Top ways to locate investment properties
There are several great ways to start your search when trying to locate great investment properties. You can look for properties on your own, you can enlist the aid of local Realtors in your area, and you can also put your family and friends to “work” for you as well when trying to zero in on a potential property.
Looking on your own
First and foremost, you’ll want to try to locate properties by yourself. You’ll know what your most alluring prospects for investment will be more quickly than anyone else. You should make a daily ritual of scouring your local papers (online or in print) for the most recent homes to hit the market. Local Pennysavers are also good sources, usually for lower-end houses. You’ll never know when you’ll find a diamond in the rough – rare – but possible. Always look for coded words in real estate ads that are music to the ears of property investors: “needs cosmetic work,” “handyman’s special,” “needs updating,” “original owner,” or “owner financing available” to name just a few. Conversely, try to avoid any property ad with coded words like “move right in,” “just renovated,” “newly remodeled” or “updated in the last year.” Sellers of these houses will usually not be so flexible in their price, and it will be harder to add value to these properties. Make sure you track all these ads. Is the same ad appearing over a lengthy period of time? The longer the home has been advertised on the market, the better it is you’ll find a homeowner who will be more negotiable with you.
Another great way to locate properties on your own is to get to know your area extremely well. By your area, I mean the area where you can see yourself making your daily rounds with your contractor and trades people on your project. Trying to renovate an investment property from a distance, without daily contact, is extremely risky. It’s always best to set a bounded area for yourself that you are willing to work within. Once you know your area, create business cards for yourself. I have found that simply dropping a business card (with a short, hand-written note saying you purchase homes) into the mailbox of a home in your area that either looks vacant, is in dire need of repair, and/or looks like it’s right out of the “Psycho” back lot, can be very effective in locating a great deal.
The best way to locate investment property by yourself
As mentioned above, the longer a home has been on the market, the more negotiable the homeowner should be off their original asking price. Never assume a home will sell for close to the owner’s asking price, regardless of historical data in your area. That data is irrelevant. All you’re looking for is the truly desperate owner. The one that can’t wait another day to sell. The one that has lowered his price several times already. The one that has had a deal (or two or three) fall through. Or the one that had a deal fall through within the last few days! That’s who you want to be negotiating with. After all, you never know what a seller is willing to accept until you begin negotiating with them.
So here’s my secret for locating the best deal:
Always search first for homes that have been on the market the longest. Simple, right? But you’d be amazed how many investors waste their time on negotiating with homeowners who haven’t been properly “softened up” by time.
Make sure you have access to your local Multiple Listing Service (MLS) data. While this used to be only available to licensed Realtors, in recent years most realty agencies have made their local MLS data available to anyone that registers with that realty’s web site. Realtor.com is also another fine way to gain access to your local MLS information. Unfortunately, you will not be able to see all the data a Realtor will see on the MLS, but you’ll be able to run basic and advanced searches with this access. (Data you won’t see, for example, is the commission being offered to participating Realtors. This is unfortunate, since you want to know everything about the costs a homeowner is obligated to pay when they sell. However, on homes you’re considering making an offer on, you can ask your Realtor for this data before you negotiate. Likewise, in the same vein, you’ll eventually also want to use public records to research what the current homeowner owes on their mortgage.)
Create multiple searches that are strictly time related
With access to your local MLS, simply create and save multiple searches based on time. First, set your time parameters for homes that have been on the market 2 years or longer. Then set up your next search for homes on the market 1 to 2 years. Then break your searches down to 9 months to a year, 6 months to 9 months, and then monthly thereafter (5-6 months on the market, 4-5 months on the market, etc., down to the most current month). Next, look for the “trick” Realtors do to make a home look more current to the market…If a home has been sitting idle on the market for a length of time, Realtors will eliminate the listing and “re-list” the property (usually with a new, lower price), so the home looks “new” to the market. This gives the appearance of a fresh home hitting the market. Obviously, it’s not. Make sure you cross-reference homes from your older searches with these “fresh” listings to root out this trick!
Another fine way to locate property by yourself
Let your nose sniff out the best deals. Literally. One of my greatest joys in locating investment property is when I enter a home and become immediately nauseated by the smell! I can just smell the money I’m going to make…The more malodorous the better. Cigarette smoke burned into the walls and ceilings from years of a four-pack a day smoker is wonderful…But the best is a home with a ridiculous number of dog inhabitants, with owners who somehow lost their sense of smell years ago, or just lost their will to live. Either way, if you feel like retching the second you enter the front door, you’ll know you’ve got a winner on your hands. It’s simple supply and demand. For every one who made it past that front door, and didn’t turn around and exit within a nanosecond, there’s probably close to zero number of other potential buyers who did the same. Except for another savvy investor, that is. The moral: locate those stench-filled money-makers! (The olfactory repair costs for the house are surprisingly low by the way.)
Locating investment property using other people
Obviously, your local Realtors will be a great source for you. But Realtors like to work (and will work hardest) for clients they know are serious buyers. Therefore, I strongly advocate working with one, and only one Realtor in your area. Ask friends, check out local realty agency web sites, interview Realtors yourself. A good strategy when looking for that one local Realtor, is to ask to speak with the office manager (or principal broker) of each local realty company in your area. Ask them who in their office is best at, understands, and has closed the most deals on investment properties. It’s a very special niche within agencies, and the office manager or principal broker will know immediately who is best at it in their own office. Then, simply ask to see a few properties with several different agents. And see who you have the most rapport with. Ask them to do some research on these properties for you. Who gets you the data to your email the fastest? That’s the agent I’d certainly want to work with…
Once you’ve chosen an agent, make sure you give them all the search criteria you’re looking for, so that if they run across a strong possibility for you to invest in, they’ll contact you immediately. And certainly, if you’re going to be obtaining a mortgage on any investment property, be sure to give them your mortgage pre-approval letter immediately, and without them asking for it! (You need to also demonstrate to them just how serious a potential buyer you are, right?) Also make sure you get that pre-approval letter updated every three months without fail, and without your Realtor asking. They’ll love you for it…
So much has been written about the advantages of “networking” within your family and friends for all phases of life, not just for work opportunities. And locating real estate investment properties is no exception. Simply let those you are in constant communication with know that you are actively looking for properties. Chat up with them exactly what you’re looking for, and ask them to contact you if they hear about someone they know who’s had a difficult time selling their home. Or if someone whose home is in desperate need of repair is about to place their home on the market. Or if their neighbor’s friend is going through a divorce/death in the family/life changing event that requires a quick sale of their home. The sooner you hear about it, the sooner you can act to locate your next great deal.
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