South Seattle Fixer

I’ve heard from budding real estate investors who say that there are no bargains on the MLS.  This is indeed correct – at list prices.  Nobody – not even the banks – list properties at bargain prices.  In fact, I’ve noticed that the banks seem to list fixer-uppers at the after-repair value.  You have to create your own bargains.  Ignore the list prices and make offers that work for your business model.  Or, better yet, find off-market properties with motivated sellers.  Work with an investor-friendly real estate agent who doesn’t fear to make low bids, shock the listing agents, and insult the sellers.
The old adage is that “you make money when you buy, not when you sell”.  If you over pay for a property, there’s not a good solution for making money off of it.  There are several ways to create a bargain property for yourself:

1. Bank Owned Homes (REOs) Banks will accept a low bid on a house – 50% or 60% off of list price, if you can make an all cash offer without any contingencies.  If you make a mistake: bad location, soft market, or unexpected repairs, the low acquisition cost will solve lots of problems.  There are plenty of bank REOs that need little in repairs.  You can cherry-pick among the bank’s inventory, choosing attractive properties with good freeway access and near employment.
2. Prospecting on the MLS An agent can search through the MLS inventory on hundreds of fields that are not available to the public.  A favorite search is to find vacant houses that have been on the market 120 days or more.  The agent can then look for further signs of motivation: Does the owner live out of the area?  Is it a short sale?  Sometimes the hidden agent remarks tell you that the seller is motivated.  You can then calculate a low bid just as you would with the banks: how much can you sell the house for?, subtract six months of carrying costs, subtract repair costs, subtract the costs of selling, and whatever is left over is what you can bid.
3. Ask for Terms Another way to create a bargain is to ask for good terms rather than a low price.  Offer 90% to 110% of fair market value, put down 10% in cash, and then ask for owner financing on these terms: 10 years, a payment equal to 85% of rent, 0% interest.  Zero percent interest is worth tens of thousands to you!  Would an owner accept it?  You can point out that they don’t need to charge interest like a bank.  The seller has none of the costs of a bank: a marble-clad building, expensive furniture, full time employees, etc.  They are not handing over a pile of cash to fund a loan – no money flows from the seller to the buyer.  It is a form of payment terms, rather than a loan.
   

   Ruston/Tacoma fixer

4. More ways to Find Motivated Sellers a.) Prospect on Craigslist among for-sale-by-owners, rental ads, and housing swap ads.  b.) Send direct mail to out-of-state owners and free-and-clear owners.  Send hand-written notes on yellow-lined paper.  Services are available online to create these letters for you.  c.) Advertise on Craigslist under real-estate-wanted.  d.) Network among investors and agents who might find deals for you.
5. 

   Demolition for Rehab

   Creative Outcomes There are many outcomes for a house you acquire in these creative ways: flip for a quick profit, offer on owner financing or rent-to-own terms for extra cash flow, furnish the house and manage it as a corporate/short-term rental, or operate it as a vacation rental, if it is in an appropriate market.

Bob Kelly of eXp Realty

The Investor-Friendly Real Estate Agent

I’m an experienced investor and real estate agent.  I’ve acquired and self-managed six rental houses since 2004.  I own and operate a vacation rental on the Washington coast.  I’ve concluded owner financing and rent-to-own deals on my rental houses.  I’ve successfully gotten houses under contract for my clients with hundreds of thousands in profits.  Agents who are experienced in investing techniques and who are willing to shock listing agents with low bids or creative terms are relatively rare.  Let’s work together to create some deals!

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