Tuesday, April 24, 2012
Finding the Deal
Perhaps the most important thing that any real estate investor can do is find the deal. And there are so many ways to find deals that an investor could easily be accused of ADD-investing (attention deficit disorder investing) as they careen from one approach to another. I must admit guilt here, but at the same time, it helps to understand options. The more tools in the tool belt, the more options one has for finding a good deal. But as a new investor, it helps to have a focus. Let others know what you are looking for. “A good deal” or “something that cash flows” is meaningless, rather indicative of a thought process that is not yet well thought-out. Investors with specific criteria are more likely to find real deals, as they have been specific in the criteria for their search. Here are some options, pick ONE to pursue in the next month. And identify your strategy to find them. Distressed properties. Looking for properties that I can fix and flip or fix and keep as a rental. Make a note of every property in my neighborhood that looks neglected or uncared for, in need of maintenance. Enlist the support of other bird dogs to identify other fixers or eyesores that need repair in their neighborhoods. Do a search of “fixers” on the NWMLS. I like to make a note of these on my morning runs through the neighborhood. Distressed owners. Look for properties where the owner is in distress due to illness, aging, divorce, relocation or other “must sell” situation. Search for “must sell” ads on Craigslist, FSBO websites or NWMLS. Under Water Owners. Virtually any property bought between 2004 and 2010 will have more debt than the property is worth. Get a list from the title company of owners who purchased recently and send out letters. Homeowner may be a good candidate to offer Ron LeGrand’s ACTS system (Assignment of Contract Terms). Free and Clear Owners. Typically have owned their property for more than a decade and may be ready to downsize. Look for elderly owners who may be ready to move into an apartment or assisted living. Owners who are financially stable may be willing to sell their property on a seller note, or contract for sale. Owners who own multiple properties may also be an excellent candidate for offering seller financing. Out of State Owners. Look for rentals with out-of-state owners who may be accidental landlords or just tired of landlording long-distance. Probate. Target out-of-state executors who have to dispose of real estate. They don’t know the local market and just want cash out for the heirs as quickly as possible. Tired Landlords. Who’s been in eviction court lately? Delinquent Payments. Target owners who are late on their property tax payments, homeowner association dues, or mortgage payments and those facing foreclosure or bankruptcy. Bank-Owned Properties. Some of the best deals out there in terms of pricing; much quicker decision-making than on short sales. But remember, it’s the bank’s way or the highway on these deals. You will generally have to play by the bank’s rules. Auctions. Get them before they become bank-owned properties. Play it conservatively by focusing on vacant properties that you can preview before you buy. Be wary of auction house fees, if you are buying at traditional auctions, as opposed to foreclosure auctions. HUD Homes. Not so easy to flip, without a double closing; and investors run the risk of losing their earnest money, as there is no inspection contingency for investors; and contracts may not be assigned. However, bidding is incredibly easy, especially with a HUD broker license registration. Specialized housing. Thinking about running a group home? Renting out by the room? Providing live/work space for artists? Trying the Nick Sidoti approach of renting to disabled populations? These will all require specific types of properties, and the criteria will need to be fairly specific. Expired Listings. Why didn’t the house sell? Can you the investor do what no other buyer has done before (at least for this property)? Can you find motivated sellers whose houses are not selling on the market, but who are now willing to deal? Can you overcome the obstacles that other buyers could not (bad locations, obsolete functionality, poor layouts, dilapidated neighbors, unchained pit bulls)? Income Properties. Where do these things cash flow? What markets offer the best return on investment? Are you looking for cash flow? Or appreciation? It is unusual to find both in the same market. Go where you believe you will find the most of what you seek, whether that is income or long-term growth. Also, what class of property is your primary focus – multifamily? Storage? RV and trailer parks? Warehouses? Retail? There are profitable niches for investors in each of these areas. Pick your own niche and identify the marketing approach that is most likely to identify real prospects for you, and go for it!