Over the past few weeks, I’ve received several emails from readers requesting to see what my deals look like. After browsing through the website content, I realize I haven’t shared much about my recent acquisitions. In order to remedy this, I will take the next several posts to outline the deal I just closed last month.
In today’s post, I am going to focus on how I found this property.
Finding my deals:
Before going any further, I should explain that I don’t work specifically with one buyer’s agent. I find a deal in one of two ways: either from agents I’ve worked with in the past or directly from searching on the MLS.
Agents have a lot going on in running the daily operations of their business and they don’t always remember to keep me in mind when they are getting a new listing. To remedy this, I stay in touch with the agent after we close on a deal. I will usually call or email them once every 4-6 weeks. This allows me to stay on their radar, get the inside scoop on new inventory, and to check in and get their opinion on what is going on in the market.
I am not suggesting that buyer’s agents bring nothing of value to the buying process. I just prefer to work directly with listing agents. I find that I can maintain control throughout the entire transaction, I get responses to my questions sooner, and I can usually work with the agent to see if my offer is going to be seriously considered. I don’t always get the properties I am going after, but I don’t waste much time writing offers on properties I realistically have no shot at.
Obviously, the key to finding new listings and obtaining the contact information for the listing agent is to get direct access to the MLS. I made an agreement with my property manager that, in exchange for allowing me access to the MLS, I would allow him to manage any properties I purchased. This has worked out well for the both of us. If you don’t have direct access, you should consider forming a relationship with a real estate professional or using websites like Zillow, Trulia or Craigslist to search for listings. The problem with these sites is that the listings are often outdated. I’ve found that most of the good inventory in my market goes contingent or is taken off the market within a day or two.
Now back to the main topic – how I found this deal.
After searching the MLS for several weeks, I came across THIS property: a three bedroom, one bath house, roughly 1100 sq ft, listed for $47,000. Familiar with that part of town, I knew this price was about 20-25% below market value and that within a few hours, the house would probably be taken off the market.
I immediately contacted the listing agent and I scheduled a time to have my handyman walk through the property. I live two hours away from my market and it doesn’t make sense for me to drive there just to look at a potential deal. My handyman does 90% of my repairs and rehabs, he knows exactly how I like to fix up the properties I own and is actually in the best position to tell me how much the property is going to cost to get it “rent ready.”
After he walked the property, he estimated that the house needed about $3,000-3,500 worth of repairs and updating costs. I knew based on the current conditions in my market that this property would not sell for $47,000. Based on comparable sales, I knew that the property is worth around $65,000 [UPDATE 8.28, the property appraised for $74K]
One pattern I’ve noticed is that most of the investors in my market want to buy a property below the asking pricing. Since I was basing my buying criteria on cash flow (not purchase price), I knew I could afford to offer above-market costs and still hit the return I was looking for (I’ll share more about that later during this series).
Making the offer:
In the end, I decided to offer $54,000 (cash with no contingencies). In addition to making an offer, I wanted the agent to know that I was a serious buyer and that I had every intention of waiting out the duration of the short sale.
A side note: One of the reasons a listing agent likes to represent both sides of the transaction (in addition to a bigger commission) is to maintain control throughout the deal. Representing both sides allows the agent to continuously take the buyer’s pulse throughout the process. One of their biggest worries is that the deal will fall apart altogether, making them look bad in the eyes of the bank.
This may be over the top, but to make my offer stand out, I put together a two-page document that showcased other rentals I owned near the subject property. I also provided references including two of the property managers I work with, the handyman I use, and a few of the past realtors I’ve worked with.
I knew that the agent probably wouldn’t read the entire document or even call any of the references, but what it DID accomplish was making my offer stand out. The work paid off – within 24 hours my offer was accepted, and I later found out that it wasn’t even the highest offer.
Stay tuned – in the next post, I will outline the next phase in the process: getting financing and obtaining rental comps.
Readers, how do you find your deals? What has brought you the most success?
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