IC E Lesson: The Inside Secrets to Finding Deals in a “Seller’s Market”
In every single city I visit, I’m challenged with some version of this statement:
“Our market is so hot that it’s really not possible to buy deals at investor prices right now—much less at wholesale prices.”
And I mean EVERY city, from Nashville to L.A. to Toledo.
In fact, I hear the exact same complaints from people in my own market: there just aren’t deals, period.
And yet, in the past 2 weeks, I’ve put a (truly awful) house under contract for $1,000, and a (rented, paying) 4 bedroom rental worth $75,000 after $12,000 in fix up for $22,500.
So, is Cincinnati somehow the one place in the country where the investors who work there are wrong about the market being tight? Perhaps my company ruffies sellers into signing contracts? Or is there some secret that I know that you don’t about finding inventory when there’s not supposed to be any?
Actually, the answer is none of the above. If you’ve heard me speak or read one of my home study courses, you already know all of my “secrets”. But since you’ve paid me to hold your hand a little, let me reiterate them simply and clearly, and then you can decide whether to follow my advice, or continue to believe people who AREN’T doing deals.
“Secret” #1: The Good Deals are “Off-Market”.
An off market deal is simply one that isn’t being advertised to the public as being for sale.
It’s not voluntarily listed in MLS, and it’s not part of an involuntary advertised sale like a sheriff’s sale, trustee’s sale, or tax sale.
It’s a property that the owner would very much like to sell, but isn’t taking active steps to attract buyers for.
There are a lot of reasons that an owner would want to sell a property but not actively list it: he’s tried it before (usually at too high a price), and it didn’t work, so he thinks it DOESN’T work. He tried to list it and a couple of agents refused him because of the condition. He’s got personal or financial issues that are sucking up all of his energy. He keeps meaning to get around to fixing/cleaning/renting it so he can get a higher price, but never does.
Your job in a tight market is to find people in this situation by looking for the signs—distressed condition, vacancy, legal actions—and marketing to them to let them know that you are an quick, low-hassle solution if they want to get rid of that headache.
But you knew that already.
“Secret” #2: Don’t Fish in the Most Crowded Pond
This is an easier instruction for a wholesaler to take than it is for someone who NEEDS to find a specific type of property due to their exit strategy, so let me talk to the wholesalers for a minute:
Wholesalers, what is the most fought-over type of property in the market right now? If you said “3-4 bedroom 2 bath with a 2 car garage in a decent school system”, or even “A retailable property”, you’re right.
EVERY retailer—and a whole lot of home owners—feel the squeeze in the market for that kind of distressed property. Basically, those houses are selling, even to investors, at 85-90% of the ARV – repair costs, because there are a lot of home buyers willing to do a little work to get a house, and because a lot of really newbie retailers who don’t know how to evaluate their own costs and profits are willing to jump in and buy that limited inventory right now.
So, wholesalers, what do you do when a particular property type gets too hot to touch? Redouble your efforts to buy them? Ruin your long-term reputation with serious buyers by selling at 95% of ARV? Or go find deals in a less-competitive property class?
In looking at my 2016 deals, literally 84% of them were sales of rental properties in rental areas to landlords. Ya know why? Because those are the deals the rest of you folks are ignoring, and the cash money spends the same way as the money from sales of retailable houses.
But that’s just common sense.
“Secret” #3: Deals Take Time to Percolate.
In 2009, at the bottom of the real estate market, I was practically being stalked by sellers. I’d tell them no, I can’t possibly pay you what you owe on your property, and they’d call me over and over offering to bring more and more money to the closing…because I was one of the few potential buyers they could even find.
Things are different now: often, when a seller first calls my office, he’s asking an absolutely insane dream price for his property, even when he has a motivated story. I’ve seriously had calls within the last 6 weeks from multiple sellers asking $375,000 for a property in a condition where the right price is more like $30,000.
Why is this happening? Because sellers are hearing that the market is hot. What’s more, if they live in an urban area, they’re observing that (completely LEED-renovated, much larger and nicer) properties around them are suddenly selling for $400,000, and they do this math:
“If that house sold for $400,000, and my brother in law told me 22 years ago that he could renovate mine for $5,000, then she should want to pay me $375,000 because then she’ll make $20,000, and that’s enough for anyone”.
Some of these sellers aren’t motivated to sell UNLESS they hit the lotto by finding a buyer who will overpay, but many DO have good reason to be motivated—and they need to hear from several people that if they wanna sell, they have to get real about the price.
That means that 1. You have to tell them the price at which you CAN help them 2. You have to do it in a nice way so that you don’t make them feel foolish or mad and 3. You have to be waiting with an offer when they finally realize that $30k is better than $0k.
Make the offer and follow up, that’s Real Estate 101 stuff. Bet you knew that.
“Secret” #4: No one, in any market, hot or cold, has EVER gotten deals without making offers
So you can keep believing that the reason you’re not working to get deals is that there aren’t any.
Or you can admit that the reason you’re not working to get deals is that you’re scared to make low offers, influenced be the naysayers around you, uncertain that it’s really going to work, worried that it won’t. And you can accept that if you’re not making offers, that deal and that paycheck are NEVER coming. NEVER.
Or, just maybe, you can make yourself a scorecard that says, “Every week, no matter what, I’m going to reach out to 50 prospective sellers, and I’m going to tell 5 people what I can do for them, and I’m going to get help from Vena when I need it, and I’m going to do this until someone says yes and I get paid.”
Because, bottom line, that’s the secret to how it works.