Welcome to the next step in building your real estate portfolio and to creating a future where your time is dictated by you, and spent with the ones you care about the most.
This may be your first property or you could own several already. Regardless, the steps are the same whether you are a seasoned pro or a beginner. As an added bonus to this part of your real estate investing, you can involve your family. I love taking my kids with me to look at properties. We discuss the pros and cons of each house, location, repairs, and rental rates. I review the financial aspects of the deals with them to give them an understanding of why we are investing this way. This not only provides them with a usable life skill but engages them in something meaningful.
Making the decision to purchase a property is literally the single most important step to success in real estate investing. How can you be successful if you don’t start? For most things in life the first step can be the hardest.
“When eating an elephant take one bite at a time.” – Creighton Abrams
Many investors note that you only make money two times in real estate, when you buy and when you sell. While this may be true in some aspects, I believe if you buy right you can make money the entire time you own the property as well. Know your SIMPLE FORMULA, if you stick with it you will be cash flowing the entire time you own the property.
Your TEAM, as discussed in “There is no “I” in Team”, will now become your most important resource. Below, I will discuss several different methods of finding your perfect property. My favorites are, the MLS (Multiple Listing Service), driving the neighborhoods where you want to buy, Craigslist, Real Estate Wholesalers, Yellow Letter campaigns, and Networking with other investors. There are a multitude of other methods to obtain deals but we will focus on these as they are the most straightforward in my opinion.
The MLS – The MLS is a shared listing service used by real estate professionals such as Brokers and Agents. This listing service provides a central online location for all properties to be listed for sale, giving detailed information about each property including price, location, and specific details for each listing. Your Real Estate Agent will have access to this service and can create and share a filtered list with you to see every property listed for sale in your target area.
Typically, a list will be filtered by location, price, number of rooms, garage, square footage requirements, and any other options you have chosen. Personally, I like to see a list showing me ALL properties in my area that have been listed for sale. Discuss this emailed list at length with your agent to determine what you are looking for and ask them to send you an automated list every day. Look through these properties every day, make it a habit, and run the numbers on anything of interest. Use your SIMPLE FORMULA. Before long you will know the price point of the area and will be able to see a potential deal immediately.
Drive the Neighborhood – As we briefly discussed earlier, pick a neighborhood, farm it. Farming it simply means to know each and every house that is listed for sale or sold in the area. Look at the listing price, research the local tax records and find out the sale price when it becomes public. Understand the price per square foot that the neighborhood is bringing on average. The quickest method of understanding what is going on in an area is to ask your agent to send you a CMA (Comparable Market Analysis) report. This report will accurately give you the current listings, the sold information, as well as the addresses. I LOVE this report and I have my agent run it anytime I am considering purchasing in an area that I am not familiar with. Sometimes I will have them run the report on an area I know well to simply check against my current data.
Look for “For Sale by Owner” (FSBO) signs, call on them and discuss the house, price and options. Rarely do I find a deal from a FSBO, but it is more data to consider.
Look for run down properties, newspapers piling up, an overgrown lawn, a house that is in obvious need of repairs. Don’t be afraid to knock on the door and ask for the owner, discuss if they would like to sell. Ask for the owners contact information if renters answer. You may get a “No”, then again, you may very well get a YES and find a great deal! Talk to the neighbors, they can be a great source of information. Ask neighbors if they know of anyone in the area that is selling a property. Explain how you can make it easy for them to sell by making a direct deal and closing quickly. This will also save them the hassle of having to list the property, make repairs, not to mention having countless people walking through their house for weeks.
Craigslist – Here you will find all kinds of deals being offered. Most do not amount to much so be careful. This is an almost entirely unregulated site and anyone can run an ad. You will want to tread cautiously when discussing these deals with people you meet here. I always qualify these contacts by checking the public tax records to prove ownership. I also have my Title Agent assist me with some background on the properties title. Things to consider; is it in foreclosure, liens on property, multiple owners, etc. These types of problems can be worked through if you are patient and want to dig into them. I prefer a clean deal to one that takes months to complete with multiple parties. I have had deals that required multiple extensions only to lose it to an unknown issue, be wary. Always include your TEAM on these deals. Be clear that no money will change hands until you meet at the closing table. Your attorney and title company will help you ensure the deal is clean. Do not try to shortcut a real estate transaction by yourself.
Real Estate Wholesalers – A Real Estate Wholesaler is a private citizen or company that obtains property leads and finds buyers just like you and me. For instance, they may put a sign on the side of the road, someone calls them and wants to sell their house fast! They will typically put the house under contract and then reach out to their list of buyers and attempt to sell the house to a buyer with added markup. The level of professionalism in this industry is all over the place. Some wholesalers are very simple and some are very well put together. The more time you spend in the industry the more of these types of people you will meet. They can definitely find you a deal if they know you are serious.
Yellow Letter Campaigns – If you have ever owned your own home you have more than likely received a yellow letter. These are called yellow letters because many of them are yellow! These days they can be any color of postcards, handwritten letters, form letters, or a simple note mailed to you. You can find many services by simply googling “Yellow Letters”, study a few websites and you will find one that will works for you. You will want to determine how large an area you want to mail these out to. I would recommend you pick a FARM area and stick to it for the entire campaign. Most investors that I have discussed this with agree that it takes three to five mailings in a yellow letter campaign to begin to get calls.
Homeowners will call you wanting to sell their house fast, or just ask for more information, or even to tell you to quit mailing them! Some services will offer to answer and screen these calls for you as well, of course for an added fee. You have to have thick skin if you are going to use this method and answer your own calls. Remember, you only need one or two deals to make it worth it! Keep this goal in mind and don’t let a few negative responses stop you.
Networking – Networking is one of your most powerful resources. Knowing people in the industry can help you in many ways. Looking for a carpenter? Looking for a good “investor friendly” real estate agent? Need some attorney help? Looking to meet similar investors? I have found that utilizing my contacts that I have met while out networking vastly improves my chances of finding a quality vendor or team member. For the most part, people will not refer someone that did a horrible job. If someone does give you a referral they typically give you someone that they have had success with.
Most mid-sized and large cities have a Real Estate Investors Group, google it. Meetup.com is another great place to find real estate focused groups. I have met many great people through networking and continue to today. Don’t be shy, the simple act of getting out there and saying “I am or want to be a real estate investor” will help you gain traction in the industry. People for the most part want to help others be successful, especially people with likeminded goals.
Don’t try to do this alone, utilize your TEAM. With a good group around you the chances of finding a property that is a good deal greatly increases. Know your numbers and your end goal, keep them in the forefront of your mind when making a deal. If the numbers do not produce positive cash flow, move on. There are thousands upon thousands of properties listed and sold every single day, the right one will find you. Keep your eyes open and mind working!
Look for our next installment where we will discuss managing rental properties!