The Fix and Flip shows on the Do It Yourself channels always start the episode with the target property already bought. Real Estate Investing books always assume you already have a property in mind, “Let’s assume you have a house worth $100,000…”. Where do you find these buildings? The information provided in the TV show or in the investing books is moot if you can’t find investment quality real estate in the first place.
Let’s look at some traditional ways first. Next week we will look at how to use the internet to your advantage.
If you are looking for deals then the first thing you need to do is align yourself with people that are the conduit between owners of properties in trouble and buyers. These conduits would include lenders, realtors, lawyers and other investors. Get to know these players and hopefully you will be on their call list when an opportunity comes up.
You want to become the go to person for second mortgage or private lenders. When a private lender lends money and the borrower doesn’t pay it back they will eventually have to foreclose on the property.
This type of lender doesn’t want to go through months / years of hassle to get their money back and will sell the building for just enough to pay off the first mortgage & fees + the amount owed to them & their costs.
As an added bonus you can then borrow money from these types of lenders as well. As you gain experience and gain their trust you can become a person who they know can take a problem property off their hands.
Another option is to become the go to person for realtors that specialize in the type of buildings you want (i.e. the realtors that tend to get the good stuff before it goes on the Multiple Listing Service (MLS)).
It is common for banks to use the same realtor when they list a foreclosure. Get to know those people. You need to use a realtor when you invest. Make sure the realtor is also an investor. They have to own property. They have to get it. They have to understand investing.
Within the very small subset of realtors that know what they are talking about in regards to investing you will find that they will specialize. There will be realtors that specialize in land sales, in multi-family apartments, in industrial warehouses or in leasing, for example.
Whatever strategy that you follow and whatever type of property you are looking for find the person in your area that is ‘the person’ and then start working with them.
There is a very small subset of lawyers that specialize in investment real estate too. There are no end of lawyers that will do real estate deals but don’t confuse that with those lawyers that know about investment real estate.
Try to find out which lawyers are used by which banks when the banks get a foreclosure. I hope you are seeing a trend here, whether it is with lenders or realtors or lawyers. Find the specialists.
There is no better place to find investment real estate than from other similar minded people. Join a local investment group and socialize. Often people find properties that they themselves can’t buy at that time for whatever reason and can pass the lead on to you.
Most groups have people that haven’t built up enough reserves yet to buy their own property and as a way to make money they ‘bird dog’. That means they try to find good properties and will sell the lead to you for a finder’s fee.
These groups will also be great ways to learn more about investing, to network and to educate yourself on different strategies you might not have thought about before.
Do Some Legwork
Sometimes you just have to go old school and do some leg work:
When you find a property and actually end up buying it, walk around the neighborhood and talk to your new neighbors. Do they want to sell their similar properties, too?
When you buy a building, or even if you talk to a seller and don’t end up buying that building, ask the seller if they have anything else for sale. Quite often owners have portfolios that could be available for sale too.
Keep an eye out for things in your neighborhood. I know one investor whose entire portfolio of single family rental houses is all within a 4 block radius of his house. He knows the property value of his neighborhood extremely well and he also likes the convenience of being really close to his assets.
Keep your eye out as you drive around town. Take a different route to work every day. If you see something that is:
o boarded up,
o has tall grass and looks neglected
o has a health board notice on the door
o has a management letter on the door
o looks empty
then either knock on the door or find out who owns it. Then dig deeper and find out the history of the building and who owns / controls it now. It might be a lawyer or a bank or a management company.
Once I was in a small town looking at 3 different fourplexes. As I scouted the rest of the town I saw another fourplex that was empty with a sign on it telling realtors not to turn the water on. It wasn’t listed for sale on MLS but the current owners were preparing it to be listed. I called the management company who directed me to the owners. I eventually bought all 4 fourplexes.
Another time I was in a different city looking at a commercial property that had been boarded up for 10 years and was in foreclosure. Not three blocks away was a 12 unit apartment building that was empty and boarded up with obvious fire damage coming out of one window.
When I got home I pulled title and found out the property was owned by a bank. A call to the bank directed me to the lawyer who was overseeing the account. After a few calls to the lawyer I submitted an offer. I ended up not getting the first building (the reason I visited that city in the first place) but ended up with the second building.
All municipalities will have a person or department that is in charge of selling real estate owned by the municipality. This could be land that they are selling parcels of or it could be individual buildings that have been expropriated. In larger centers this will be on the city website, if not, then a trip to town hall will be needed.
In addition, once a year, a lot of municipalities will have an auction selling off the buildings that are a year or two behind on their taxes. Find out when the auction is in your area. In larger centers this will be on the city website.
Quite often, however, by the time the auction comes around, what starts as a list of several hundred potential properties, in the larger centers, gets whittled down to just a handful.
The municipalities don’t like to have to auction off property in this manner so they work hard with the property owners to get the account settled prior to the auction.
We looked at a few ‘old school’ ways to find properties. Hopefully you can use some of these techniques to your advantage. Next time we will look at using the internet to search for gems.
Read more about this in Comparing Real Estate Strategies.