It’s exciting watching those programs on television where the investor goes out, purchases a property and flips it for a fast $10k + profit.
Is it possible to do that yourself? Is it a scam or is it a viable way to make some money? Can you really do it without any money or credit like you hear on those 2:00 am infomercials?
It is possible, but you must do a lot of things that make the average person uncomfortable. That’s not to say you have to do anything unethical; simply that the activities involved are not pleasant for most folks.
Like any business you need a couple of things:
And these two things will be accumulated through marketing and prospecting. Real estate investing is largely a marketing business.
The Basic Process
In a nutshell, you need to find someone that is willing to sell their house at a deep discount, typically at no more than 60% of the retail value. Then you need to find someone else to buy it from you at 70% of retail value.
Your first question is probably, “Who would sell me their $100,000 house for $60,000?”
Have you ever had an old car you didn’t really use anymore? Maybe it didn’t even run anymore. The car just took up space in your driveway or on the side of the house. Eventually, you would reach the point where you’d had enough. You just wanted the thing gone, regardless of what you could sell it for.
Like your car, some houses aren’t providing any value to their owners, and these owners would be willing to give you a deal. Other owners are just looking for some cash and will also come way down on the price if you can close quickly. So such owners are out there, but it may take a lot of work to find them.
Your second question is probably, “Why would I sell that house for only $70,000?”
The short answer is because you can sell it quickly for cash. Especially if you’re trying to put together deals without any money or credit, time is critical.
Finding a House to Buy
We’re looking for a house that fits certain criteria. In most cases, your best buyers will be rehabbers that will either resell the property or rent it out. As with any business, you need to figure out what your customers want. In most cases, this will be houses with 3 bedrooms in decent, but not really nice areas (in the case of properties that will be rented). Houses that will be resold can certainly be of any size, and higher price ranges are acceptable.
In general, you’ll look for properties that are 70-100% of the median home price for the area. So, if the middle-of-the-line house in the area is $100k, you’re going to be looking at houses that would sell for $70-100k after they’re repaired.
Here are some ways to find the owners that are willing to sell their house at a deep discount:
1. Bandit Signs. These are those 12×18 or 18×24 signs you see hung on telephone poles all over the place. Check out the legality in your area. You see them all the time because they work.
2. Craigslist. Call all the ads for properties that are for sale or rent. If you call enough people, someone will be thrilled to give you a great deal.
3. Ads: Put your own ads in Craigslist. The newspaper is fine, too, if you have the funds.
4. Abandoned Houses: Even some nice neighborhoods occasionally have abandoned homes in them. Frequently, the owners are out of state. Track them down and send them a letter or give them a call.
What Do You Say to These Owners?
It’s perfectly fine if you’re not some slick salesman. The people you’re looking for are looking for relief and they’ll take it wherever they can get it.
Your basic message should be, “I can give you cash for your house very quickly, but I’m only going to be able to give you about half of what your house is worth.”
Expect that it will take approximately 30 phone calls with sellers to find a property that fits your qualifications. Out of those sellers, the number will be much greater to actually get a deal.
You could easily make 100 or more calls before you make a deal. But consider that many telemarketers are expected to make 400+ calls each day at their jobs.
All in all, it’s not a lot of work for a good payday.
How Much Do You Offer?
The basic formula is: 70% ARV – Repairs – Your Fee
ARV = after repair value; this is the retail value of a home in great shape. You can get the value of the home from a real estate agent or by doing some legwork yourself. You can get free estimates for repairs from contractors.
Selling the House
Now that you have the house under contract, your job is to find someone to take it off your hands at closing. There are two basic ways to get paid:
1. Assign the Contract. You can assign your rights to the house to another person for a fee. This is the easiest and cheapest way to get your money. The only potential issue is that your buyer will know how much money you’re making.
2. Do a Double Closing. In this case, you’re reselling the house to your buyer during the same closing as you buy the house. This keeps everything more confidential, but there are two sets of closing costs: one set from buying the house and one set from selling the house.
Finding a buyer is usually quite easy. Once again, you can advertise with bandit signs and classified ads. Your message should be something along the lines of, “3 bedroom house for sale. 40% off. Cash only.”