The most common complaint I hear among both new and experienced real estate investors is that there are no deals in their market. It doesn’t matter where their market is or how long they’ve been investing; the common theme is that there seem to be no deals out there. Newcomers claim that there are too many established investors already and that they’re hoarding all the deals. The experienced investors claim that all these new investors are now in the market and they’re overpaying for properties. So who is right?
My company flips homes in Las Vegas, which is consistently ranked as one of the most competitive flipping markets in the entire nation. Despite being in a competitive market, we still managed to purchase over one hundred homes last year. The truth is, there are deals in every market regardless of the inventory, population size or price point. The real question is, then, “How do you find deals?”
There are three basic ways: MLS, wholesalers and direct-to-seller marketing. In fact, we bought all our homes last year with just those three methods. Buying from the MLS and wholesalers are great strategies, but direct-to-seller marketing is worth exploring in depth.
In my view, direct-to-seller marketing is where the best deals can be found. The reason for that is because there is no middleman involved. You don’t have a real estate agent or a wholesaler taking a cut. When you’re face to face with a seller, it’s much easier to make a deal. The goal, then, should be to get in front of as many motivated sellers as possible. So what does a motivated seller look like?
Here are some different types of motivated sellers:
1. Absentee: A seller who doesn’t live at the property.
2. Pre-foreclosure: A seller who has defaulted on their loan and is now in the foreclosure process. Typically, you will get a better deal if you can buy from them before the bank takes it back.
3. Empty-nester: Someone over 55 years old who wants to downsize after the kids have moved out. If they have a two-story home, it’s likely they want to move into a one-story home as they get older.
4. Someone recently separated/divorced: If a couple is going through a divorce, many times they want to sell ASAP and move on.
5. A homeowner with tax liens: If they can’t pay their taxes, they have some type of financial distress.
6. A homeowner with high equity: This owner might not have a lot of motivation, but they have a lot of equity, so there could possibly be a deal.
7. In probate: A family member died and now their heirs are inheriting the home. Many people don’t want to live in their parent’s homes and would rather cash out.
You can obtain a list of these seller types from listing services or your local title company. All of these sellers have some type of reason for why they would want to sell. They would be the best people to target with your marketing. The next question is how do you market to these people?
1. Direct mail: Send a letter or postcard to the seller. This strategy can get costly depending on how much you spend per letter or postcard. Despite that, there are many investors who find great success with this technique.
2. Cold-calling and text messaging: Call or text the seller. This is another old-school technique that has worked in any type of sales industry. If you can get a seller on the phone, you have a great chance at building rapport.
3. SEO and PPC ads: Set up a website and drive traffic to it through online ads. This can also get costly and it will take a long time to get set up and become highly ranked. But with everything transitioning online, it might have the highest conversion rate.
4. Door knocking: It doesn’t cost you anything but sweat and time. Also, you have your best chance at closing somebody face to face.
All of these marketing strategies have been proven to work. But, which one will work best in your market, with your budget and with your seller type? I don’t have the answer to that. The only way to find out your most successful strategy is by testing. I recommend you test for at least 90 days any marketing strategy you attempt. If you market for less than that, you won’t have enough data to know if it works or not.
In terms of data, the two biggest points to track are cost per lead (CPL) and cost per deal (CPD). To calculate CPL, take your marketing budget for whatever channel you choose and divide it by the total number of leads you received from the marketing initiative. For example, if you spent $1,000 on direct mail and you received 10 leads, your CPL would be $100. Once you close a deal, then you can calculate your CPD by dividing the marketing budget by how many deals you closed. If two deals were closed from the $1,000 spent, your CPD would be $500.
Once you get the leads coming in, you will need a customer relationship management (CRM) system to put them into. This system will keep all your leads information in one spot. Most CRM’s have the ability to set reminders of when to follow up again, as well as send automatic emails and text messages. It is an extremely important tool because the majority of leads are not going to want to sell right away. But with time and follow-up, they can turn into deals down the line.
My hope is that these steps give you a blueprint to acquire properties in a competitive market. The steps are simple, but they are not easy — this process requires a lot of work and perseverance, so don’t be disappointed if you struggle. Each setback will bring you that much closer to success.