number (arrears) which meant that we all knew the house was in pre-foreclosure without having to use that nasty, emotional word.
I would then ask if a sale date had been set. I already knew the answer. Sometimes they did not know because they had never read the foreclosure notice. (Too afraid of the obvious.) I would tell them that there is always a solution, I had seven solutions available to me at the time, but not all solutions are equal. I would explain the pluses and minuses of each and then ask them which one I could help them with. More often than not, it was to give them "walking money", do a Subject To and take over their loan and give them 30 days to move. I would bring the loan current and that would help with their credit.
Door knocking pre-foreclosures works if you treat them as though they are people, and they are going through a tough time. Few people are in foreclosure by choice. I made a LOT of money using that technique (door knocking)"
Kevin I would love to help with this process. I think the first thing you need to identify is the rate of return you are looking to achieve. Once you understand this, and are confident with the numbers bidding on properties is easy. It either fits or it doesn't. Don't get caught up in the emotion of "highest and best" Establish your goals and bid accordingly. I advise people to buy only based on the numbers (although it's hard to ignore appreciation) as the economy goes up and down your investment will be stable based on the rental income and not determined by comps or the market.
Feel free to reach out and we can discuss further.
On a separate note I am looking for an architect for a remodel on my personal residents. Maybe we can talk about that as well.
Hi @Kevin Swanson.....@Tim VandenToorn is absolutely right when it comes to knowing your numbers. Once you create the right model and criteria; it makes the process of sorting out homes and creating strong offers much easier.
Another thing to consider is that if the local market is that competitive; them you might want to look off market for properties. The MLS is always going to have more competition because that where 97% of all buyers are looking. Create a marketing strategy for your local area and work the hell out of it. It can incorporate direct mail, door-knocking, or online marketing capturing seller contact info. I use a combination of both MLS opportunities (I'm licensed in NV) and off market opportunities for our flip properties in Vegas & San Diego.
Hope this helps...best of luck to you.
Hey @Kevin Swanson
Not to sound like a broken record, but the posters above who stated that your first step should be setting a minimum return are spot on.
From there, it will be rather easy to determine how high to go in the bidding process.
Other than following those numbers religiously, writing offers with shorter contingency periods is a great approach in San Diego (not sure if Michigan purchase contracts have contingencies set in stone - consult local pro).
Other than that - Larger EMD, paying some of seller's closing costs (or, at the very least, not asking them to pay any of yours), and shorter escrow (consult with your mortgage pro first) are going to be the big ones.
Usually I'd recommend direct mail but in your situation I'd actually recommend door-knocking. Why? Because you're in one of the hottest markets in the country right now and MLS is complete no go for deals, and direct mail is being used extensively in your market as well. What works for this situation? Door-knocking. But door-knocking is only effective if you have a good pitch and are willing to listen to sellers and solve their problems. So for example, door-knocking a pre-foreclosure would be a best bet but it's full of emotional landmines. So here's an epic post from Ken Min that shows you how to do just that:
"First, I knew it was a pre-foreclosure so I knew there would be a lot of emotion involved. My first goal was to defuse the emotion. I would knock, and say that I was buying houses in the neighborhood and offering a variety of ways to buy the house.
That would usually pique their interest. Normally, they would say "what do you mean by that", which is a perfect opener for the various techniques I use (Subject, To, Wrap, Lease Option, etc) and that it didn't require fixing up the house or house "showings". I told them I am not a real estate agent so those fees could be saved. That would usually get me in the door if they were inclined to talk.
Once I was at the dinner table talking, I'd ask them what their goals are. (Solution selling.) I'd let them talk until they were finished. I'd write down on my pad what seemed to be their key points. It showed I was listening.
I would then ask them how much they thought the house would sell for. Then I would ask how much the principal is. That ALWAYS confused them. Which is good. They didn't know if I knew they were behind on their mortgage and weren't sure of the number.
So, I would simply take my pad and say "let's figure it out". I would write down principal, I'd ask if that included taxes, "does that include insurance", do you have an HOA, is there a second loan on the house, a HELOC or any unpaid child support liens, and then I would say, very casually "about how much will it take to bring the house current?, does that include legal fees? On rare occasion, someone would say "the loan is current" so I put down zero for that number without questioning them. With the others, I would put in the number (arrears) which meant that we all knew the house was in pre-foreclosure without having to use that nasty, emotional word.
I would then ask if a sale date had been set. I already knew the answer. Sometimes they did not know because they had never read the foreclosure notice. (Too afraid of the obvious.) I would tell them that there is always a solution, I had seven solutions available to me at the time, but not all solutions are equal. I would explain the pluses and minuses of each and then ask them which one I could help them with. More often than not, it was to give them "walking money", do a Subject To and take over their loan and give them 30 days to move. I would bring the loan current and that would help with their credit.
Door knocking pre-foreclosures works if you treat them as though they are people, and they are going through a tough time. Few people are in foreclosure by choice. I made a LOT of money using that technique (door knocking)"
Seems like my first step is to establish a more clear rate of return I would like as @Tim VandenToorn suggested in addition to specific property criteria. Once I have a framework, it seems like it would come down to discovering deals that fit within it and then applying the persistence / patience to keep putting offers in. That persistence is probably looks like a lot of door knocking as @Ray Lai mentioned, and patience of keeping at it as @Julie Haveman is.
I just wanted to thank everyone for all the feedback! This was my first post on BP, and clearly the community aspect of this website is strong which is super encouraging. I am taking notes and absorbing all the helpful tips.