This is the third episode in our seven part course ELEVATE Your Flip.
It’s too hard to find a good deal in Denver! We dispel this myth by discussing various ways to find great properties including using the MLS. We also cover the pros and cons to using direct mail, digital marketing, networking, wholesalers, and investor minded real estate agents. Learn how to source properties and leverage others’ time to create win-win relationships for deal flow year round.
This episode covers:
- Deal quadrant discussion
- Acquisitions case studies in 2019 and planning for 2020
- Investor focused agents: Your best friends
- Tap into your network to generate leads at minimal costs
This post is part of the ELEVATE Your Flip Course. The course gives you an introduction into fix and flipping properties in Denver.
Three Learning Options:
- Listen to episode "#129: Flip #3 - Finding Flip Deals in Denver" on the Denver Real Estate Investing Podcast
- Watch the YouTube video at the bottom of the page.
- Read the blog post.
Deal Quadrant Discussion and Acquisition Case Studies
To find deals, you must look everywhere which includes
- Lead generation
The MLS is still a viable option. 55% of ELEVATE deals came from the MLS in 2019. Networking is a huge piece and cost efficient. 20% of 2019 deals came from networking. 10% came from wholesalers. Lead generation using digital marketing (targeted Facebook ads), direct mail, bandit signs, etc. resulted in 15% of 2019 deals.
Inventory is up now in Denver, so deals are a little less scarce.
A side note on auctions: Hedge funds are buying properties at auctions in Denver. They are bidding against each other which lowers the rate of return. We don’t consider auctions a good source for deals at this time.
The idea of a funnel applies for deals. We estimate we are looking at 100 general leads to get to one purchased property. 100 in the funnel to get one out.
We use the same process and steps for all deals no matter what their source.
We estimate that 75% of our full time acquisition manager’s time is spent sourcing leads and properties. This time requirement makes it difficult for individual flippers with full time jobs to find properties. Our advice is to find investor focused agents and wholesalers.
Investor Focused Agents
Investor focused agents can be your best friends. Typically you want to find 3-4 agents that truly understand your business model and the type of property you’re looking for. It’s best to have agents that are experts in different price points and/or experts in certain parts of town, so not much overlap between them.
We recommend that investors talk to agents about their criteria for properties. You must be able to clearly articulate your criteria to the agent or whoever you talk to and network with. You should emphasize that you only want properties that meet the criteria or you won’t be interested. You could also tell the agent that you’ll use them for the sale as well if/when you sell it. You may be able to negotiate a discount based on that. You may also want to discuss the potential scenario where a seller won’t pay commission. If that’s the case, you can agree to compensate the agent yourself outside of the sale.
Keep in mind that it’s important to act fast when an agent brings you a property that meets your criteria.
- Great place to find properties
- ELEVATE’s searches are price point specific:
- Single family homes between 250,000 and 400,000
- Condos/townhomes between 150,000 to 300,000
- Set up keyword searches to find distressed properties or ones that need work and updating
- Bring your toolbelt
- Handyman special
- Investor special
- Structural repairs
- Sweat equity
- Parts of town
- Will go wherever there’s a good deal
- Tends to be 6th Ave and South recently but it could also reflect where your network is
- Not buying much in “hot” areas now because get outbid
- Days on market triggers - 30, 60, 90
- Properties that dropped out of contract
Process Steps to Find a Flip Deal
- Find potential property
- Evaluate online to see if it looks good
- Determine where price needs to be so it works for you
- Call agent (or seller) and have conversation. Should you even send an offer or not waste your or their time? Only write offer if have good conversation with the agent or their sales price is close to your purchase price you’ve calculated using your formula
- Then and only then get it under contract
- THEN walk property - sewer scope, general contractor, structural engineer (if single family home)
- Ask pointed questions. Try to renegotiate based on what you find. Never asks seller to fix anything. Ask for price adjustment instead. As a flipper, your rehab rates should be wholesale with your contractors, so you can do it for less than the seller could. Ask to take that amount off the list price
20% of our deals come from networking. Our advice is to talk to as many agents as you can and give them your criteria. You want them to see you as a solution and tool in their toolbelt. Everyone you speak with should be considered a prospective lead. Keep that in mind. Look for ways to build your network and add value to others. Don’t ask to buy someone a cup of coffee or pick their brain. Instead, look for ways to add value without using up too much of their time. Be sensitive to people’s time and how they want to be contacted (text, email, phone). The phone is always a good way to make the first contact if you’re not sure. Find out what they need and solve their problem. Do they need something for their kid’s school auction?
