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By now you've had time to: Locate
three or more rehab investors to flip contracts to; have your contracts ready
and thoroughly understand them; and know which title company or attorney you
will use to close that first deal.
If not, take time to complete these steps in House Flipping for
Beginners (Part 1) before you start looking for houses.
Let's discuss how you can increase your odds of finding and closing more
deals in the least amount of time. Here are four ways to find houses:
1. Farming
for houses
2. Tell
the world--recruit bird dogs
3. Research,
research, research
4.
Advertise
To achieve maximum success you need to use a combination of all
four. However, you may have other time constraints (like a full-time job)
that limit what you can do. In that case, pick the methods that best fit your
schedule or your budget.
Farming for houses
I recommend you start working within a 10 to 15 mile radius of
your home (sometimes called "farm"). If you live in a major
metropolitan area like I do, it will be hard to drive all over town to look
for houses.
For me, it can take one hour to get from one side of town to the other.
You'll quickly find that you are spending more time driving than actually
looking at houses or talking to motivated sellers.
You should get to know your farm area like you know the back of your hand. It
can easily be accomplished by working just a few hours on the weekends. Drive
around each neighborhood in your farm area.
Keep a log or journal with information about your target neighborhoods. You
need to identify neighborhoods with houses that are about 20 years old. Newer
houses probably won't have enough equity to allow for a profitable deal.
Are there "For Sale" signs in these neighborhoods? Write down the
address and contact numbers in your log then call to find out the square
footage, number of bedrooms and baths, how long it's been on the market, and
the asking price.
You have just established the approximate market value of houses in the
neighborhood. If all the houses are newer or in good condition then you need
to find a different farm area.
What to look for
While you're driving your farm area, do you see some vacant
houses? Occupied houses in need of repair? Write down the address in your log
and other notes about the condition of the property.
How do you spot a vacant house? Tall grass is certainly a give away, as is a
porch or doorway cluttered with phone books, flyers, and coupons from the
local pizza parlor. Perhaps a mailbox stuffed with mail that has not been
picked up. Boarded up windows are a sure sign of a vacant house.
When you find a vacant house, knock on the neighbors' doors and ask if they
know who owns the house. Try to find out how long they lived there, why they
moved, how you can reach them, how long has it been vacant, etc. Get any
information you can about the owner and the house.
Tell the neighbors that you are looking for houses to buy in the
neighborhood, and you work with a group of investors (these are your
"partners") who will remodel the house then sell it to a good
homeowner. Chances are they are very anxious to have a "good"
neighbor and will cooperate.
Don't forget to ask if they know of any other houses that are vacant or in
need of repair in the neighborhood. Leave your business card. They may think
of a house after you leave, and you want to make sure they know how to get in
touch with you.
If neighbors won't give you names and numbers of the owner, leave your
business card and ask them to please get a message to the owner that you are
interested in buying the house.
Next, check the tax records. Some city tax offices will give you the owner's
name and address with just a phone call; others require that you come in to
check it yourself. Many counties' tax records are on the Internet. This is
the first place to investigate.
Once you find out who the owner is, you can send them a letter or postcard or
try to get their phone number and call. Tell the owners you saw their house
at xxxx address and may be interested in buying it.
Ask if they are interested in selling and get as many details about the house
as possible. Some things you need to find out are:
1. How
many bedrooms, bathrooms, garages. What is the approximate square footage?
How old is the house? Does it have central heat and air? Why did they move?
(These questions are just to warm them up for the important questions.)
2. Is
there a mortgage on the house? If so, what is the approximate payoff?
3. Are
there any liens or judgements against the property?
4. What
repairs need to be done? Estimated costs?
5.
How long have they owned the house?
From this information you can decide if the house is a good
candidate or if you should just mark it off your list.
s
From questions #2 & #4: What if they tell you they owe $40,000 and the
house needs extensive repairs including foundation work? You know from the
information in your log that homes in good condition in the neighborhood are
selling for $55,000. You can quickly determine that this house just won't
work. Next!
From questions #2, #4 & #5: What if they tell you they lived in the house
for 30 years and the mortgage is paid off, but it needs $10,000 in repairs,
and they just don't have the money for repairs?
You know from the information in your log that homes in good condition are
selling for $55,000. Bingo! You've got a hot one! This has all the
ingredients of a potential deal--lots of equity, a motivated seller, and a
house that needs lots of work.
From question #5: What if they tell you they owned the house for one year but
just couldn't keep up with the payments? Because it's such a new mortgage,
you can determine that they probably owe about what the house is worth, and
it's not a candidate.
You are looking for houses with at least 50% equity--the more the better! So
if houses in good condition are selling for $60,000, you want to find houses
that have at least $30,000 in equity.
You are also looking for houses that need plenty of repairs. Sometimes you'll
be able to buy a house well below market that doesn't need a lot of repairs,
but that doesn't happen very often.
It is the excessive repairs that will motivate a seller to sell below market
because they think it will take $20,000 to fix the house, and they don't have
the money and have no way to ever get the money.
If you don't have these two elements--lots of equity and lots of repairs,
then it is unlikely that you will be able to buy far enough below market to
flip the contract and make a profit for yourself.
But someone's living in that junker
Sometimes the first sign of a motivated seller is a house that
screams "Please help me!" when you drive by. Perhaps the owner is
having financial difficulty and just can't afford to maintain the house. Or
perhaps that's just the way they live. It could be a rental, and the landlord
won't put any money into fixing the house.
