Chapter 2 – How to find the deals
There are multiple ways to find a good deal and until you gain notoriety and the deals come to you, let's review the most effective ways to find a deal.
Find a seller under special circumstances
There are many reasons to sell a house and you can exploit some of them when you are looking to buy a house to flip it. A highly motivated seller is willing to make a discount, which is very important when you are looking for a good deal. Emotions play an important part in selling a house, so you might want to look for people who have gone through a phase of divorce, death of a loved one or relocation – in all these cases, the property needs to be sold fast and one should be open to negotiations. However, never take undue advantage of people’s emotions or emotional events to get the property for a cheaper price! Remember you might also end up in one of these situations!
Newspapers, Internet and Direct Mail
The newspapers are often overlooked, but many great properties are being marketed in the newspapers! Start by looking at the local offers and then enlarge your search area. Be prepared to hear negative replies, as negotiating a deal is never easy and some sellers are just not interested in what you can offer them.
Direct mail can also be a great way to find a commercial property because there are many people out there who are willing to sell their properties but don't advertise it outside their own circle of friends. On the other hand, if you place a letter in someone's mail box and it catches his attention, you may find a deal out of nowhere.
When you are looking a building to flip you need to focus on owner ads, both offline and online, because they are more interested to sell and they also provide some advantages, such as discounts and no extra fees. You can gradually learn which ads are posted by owners and which ones are posted by real estate agents. Before you learn to spot them out, look for ads with keywords, like “motivated”, “vacant” or “handyman”.
Don't overlook the rental ads, because there are many landlords who might agree to sell their property for a number of reasons. Some become landlords out of luck or unfortunate events, like the death of a relative, so they might be willing to sell the property. Some landlords just get tired of the whole renting process or they might reach the point when the property needs a lot of repairs and selling it would be a more profitable deal for them.
Speaking of ads, you can also post an ad on the internet or the newspaper under the “wanted” section. Keep the ad as small as possible, focusing on the condition of the property and the fast closing. Keep the ad out there for at least six months before you evaluate its results. Just as in the case of direct mail, there are people who don't bother to advertise their properties for a number of reasons and they prefer to contact buyers themselves. If there are a lot of other similar ads in the newspapers or sites where you advertise, don't worry: sellers can pick you because they like how you've answered the phone or another small, emotional detail, which you cannot foresee.
When you find real estate agent ads that advertise a certain property you might be interested in, they are usually posting ads to advertise themselves, not a specific property. So, get into their game and call them to ask for other properties they have on sale. It is best to send a fax or an email to let them know you are a flipper and you are looking to invest in a certain type of property, especially those that require fixing. This will make them call you when they have offers, as they know you are going to close the deal for a good price. At the end of the day, you will save time finding real estate agents who can present you with various offers.
If you manage to find a mortgage broker you are a lucky man or woman!
Mortgage brokers receive a lot of dead leads from people who face foreclosure, which you can save and turn into a flipping opportunity.
There are a lot of people who don't qualify for a loan, while other people are unable to pay their loans so they are willing to sell their properties.
All these situations are not advertised until the moment they hit foreclosure, so if you manage to get information on these properties from a mortgage broker, you've hit the jackpot in the world of real estate. Just like in other cases when you are dealing with desperate people, never try to take advantage of them to buy the property for lesser than its real value.
One of the ways to find great deals on a regular basis is farming a neighbourhood. This method is being used by many professionals, as it supplies a steady number of leads. The principle is simple: you focus on a single neighbourhood or area to buy houses. It might be an area close to your own home or not – the important thing is to be a hot area for the real estate business.
One of the great benefits of farming is getting to know the area and its dynamics, which will make your offers more precise. When you can evaluate the value of a house as effectively as possible and you know how much value you can add, you can also take out the property at a fair price and sell it as fast as possible.
Another benefit of farming an area is that people will become accustomed to you and your marketing strategy, as the entire area might oversaturate with your business cards and offers. When people get to know you, they tend to make businesses with you, so farming an area might be a great way to find deals for flipping.
Government-owned and Bank-owned
The properties that are being foreclosed by the bank are called REO and most times, come with special financing. All the banks have a special department that deals with REO properties, so call them and let them know you are interested in buying these properties.
Another type of REO is the government owned property. There are many buildings sold with a federal loan or under other government regulations that make these homes affordable for medium and low income families.
The problem is these programs can end with foreclosure if the tenant fails to comply with the specific mortgage measures. You can find these properties on the official websites dedicated to government owned homes, but to access these databases you might need a real estate professional or a registered real estate broker.
When a house owner dies, the property becomes a probate estate while the will is being processed and the property is being passed over to the heirs. However, there can be times when the heirs are not interested in the house itself, but in the money, so they are eager to sell it and get their inheritance as cash. While the property is being disputed it is being cared for by an administrator.
To find these properties you can go over the obituaries or work with a layer that can inform you on the probate estates in the area. Once you've found an administrator, let him know you are interested in probate estates and other decaying properties; an administrator usually has multiple properties to deal with, so you may find one or more deals from one single lead.
The reason to buy such properties is because they are usually in poor state because the owner was no longer interested in the building or was not able to care for it. There are also cases when the building has been vacant for a long time, so it is neglected.
When you are looking for the best deals you can't cover large areas, so you need all the help you can get. After achieving some experience in the business you will see that most of your deals come from referrals, so start working on them from the very first moment.
Get business cards and make sure every real estate specialist in the area has at least one, so they can easily contact you when a good deal comes out in the market. Hand over your business cards to all the people you know, from your friends to the mail man, insurance agents and other persons who meet a lot of people due to their work environment.
When you are looking to flip a building you need to pick the right neighbourhood – if the neighbourhood is not a hot area for commercial buildings, you might have an amazing hotel, but struggle to sell if after the flip due to the neighbourhood.
There are certain qualities people look for in a neighbourhood, apart from what they look for in a property, so you must know what type of people are buying in the area, to be able to rehab the building you buy. In this way it becomes appealing to potential buyers.
A desirable neighbourhood has a low crime rate, a significantly increasing rate of popularity among a certain types of people, like families, students, couples or elders – remember each group looks for different features in a neighbourhood! - and a steady value for the buildings, making them a good investment for the buyer.
Bad neighbourhoods are those that lack schools and other educational facilities, hospitals and medical facilities, infrastructure investments which can promote dangerous situations or noise, like a highway. No one wants to buy a motel in a noisy area, except people who target businessmen, which requires your building to be located in a hot commercial neighbourhood.
Now that you've settled for the right location, let's see what to look for in a property.
The first and most important thing that you should know about flippable properties is that you need to find all the details yourself before the buy!
Many flippers buy properties at auctions, without seeing them, which can be a great deal, if the building is in good condition, or might break the entire process of flipping if is filled with mould or requires other significant fixes.
And when it comes to fixing, if the building has a poor structure, eaten by termites or so, you might need to tear it down completely instead of fixing it. And you don't want to build a new commercial property from scratch! To make sure you pick a structurally good building, take a deep look – or bring with you someone who can do this – at the essentials: the plumbing, the electric system and the overall structure, especially in wooden buildings.
Speaking of money, the building needs to be under evaluated on the local market, so you can increase it. If you buy the best property in a poor neighbourhood you can't increase its value a lot; if you buy the worst building in a good neighbourhood, it is easy to add value, because it can only go up!
The last thing you would want to evaluate is how far the building is from your own home. You will have to make frequent trips to this property in the following weeks, or even months, and definitely you don't want to spend hours on end on the road, spending a fortune on the gas.