Sometimes people wonder why they struggle with finding undervalued deals to buy whether it be on the market or off the market. They don’t believe that they can find properties for 40-60 cents on the dollar or have the owner hold a VTM on the property or do creative terms with them. And I find that its usually a matter of perspective and experience. Usually they haven’t looked at enough listings, spent enough time honing their skills, or completed enough deals to have seen the motivation required to do these creative closes. Or maybe the books they are reading and the people they are working with never cared to share this point with them.
Once I understood this concept, I used it as one of my main filters to view a deal through and have done extremely well with it.
As you have likely heard, in real estate, “you make your money in the buy”. Meaning if you don’t buy the property “on sale” at a significant discount or with creative pricing or terms that make the numbers pop within your spreadsheet, then you are on a long uphill path to making that property or deal profitable. We don’t always have time to wait for streets or cities to appreciate, gentrification or new developments to come to town to increase values. If you are going work as a real estate investor short term or long term, you need to find value today in your purchase.
Now some people might think that working with motivated sellers who are weeks or days away from default is not ethical. I tend to disagree. You can still have high value and ethics when working with someone who needs to dump their property quickly because either they messed the place up by poor management / maintenance (or both) or they are in a tough personal situation and owning a house and selling conventionally (which takes months) doesn’t make sense for them.
The property has become a “Problem” for them. It isn’t a problem for you until you purchase it. I don’t know about you, but if I’m going to deal with a bunch of problems, my time is worth money and I don’t do paid work for free. I do volunteer my time in many other different areas of my life, but dealing with major real estate problems is usually not one of those categories of free work.
Okay, sounds great Kory, but what are the types of motivation that could lead to finding a deal where there is money or value in the purchase price? Here are my top 6:
If someone has passed away then usually it’s the kids that are fighting over the property. They spend so much time arguing over who should get what, the don’t put together a game plan to get the place show ready to go on the market. They usually fight about who is going to spend their money to get the property ready to go on the market, so no one does and then they need to sell it quickly.
With a person fighting disease, usually they have their time and money tied up in getting healthy again. While they focus on that, they usually neglect the maintenance on their house, the landscaping and the gardening that they usually tend to. We help out with a quick closing taking into account profit and taking care of all the deferred maintenance.
Many divorces do not settle amicably, nor does one person usually have enough profit to buy out the other person since they were both equal partners in the ownership of everything. They also usually want to cut ties quickly and put as little into the property when selling. There are too many memories tied up in the house and a quick sale usually means not getting top dollar for what is likely their largest investment.
Picture this – a property owner is told that their new job now requires them to live a plane trip away from the area that the property (that they managed themselves) is located in. They spend their time and energy finding a new place to live, adjusting to their new city and trying to stand out at their new location of work. The property needs to be put under reputable management. Since a lot of people aren’t great at interviewing and finding great property management, the property starts to be mis-managed. Now the Displaced owner who had total control of their property a few months ago starts losing money and sleep over it. They want the problem gone and a fast or creative sale is in order.
Such a large percentage of North Americans are facing high levels of consumer debit these days the statistics are jaw dropping when you think about it. They are literally maxed out and walking that fine line between consumerism / looking good to their friends / buying what they feel will make them happy on credit cards and not being able to make their payments. It only takes one fumble in life financially before something happens that starts a chain reaction of not being able to afford their payments including their mortgage. Despite trying, the hole is usually too deep and they are too proud to ask for help. Or maybe there is no one they know that can help them. The house is now in pre-foreclosure and if they don’t act fast they will lose it to the bank. Some money is better than no money and we have been able to strike fair deals for all parties in the past to help them get their lives back on track financially.
Are all people landlords by choice, or even if they did choose to be landlords, are they happy in that role? The answer is usually no. People decide to be landlords without any education or mentorship, they inherit properties, they move and then decide to hold on to their previous house for a plethora of reasons and become accidental landlords. You can take the issues for awhile, but with no systems, or effective team in place all it takes is one bad tenant to cripple you and your profits. At that point the property is costing you money on a daily basis and you want out. When you find someone who is willing to take over your problems, selling at a discount, selling quickly or creatively isn’t such a bad idea.
So, these are what we have found are sources of motivated sellers. It usually comes down to issues with either A) the property or B) the people involved. Every situation is different. A lot of these deals never hit the market since the owners are too proud to have that for sale sign go in their front lawn, or they waited too long and need to cash out quickly, sometimes days before foreclosure.
By working with the sellers on what they NEED (not always can they get what they WANT) out of the deal, you still can be the problem solver that they are looking for and everyone benefits in the end.
How can you find motivated sellers? What signs are there out there for you to tap into? Who else would know about these properties? If you want more information or coaching on buying distressed properties, feel free to reach out to us and ask.