Investment Property: Finding Deals on the MLS

  Many investors use the Multiple Listing Service (MLS)—a database of mostly active real estate listings—to find bargain deals which they can turn into a profit.  Others have not had as much luck cracking the MLS, finding only market-value listings and high asking prices.  Astutely, these investors realize that, considering the cost of the repairs and marketing required to resell the property, there is not a wide enough profit margin to invest in these market-value properties, and the smart ones refrain from pursuing those investments.  So how is the MLS used to find bargains?

      Instead of calling those tentative investors above “smart”, let’s call them “not stupid”.  They are not stupid, because they avoided investing in ownership of a commodity that would ultimately result in a loss.  However, if they were truly smart, they would recognize that there is a dramatic difference between a seller’s asking price, and the price they are actually willing to accept for the property.  Consider the process of coming to an asking price.  A seller sits down with an agent, who does a bit of research and presents a figure that they think the house will sell reasonably quickly for (based on the recent trends for similar properties in similar locations).  Almost invariably, the number quoted by the agent will be well below what the seller believes is the value of their home (no one wants to short-change themselves).  You’d think they might settle on a nice average between the two figures, but there are other factors involved. 

      Every agent and seller assumes that the buyer will come prepared to negotiate (and you should), which means when advertising an asking price, the seller is merely making an opening offer which they fully expect to be whittled down in negotiations.  Those investors who read the MLS prices and expect to show up and pay all of it are being taken advantage of, while those who read the asking price and think, “I bet I can get them down to 90%” are the ones who find the bargains. 

      Now the trick becomes sifting through the thousands of MLS listings to find the properties with the most motivated sellers (i.e. the greatest incentive to accept an offer well below the asking price).  Search the listings for other hints in the language that the seller needs to sell now, such as “Must Sell”, or “As-Is”, or “Needs Repairs”, or “Handyman’s Dream”.  If the seller is willing to list that on his opening advertisement for the property, then you can bet he is itching to sell. 

      Once you’ve found a set of these properties, call and make your lowest offer, regardless of the asking price.  If you undershoot, the worst that happens is they say no.  Don’t be discouraged; 90% of deals fall through even for the most successful investors in their most successful year.  It only takes one deal to work to turn a huge profit and fund your business moving forward, and you can find them on the MLS if you know how to look. 

      Let us know what you think. 

 

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