You'll never know until you contact the homeowner. To do this, you can:
1. Knock
on the door and tell the occupant you are looking for houses to buy in the
neighborhood Ask if they would be interested in selling (or know someone who
is). Make sure to leave a business card. If it's a renter, try to get the
owner's name and number.
2. Write
down the address, look up the owner in the tax records, and send them a
letter or postcard saying you are looking for houses to buy in the
neighborhood and want to know if they would be interested in selling (or know
someone who is).
3.
Look up the owner in the tax records, find out their phone
number then call.
If you send a letter or postcard,
you may not get a response the first time. So you'll need to continue mailing
to them every three to four weeks.
When you knock on the door, they may say they aren't interested in selling
right now. Follow up with a letter or postcard every three or four weeks.
Stop by the house every once in awhile to remind them that you are still
interested in buying. Leave a flyer on their door (and all the other doors in
the neighborhood) saying:
I Buy Houses - Cash -
Quick Close - Any Condition
If they show some interest in selling, then you need to ask the
questions above to see if it is a candidate for a flip. The follow-up is VERY
important. Time has a way of changing everything--even turning an unmotivated
seller into a motivated seller.
Tell the world--recruit bird dogs
You can expand your farm area and
not take up any more of your valuable time by telling everyone you come in
contact with that you are looking for run-down houses to buy.
Tell all your co-workers, the people at the grocery store, everyone at
church, your kid's friend's parents, your kid's teachers, the guy that fixes
your car, the people at the cleaners, the waitress at Denny's, the people at
the barber shop or beauty shop, etc, etc.
The more eyes and ears you have out there looking for you, the more deals you
will do.
Hand out business cards when you tell people you are looking for houses to
buy. The business card lets everyone know you are serious, and it insures
they have a way to contact you when they find a house.
You may even want to hand out flyers to recruit bird dogs. Leave flyers at
the college, senior citizens center, local churches, the grocery store, etc.
Make sure everyone
knows you pay a finder's fee
of $250 to $500 or more for each house that closes.
The very first flip I did was because I told my son's best friend's mother
that I was going to get into real estate investing. I told her I was looking
for houses to buy that were run down, and I'd pay a finder's fee to anyone
that found houses for me.
A few days later she just happened to overhear someone where she works
talking about a house he inherited from his mother. It had been a rental and
was so run down that he thought it could not be sold.
She told him I was looking for run-down houses to buy. A few weeks later he
had his house sold, a rehabber had a new project, my "bird dog" had
$500, and I had a check for $4,000.
Get to know the mail carriers, UPS driver, and Fed Ex driver assigned to your
farm area as well as people that do lawn work. These people travel all over
town and can help to expand your farm area.
Research, research, research
A motivated seller is sometimes
motivated because of some recent event that has happened in their lives. Many
of these events, like a foreclosure, are time sensitive meaning you have a
window of opportunity to act, and after a certain date, it is too late to buy
the house from the owner.
Find out what the state laws are concerning these events, so you'll know how
much time you have. You can get information about all these properties at
your county courthouse, tax office, or other city municipal offices. There
may also be a legal newspaper where this information is posted daily or
weekly.
·
Foreclosure--trustee sales
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Foreclosure--tax sales
·
Code violations (red tags)
·
Divorce
·
Probate--death of owner
·
Evictions--landlords with bad tenant
·
Bankruptcy
·
Criminal act--going to jail
·
Out-of-state owner
·
Liens or judgements
These properties may take you outside your farm area, but your odds
of getting a GREAT deal are much higher when you know you are dealing with a
seller that is more likely to be motivated provided there is enough equity in
the house.
You can research the probability of equity while you are at the courthouse
BEFORE you even contact the owners, which will save you time in the long run.
How can you determine there is enough equity? The best indicator is when the
deed was recorded. The longer the owner has owned the house, the more equity
they will have in the house.
If the deed was recorded two years ago, you can scratch that lead off your
list. On the other hand, if the deed date is 15 or 20 years old or more, it's
time to get REAL excited and get to that house FAST!
If you don't have time to research these properties you can hire someone to
do the research for you, but only after you understand how to do the research
yourself, so you can train them.
Some county courthouses offer free classes to teach you how to research
properties. Find out if they do in your area and take the time to learn.
You'll also need a good system for gathering information. This may be as
sophisticated as a laptop computer database or as simple as a form you
develop for entering the necessary information about the house and the
owners. Keep it consistent for quick reference on any property or owner.
Advertising
Every newspaper has a real estate
section. Most of the houses for sale in the newspaper are in good condition,
and the owners want top dollar.
However, sometimes you can find an ad that says: Handyman Special, Selling
As Is, Fixer Upper, MUST SELL ASAP or Estate Sale.
These are the ads to call. Call anything that indicates the house needs
repairs or the seller is motivated.
You can run your own ad in the "Real Estate Wanted" section of the
newspaper. If it's too expensive in the daily newspaper, check prices in the
weekly newspapers like the Thrifty Nickel. The more people that know you're
looking for houses to buy, the more deals you'll do.
How about running an ad looking for more bird dogs? There's no way I can
cover all the opportunities for finding houses in detail in this article. I
hope this has given you enough information to get started looking for your
first flip. Happy hunting!
About the author...
Jackie Lange is a private investor who
specializes in flipping contracts. After studying what many of the national
real estate educators teach about flipping and weeding out what works and
what does not work for her, she has developed a system which has enabled her
to flip more than 80 properties in 2 1/2 years. She is president of Texas
Home Solutions, Inc. and Public Relations Coordinator for the Association of
Independent Real Estate Owners (AIREO) in Dallas, Texas.
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