Have your 30 second elevator pitch ready to go when you meet new people and they ask what you do. Be succinct and specific. What do you do, and how do you add value? Write it out, practice it, and record yourself. Do you sound confident? Keep doing it until you do. Be ready to tell it to someone and do it whenever given the opportunity, even on the weekend at your kid’s soccer game.
We also host a Meetup about once a month. While there, we try to help the attendees connect at the event. We will connect them and walk away.
A note on business cards: Spray and pray does not work. Avoid using them as a crutch. Don’t give them out unless it makes sense. Instead, look for a way to make a meaningful connection then program your number in their phone if it is welcome. Or ask for their number and text them right away as you’re still talking to them.
10% of our deals come from wholesalers. Our advice is to be really specific with them as to what you’re looking for. Give them criteria, so they know when you will pull the trigger. You also need to have your financing ready to go before you contact any wholesalers. You can get on wholesale lists. We are on about 20 right now with each sending 10-15 a month.
A wholesaler is an intermediary spending time, money, etc to find motivated sellers. They put the property under contract and offer it to investors. They make a profitable spread connecting buyer and seller.
With wholesale properties, you typically don’t the have opportunity to do a thorough inspection, so you have to factor in repair costs for unknowns. You won’t be able to do a sewer scope usually, so factor in that repair expense regardless. You must be able to accurately calculate your own rehab costs. Don’t take the estimate of the wholesaler.
Wholesalers usually require hard earnest money (8,000-10,000) the day you walk the property and decide to move forward. You lose this if you don’t close on the property. Closing is usually within 1-2 weeks, because the seller may be distressed.
Lead Gen to Find Fix and Flip Deals
Generating your own deals is more profitable but can be really hard. There are numerous ways to generate your own flip deals.
Canvas with flyers
One way to do this is to canvas with flyers. We flyer every door in the building of a condo when we rehab a unit. If it’s a single family home, we flyer a 2-3 block radius, going door to door. We knock and wait for an answer. We take the time to introduce ourselves, tell them we’re improving the property, tell them who we are, what we do and that we will buy their house, their neighbor’s house, their mom’s house, etc. We explain that we’re cash buyers, and we offer a $2,000 referral fee. If no one is home, we roll it up and leave it in their door handle. If it’s an immediate neighbor, we make sure we meet that person and tell them to contact us if there are any issues whatsoever with the property next door. We would rather them call us than the city if there is a problem.
- “Yellow letters”: This is where a mail house puts together a list for you. They may be distressed or equity owners. We did not have success with this and don’t recommend it. We did it for 2 years straight and used different marketing messages.
- Sellers can call ibuyers and get offers immediately, so that may be what is diminishing the effectiveness of direct mail
SEO / Facebook ads / Google pay-per-click / keyword search
- Larger national brands are spending lots of money on this.
- A better strategy may be to produce good, quality content and let the content build the relationship. By producing content, you are building a marketing asset.
- You must have a credible website if you are an investor and advertising this way. It cannot be a generic squeeze page. People finding you this way will research you and want to know that you are legit and a real person.
- You must be timely in getting back to them and reassure them you’re a real, honest, personable, reliable person.
- We are ramping this back up this year spending tens of thousands on TV ads
- We are using 2 trackable messages: partnership flip and training academy teaching people how to flip
- Prices are dropping for TV ads as people spend less time watching TV
- You must know where your audiences are and be clear on your message
Our advice if you are new to flipping is to focus on the MLS and wholesaling to start. Lead gen can come later once you get established.
Our next episode covers the Big 4 of Project Management. This is a lengthy topic, so the subject will be broken down into two separate episodes.
Webinar recording - Watch it here or listen on the podcast.