Buy Under Valued Property with Direct Mail in 5 Steps
Most real estate investors, seasoned and new, buy real estate backwards (I show you the right way below).
They look at the property, then make an offer.
In doing so, they miss the most profitable deals.
Here is what we do instead:
We make several thousand way-below-market offers every month.
Hundreds get accepted.
We choose the best ones and sell them for market value, usually within two weeks.
Here’s the process with detail:
We have built a fairly large company implementing the following concepts and I’m happy to share this new year 2016:
1) DATA. Locate a high quality source of property ownership data. Hint: it’s not from the county – they only look at what they need to assess value and send out tax bills. We have all or most data sources and one really stands out. I’m happy to steer you in the right direction if you need help. Here’s a hint: it comes from title companies because they need it the most. They write title insurance policies based on hundreds of years of parcel transaction history. It’s all documented and very well organized. It pays, in spades, for them to have the best data available.
2) SCRUB. Scrub or narrow the list down until you have exactly what you are looking for. Here is what we look for: Property that the owner no longer wants. Real Estate that is owned by out-of-state-owners, has accumulated back taxes and several other attributes make for high return acquisitions. This way they are motivated to sell it to you for any price you offer.
AND the property should not have any debt (mortgage) associated with it. You only want “for-sure” money makers. About 30% of home owners have no mortgage associated with their homes. 2000 census says there are about 70,000,000 SFRs in the USA. 30% of that is 21,000,000. I bet you can find a few in your market for cheap. No-mortgage, unimproved vacant land (our first niche choice) is closer to 100%. Banks don’t usually loan against any type of unimproved property. So we buy this property type for less than half of what we can sell it for every week.
3) MAIL. Send them an offer. Don’t send a letter to explore their interest in talking with you about a possible sale (huge waste of time). Don’t mail a cute post card or a fake eviction notice, or a silly colored letter that looks like it was hand written when it’s not (insulting). Hint: you aren’t going to trick them into selling the property below its value. They already want to sell you the property to you. And you know it because you scrubbed the data correctly in step one and found the sellers who are willing to sign your offer and send it back to you for way less than the property is actually worth. You are great at scrubbing data.
4) REVIEW. You will get inundated with returned phone calls and signed purchase agreements. Take a look at the offers you get back in the mail. Now is the time to look at the actual property and everything associated with that potential acquisition. Most people do it backwards. They go out looking for property and when they find a few that pass their tests, they see if the seller is interested is selling and pray for a good price.
Do this correctly and you will buy hundreds of properties a week.
5) BUY/SELL. Buy the properties you choose for cash (if you don’t have any money, see below because everybody has to start somewhere). When you finance a property everybody involved gets in your pockets. Lenders, representatives of lenders, mortgage insurance companies like the federal government, inspectors, contractors, and many more are in there, too. They all take a piece out of the deal you found and they all say some version of this: “you don’t pay me, the seller does” or “the lender does” or simply “someone else pays me, not you.” All bold lies.
Here is what you do: The seller signed your purchase agreement and so did you. Call your escrow agent and she will close the deal (and take her to lunch because she is your greatest asset in real estate investment). In our case, because we are seasoned investors, we close the deal ourselves by sending a Notary to the seller’s house with a cashier’s check in exchange for the executed deed and then we record it at the county where the property is located.
While the deal is in escrow or under contract, send a note to the hand full of investors you have accumulated over the past few months while you have been learning about data (see below – it’s very easy even if you are brand new). They will buy it for more than you paid because you only buy property that is super underpriced. In fact your buyer should make more spread than you do when she sells it to the end user. This way, she will come back for the next deal.
No Cash? Everybody has to start somewhere: Spend all your free time learning how to buy undervalued real estate using the 5 step method I just described. Find about 5 good wholesale buyers in your area in Craigslist. Post something like this: “I’m new in real estate and very good at finding off market / underpriced / undervalued houses in the X area. I’m buying a property for about 40% under market value and don’t have the money to close the deal. I don’t want this deal to go to waste. Give me a call if you would like to complete the deal together. There’s $40,000 of margin in the deal and I’ll take $10K. I have several others on the way from numerous direct mail campaigns. “
You will find more buyers, sell them more property and make more money than you can imagine.
Happy New Year and Happy Acquisitions.
email me at email@example.com for specific directions on where to get the world’s best real estate data and the best automated mailing company (the same ones we use).