How do I find an investment property?

Photo by David Sinclair on Unsplash

In order to be a real estate investor, you need two elements, the cash (or access to loans) and a solid property to buy. Today we are going to focus on the latter. The obvious question becomes, how do I find an investment property?

On-Market/ Multiple Listing Service (MLS)-

Real estate is broken down into three worlds, on-market, wholesale market, and the direct to seller market. On-market is my least favorite way to purchase investment properties for one very simple reason, competition. When a property is listed with a Realtor and put on the Multiple Listing Service (MLS), everyone in the world can easily find out about that property which means that the person that is willing to pay the most money “wins”. Since the goal is to buy a property at a discount, this isn’t ideal.

The only time in my career that buying on-market was optimal was right after the recession in 2008-2009. During that time period, you could pay full price for a house that was listed on the market and get a really great deal in Charlotte, NC. During that time, many investors were on the sidelines due to fear of what would happen next, or they were trying to stay afloat due to the damage that the recession had caused their investments. This meant that there was far less competition than we are seeing in this current segment of the market cycle.

In a hot real estate market, you have very little leverage to negotiate a good deal with a seller that has listed their property with a Realtor. I have reached a point where I do not bother submitting offers on properties that are on-market. If a property is priced reasonably well, they will typically have 20+ offers the first day on the market. Frankly, you don’t want to be the winning bid because that means you have paid substantially more than the property is truly worth.

Wholesale Market–

The wholesale market is an interesting niche that seems to be evolving rapidly with the sophistication of technology in the real estate space. Wholesaling is simply an investor negotiating a deal directly with a homeowner and then selling that same property to another investor and making a spread between the price he has the property under contract for and the price that another investor is willing to pay.

For example, a homeowner might agree to sell a duplex to a wholesaler for $160k and the wholesaler might turn around and sell that property to an investor for $185k. If you are new to real estate investing that might sound odd or confusing but the investor that is buying the property for $185k is happy to do so because it has solid equity and/or cash flow. Plus, if they wanted a better deal, they should have created the initial deal with the homeowner for $160k.

Technology has changed the wholesale market because wholesalers are now able to build massive buyers lists with online platforms such as Biggerpockets, and social media like Facebook. It is typical for wholesalers to send a property out to their buyers list that has thousands of potential buyers. This accessibility is great for the wholesalers but more competitive for their buyers creating almost another MLS market.

Off-Market-

The best real estate investors know that you will get the best deal possible when you have an opportunity to structure a deal directly with the homeowner. This means that you have to be willing to put yourself out there and be much more entrepreneurial in your quest to find investment property at a discount.

• Mass Advertising

One way to find off-market deals is to do a ton of mass advertising to let people know that you are interested in buying investment properties. This could include putting out signs on the side of the road (be careful this is illegal in some areas and you could get fined) or buying advertisement space on billboards, radio, or search engines like Google. Others choose to contact a large volume of potential sellers via postcards.

Again, technology has changed the game because investors have more advanced tools at their disposal now. It is now possible to find a seller’s phone number so that you can directly call them or send them text messages. I have certainly gotten my fair share of negative feedback from homeowners when I send a letter inquiring about purchasing their house but I have decided not to take the next step of calling or sending a text to a homeowner. I have had a number of investors call and text me about purchasing one of our properties, and I find it to be a bit too intrusive.

If you go this route, you must understand that it is a numbers game, if you do it well, you will get a lot of leads, but there will be a lot of garbage in there. Most of the people will contact you because they want you to buy their house for $180k and it is worth about $150k, NEXT!

If you try the mass advertising approach, it is important to have a system to collect these leads in a methodical manner. It has become popular over the last few years to hire a service that will take the incoming calls and screen them to see how motivated the potential seller is. You can then pull a report to see which leads you are interested in contacting.

• Precision Advertising

If you are looking to acquire one good investment property at a time, precision advertising can be a more manageable way to accomplish your goals. Precision advertising is the process of farming a particular area for an investment property. Over the years, my wife and I have identified a particular part of town that we believed was a good area to buy a house, duplex or triplex. Once we settled on an area, we would send out letters to those homeowners to see if they had an interest in selling.

The biggest advantage of precision marketing is that the seller can tell pretty quickly that you are familiar with their neighborhood. It is easier to build rapport when you are knowledgeable about their community. Fewer people are interested in having a conversation with someone that sends out thousands of letters a month to the entire city as they don’t want to feel like “a number.” If you are spending time on finding a deal in a specific area you can quickly see opportunities as well. You may notice an overgrown lawn and send them a letter to see if they are interested in selling.

Precision advertising puts you in front of a possible seller so that you can create an agreement that works for all parties. People sell properties for a variety of reasons and it isn’t always to get a big pile of cash. In a previous post, I discussed how important terms can be when negotiating directly with the seller. Unfortunately negotiating terms is not typically on the menu when buying a property on the MLS or from a wholesaler.

What is your favorite way to buy an investment property? Have you ever done a deal off-market?

For more information, please go to The Lousy Investor.