In real estate investing, there are two strategies that are geared toward short term profits and fast turns. Wholesaling and fix & flip are those strategies; and particularly wholesaling can create the need to keep a lot of deals in progress to fill the profit funnel. One strategy used to fill this funnel, to purchase as many properties as possible, involves making low offers on a great many properties.
How does it work? Just as it says, the investor is working purchase offers on perhaps dozens of properties at any given time. There are real estate investment courses and seminars with suggested numbers, such as a 30-to-1 offers to a deal strategy. The number really doesn’t matter, and it should be based on the local market and the universe of potential good deals available.
Finding Homes for Offers
Unless you have a market with many distressed homes for sale on a regular basis, this type of strategy can be a waste of time and effort. The research involved can be minimized if you just take the “offer 60% of asking price” blanket strategy approach. However, unless enough due diligence is done to at least verify the asking price is within reason, you’re spinning your wheels. Or worse, you may get an offer accepted that will not work for you.
A drawback of working with a “rule of thumb” approach is that you’re having to work with real estate agents a lot, either making your offers, presenting them to their sellers, or both. Offering through the listing agent can be a good strategy, as there will not be a commission split with an agent bringing the buyer (you) to the deal. This potentially doubles the commission to the listing agent, and gives the seller and agent some room to perhaps accept a lower offer by cutting the commission a bit.
What you don’t want is to become the “crazy” person who they don’t want to see coming through the door because your ratio of offers to closings is very low. They’re working here, and they aren’t getting paid if there is no closing. As there are agents who work primarily with lenders and asset managers, a great many of the foreclosure properties on the market will be concentrated among fewer listing agents. They want to sell the property, but they don’t like wasting their time on a regular basis, especially since they’re likely working at a reduced commission rate with the lender.
Research and Realistic Offers Can Work
I’m not saying that 60% of list price isn’t realistic, as you never know where the seller/lender is in their process when they see your offer. More likely, you’ll get a counter offer rather than an acceptance. Depending on the amount of that counter, you may have a deal in the making if you do some negotiating.
The key in bringing these deals to closing with a profit when you flip the property will be the thoroughness of your research. It is crucial that you know the market, know what homes are selling for, and that you know the current supply/demand situation. Don’t worry about the ratio of offers to closings, whether it’s 10-to-1 or 50-to-1, as long as it’s working for you. To stay busy and stay profitable is the goal.