Hot Market House Flipping: Can You Still Find Deals?
|Since initially writing my best-selling home study course on wholesaling / house flipping, I get an ongoing stream of e-mails from people asking me a lot of the same questions. Many of them are from nervous would-be house flipping investors who are understandably anxious about making those first few real-live offers. The idea of signing their name to a contract is petrifying, and the images of what they might be doing wrong are all too vivid to the newbie’s imagination. |
A lot of these emails go a little something like this one:
I recently looked at 20 homes for sale in my area. After inspecting the houses, I decided to make 2 offers, but in each case the seller's Realtor just laughed at me. I mean, they really laughed hard! I'm not getting any offers accepted and I'm becoming very discouraged. I don't think that we have deals like you do where I live. Can you help me? It just seems like most homes in my area sell for the full asking price or more.
Looking at the facts in this email, its obvious to me that "Discouraged Newbie" is making at least one -- maybe even two mistakes I see so common to new investors.
1. Not targeting motivated sellers, and/or
2. Not making enough offers.
The Elusive Motivated Seller
In my neck of the woods (Baltimore, MD area), most homes tend sell for their full asking price and above as well. It wasn't that way when I first got started investing, but it's been a hot market for a good while now. And while it can be a good deal easier for me to sell a house than many people, I find that many people in my area complain about not being able to find a good deal anymore. With the market so hot, even a fixer-upper can be sold at-or-near full value. So why would a seller want ot deal with me, an investor?
Sounds like a picture similar to the one "Discouraged Newbie" just pained, right?
Understand this: The only difference between me and "Discouraged Newbie" is that I concentrate on the sellers who are motivated to sell. I mean they have a real reasonto sell, not just "want" to sell. And this reason is big and weighty enough to make them willing to sell to me for notably less than full price. Typically, these are banks or individuals who have a vacant property which needs work. I stress the word "vacant" for two reasons:
1. Vacant properties are nothing but trouble for the owners, and
2. 99% of the properties I have bought over the past three and a half years have been vacant.
Now maybe you've heard all this before. Maybe you know you're supposed to only deal with motivated sellers. But the problem is that you can't seem to lay eyes on one. I frequently help people in our flipping homes online newsgroup who feel this way.
Here's the secret: They're out there -- yes, even if you're in a hot market like mine. You just haven't found them yet.
How do you find them?
1. Be strategic, aggressive and effective. Have a specific and proven plan for your marketing/deal-hunting approach. And stick to your plan.
2. Keep looking. A big part of it is a numbers game. Many newbies give up just one or two steps shy of the big deal they thought they would never find.
Even though I focus on motivated sellers, most of them I speak to aren't typically motivated enough to actually accept my offer.
Get this -- if I make 30 offers, experience has taught me my chances are high that in 27-29 of them the seller is going to say "No," or someone else is going to offer more. That's right; I strike out much more often than having a seller say, "Yes," to my offer.
But I'm not concerned about all of the, "No's." I accept them as part of the process and forge ahead, knowing that if I make enough offers someone is eventually going to say "Yes," -- particularly if my offers are targeted toward sellers who have some degree of motivation. It's truly a numbers game. Any salesman worth his salt will tell you that -- and that's just what you're doing (trying to "sell" someone on the idea that you're the best solution for their house problem).
How To Keep Your Deal Funnel Full
In this business you cannot make money without inventory. It is extremely important that you always keep your pipeline of deals and potential deals full. And the way to do that is to constantly make offers. Many people come and tell me that they look at homes all the time but never buy anything. They say they find motivated sellers but none of their deals ever goes through. My next question to them is, "How many times have you put an offer on paper?" They are usually able to counter their answer on one hand.
In order to buy properties, you must make offers. He who makes the offers gets the deals. Sounds simple, right? Yet it's surprising how many new investors I see time and time again who are really struggling to overcome this mental hurdle. Personally, I average 40+ offers per month, sometimes many more. Over the course of one weekend, I made about 40 and bought 9 houses on Monday. To this day, this stands as one of my most productive offering sprees, netting about 1 out of every 4 properties (each was sold separately, by the way, not as part of a package).
And you know what? I never would have bought all of those homes if I hadn't made those 40 offers. I would rarely, if ever, buy anything if I only made one or two offers a month. Have you ever made 40 offers in a weekend before? Seriously, you should try it. It's intense. It's a learning experience. You need some rest afterward. But didn you hear the part about me buying 9 houses! Hello???
When Should You Make Offers? Quick Answer: Always.
That's right. Every time. Every single time you consider a house that even remotely smells of potential seller-motivation. When I look at 20 homes I make 20 offers, not just 2. In fact, sometimes I make 30 offers when I look at 20 homes. I make offers even on the homes I couldn't get out to see. If I'm targeting the right properties (i.e., those with sellers who may be motivated), odds are in my favor there will be several of those 20 sellers with enough motivation to seriously consider my offer.
What I don't try to do is select who those 2 or 3 sellers might be. Experience has taught me the chances of me picking the right ones are fairly slim. And why should I? Why take that chance? My low offers will fish out the sellers motivated enough to respond and thereby tell me where I should invest my time following up. Too many wholesalers try to pick the motivated sellers from a group by themselves when making offers is the easiest way to find out. I make offers on every single home that interests me if I even suspect the seller might be motivated.
Some I inspect; some I don't. Some are priced ridiculously high; others are priced ridiculously low. Some are in great areas; some are in bad areas. Regardless of location, condition or price, there is a number that works for every home and that is what I offer.
Get this: On occasions, I've actually asked sellers to PAY ME to take their homes! Why? Simple: because no other number worked for me. Sure, most of these offers are rejected (just like most of my other offers). Even on the weekend that I bought 9 homes, most (31 of 40) of my offers were rejected. In general, though, some of my offers are accepted, and those are the only ones that count.
(And You're A Wimp If You Don't)
Here's my personal challenge to you:
Resolve that you're going on an offer binge. Pick a weekend to sniff out possible deals (i.e. potential seller motivation) and resolve you're going to match my "40 offer extravaganza"! Or go to two of your friends and tell them that you're committing to making at least one written offer every day for the next 30 days. Come on, even if you can't do the weekend thing, you can handle one little offer per day, right? And tell your buddies that they have to confront you at the end of 30 days, and forcefully collect $250 each from you if you've not kept your solemn promise!
Trust me. Do it, and see what happens. You'll see what comes to the surface. Deals -- and probably more than you bargained for.
Ok, I'm being a little cute with this. But I'm also being serious. I hope revealing my "numbers game" to you will inspire you to quit whining about the lack of deals in your area and get out there and start making more offers.
If you make it your goal to make one good offer a day, then the deals will come. Trust me. If your offers are at the right price, then you will sell properties and make a nice profit. Do your homework, get your questions answered, and overcome your fears. Then make it your goal to average an offer a day because, as we all know, "An offer a day keeps the bill collectors away!"
|Since 1998 Steve Cook has flipped many hundreds of houses as an active Baltimore-area real estate investor. Steve's unique specialty is the "flipping homes 1-2 punch", a proven system of real estate investing that powerfully combines wholesaling and rehabbing houses. Steve Cook is dedicated to helping others succeed through understanding and aggressively applying his time-tested, step-by-step approach to flipping real estate. |
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