Where to focus your efforts when investors are vague on location?

Question

I'm beginning to run into a similar situation with my investors over and over again. I ask them what neighborhoods they want to invest in and they list an area of the state covering well over 50 towns. Then I ask for their top 3 and they tell me they will invest anywhere within that area at X% of FMV. So my question is, if all my top buyers are giving me a HUGE range of towns to choose from, what should I look for in picking MY top 2-3? My top couple of buyers are looking for roughly 65% FMV, can spend up to ~$1M cash, and can close quickly. What kind of area would you go after? I should mention that in MA we have a WIDE range of towns in just a few miles, from $1M mansions down to $35K REOs. What type of area would you go after?

Nick J. · Answer

I would first verify that they're actually buyers. Just become someone tells me they're a buyer, doesn't mean jack and the bean stalk to me, prove it is what I say. I can care less how much they 'can' spend or how quick they 'can' close if they're all talk and no walk. If they can't respect your time by giving you non-vague answers to your direct questions, the consider giving them the same level of respect by working with someone else. If you still feel loyalty to someone that doesn't reciprocate (sp?) then I would seek out where they have bought before and use that as a starting point. If you find that they've bought in a certain area 7 times more than other areas, that would be an indication that they like that area more etc......

Ryan Webber · Answer

I would focus on older, lower end areas that have a high number of sales on the MLS. You need areas that have plenty of equity (areas older than 30 years) and lower end areas attract rehabbers AND landlords. As you already picked up on, higher end houses have more educated sellers and lawyers who are normally less motivated to sell cheap. I personally would recommend you find your prime farm areas and then find your buyers in those areas. It will save you a lot of time and money in marketing if you focus on certain prime areas.

Scott R. · Answer

While you can advertise and target any specific area, when talking about 60% fmv and such you cant be too picky as to the area. Of course you WANT to find property in this or that area, but need to be open to most any area, which is why you need to have some rehabbers, some landlords and a little bit of everyone on your list. Although theres different types of carpet, tile, ect, generally theres a bottom. Carpeting a 400sqft room is gonna cost the same using the same materials/labor, nomatter if its a $25,000 house or a $250k house. Lets say $3000 worth of carpet, on the cheaper house thats over 10% of the purchase price.. Just over 1% on the higher house. In MY area, MLS houses start at around $30k (for a section 8 type housing area) and Nice area houses go into the $300k's Rehabbers here, with the exception of one wholesaler/rehabber go for the $100k price range houses on average id say. ARV values $100-200k, older neighborhoods yet good areas, good schools, all stuff that appeals to the owner occupant that will eventually be purchasing the house. Only real way to flip cheaper properties is to offer to carry the property as most people willing to live in those areas will not be able to purchase. Just from my watching several different wholesalers sites daily it seems to be alot harder to get the higher priced properties at great discounts. Alot of the wholesale properties in my area are in not the greatest areas, and wouldnt have sufficent markup to most rehabbers, yet are great deals for landlords and sell very fast.

Scott R. · Answer

Yea, along with the bigger profit possiblities comes the greater cost, Higher realtor fees Higher closing cost (if paid by seller) and prob most importantly higher holding cost, and higher priced properties generally sell alot slower. So theres some good mixed with some bad.

Sage Jankowitz · Answer

That's interesting Scott. Off the bat it sounds like a great opportunity to go for the bigger houses as one would think that their might be more room for profit. Having said that, when you're dealing with sellers of $400K+ houses generally you're dealing with highly educated people that have even higher educated lawyers and such working for them. Sorta complicates things in most situations...

Sage Jankowitz · Answer

Nick, can I give you a PM? I'd like to chat about this further privately.