Rookie Q: Why target higher equity owners?

Question

Hey everyone,

As one that has just begun to drive for dollars, I am a total rookie when it comes to direct marketing. Having said that, I keep on seeing a fairly common theme of making sure it's people with higher equity and those have owned it for a longer period of time. The latter point would seem to directly correlate with the former point, and I also get that typically if someone has only held the property for a year or two, more than likely that's not going to be a great motivated-seller pool in the big picture.

However, I'm still trying to understand how the higher equity piece specifically plays such a significant role in the overall success of this approach. Can anyone give me a tangible example of the actual math behind why the higher equity owners are targeted?

Thanks so much!

Antoine Martel · Answer

Motivation and distress is the key. If someone has a lot of equity in their home and they need to get rid of it tomorrow. It allowed them to take a low offer to close quickly. It happens.

Tae C. · Answer

Account Closed thanks for both of your responses, and for the specific examples with the numbers. I think I do understand, so I have a follow up question that may indicate that I do indeed understand or I'm still missing it.

So let's use Ryan's numbers, but maybe with a more specific scenario: ARV is $150,000, it needs say $35k rehab, and using the 70% approach just for the sake of example we need to be all in at $105,000 - meaning our maximum offer is $70,000 to the seller. I think where I get stuck in this is, why would the owner be willing to take such a low offer when they could sell it for higher without much effort given the assumed values in this example?  Is this simply where the "motivated" aspect of "motivated seller" has to come into play - they are so motivated to sell that they don't think it's worth it to put just a little time/effort/resources to gain a potentially much greater profit?  Again I know this is such a rudimentary question but the psyche of it all fascinates me.

Sean Carroll · Answer

@Tae C. also if the property value is very low and they do not have a lot of equity then you are looking and doing a short sale with a bank which is a complication and more work compared to someone with a lot of equity they may be able to pay of the remainder of the loan and walk away with cash.