As a real estate investor, you’ll get your best deals from motivated sellers – they are gold to real estate investors.
A motivated seller is someone who really needs to sell their house because it has become a liability they can no longer afford. They’re usually motivated to sell because they can lose the property in foreclosure, or it needs repairs and they can’t sell it on the regular market. Motivated sellers are willing to sell well below the market value of the property.
The more motivated a seller is, the better the deal an investor can get on the property.
Whether they find you through the internet, or whether you make the first contact, if you identify real motivated sellers, you’ll make money in real estate investing.
A motivated seller really needs to sell their house. Maybe they are behind on their mortgage payments or even facing foreclosure.
Probably they have tried to sell and see no other way out.
They’ll give you all the information you need without hesitation.
Most of them just want to get out of the mortgage.
This is the only type of seller I deal with in my business. And you should too.
How To Find Motivated Sellers – 5 Places To Find Motivated Sellers
There are several places to find motivated sellers:
1) Online search
Motivated sellers start looking to sell their house on the internet. Maybe on Google or other search engines.
Getting a real estate investor website with good search engine optimization targeting your local market is a sure way to attract motivated sellers.
2) Expired listings
Sellers whose listings in the MLS have expired become very motivated. Target these people with mailings such as post cards or yellow letters and you’ll have a steady stream of great deals.
As a real estate investor, make sure they cancel the listing before you buy it, or there may not be enough money in the deal to make it worth it.
3) For sale by owner
Lots of FSBO listings are not priced right and can stay on the market for a long time with no buyer.
They quickly become motivated sellers and a good supply of great deals. Target these motivated sellers from FSBO sites, including Craigslist and you could land some pretty good deals.
4) Probate properties
These are by far the most profitable deals. People that have inherited property are really motivated to sell.
Check your court house probate postings and search your county records of they own real estate property. Send letters to the trustee, and even beneficiaries if you get their names and addresses.
The process of probate can take a few months to complete but is well worth the wait.
5) Property owners in legal trouble
People in legal trouble who own property can be very motivated sellers. This includes divorce, bankruptcies, those who’ve received notice of default from their mortgage companies, and so on.
The good thing with these leads is that their properties will be a long way from foreclosure, and you’ll have enough time to get the deal done.
Download our free Ebook for detailed instructions on how to target these people.
How To Identify Motivated Sellers In Real Estate Investing
It’s important to identify a motivated seller as they’ll become your best source of great deals.
I am particularly fond of targeting people with legal trouble who own real estate. Most of these people turn out to be truly motivated to sell their properties.
So how do you identify the motivated sellers?
There are 3 types of sellers.
1) Unmotivated seller
This is the person that thinks their house is the best in the sub-division. They have taken great trouble to make sure it’s perfect for the next lucky owner.
Probably, they have tried to list it with their Realtor, or even for sale by owner, but they have failed.
Of course, they want the full market price.
They won’t discuss numbers, such as their mortgage balance.
Stay away from these sellers.
2) Luke-warm seller
This is the type of person who calls you and says he might be willing to let you buy his house, and asks you to explain how you work.
He will listen keenly, maybe ask questions, but again is not very forth-coming with necessary information such as mortgage balance.
Maybe he’ll tell you he has been trying to sell it for say, $150,000 and ask you to make him an offer.
He will probably ask you to go see the house first before you even know the numbers.
Never go to see a house before you know the numbers, and establish you can make money on the deals.
Stay away from this seller.
3) Motivated seller
This is the person you’re looking for – one who really needs to sell their house.
They’ll give you all the information you need without hesitation, and they are hoping you’ll buy their house.
Great deals come from motivated sellers.
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Pre-screening motivated sellers is probably the most important part of real estate investing.
It is the process where you identify good real estate deals and weed out those that cannot make you money.
To negotiate with motivated sellers, you must establish:
- What is the after repair market value of the house in its perfect condition? Talk to the seller, run your own comps, but do establish the true value.
- What’s the mortgage balance including any junior mortgages and liens?
- Is the property in foreclosure? In Texas, there is usually not enough time to stop foreclosure. This makes it impossible to wholesale such properties.
- What will it cost to do all the repairs needed?
- How much are they asking for it? What is the lowest they can go?
- Is the property vacant?
Once you have this information, you can tell if it’s a good deal or not. A good deal must leave enough room for you to make a profit.
Also, some motivated sellers have houses with no room to make a profit.
Pre-screening weeds out time wasters without turning away good deals.
Here are 5 things you must know before you talk to the next motivated seller.
1) Do not waste your time
When talking to motivated sellers, lead the conversation in the right direction to answer the 6 questions above.
Most sellers start talking about their beautiful house, updates they have done, nice neighborhood, and so on.
Majority of them are attached to their house and can continue talking for hours if you do not lead the conversation.
None of this information is of any value to you unless you can buy their house at a price that makes you a profit.
2) Always follow a script whenever you talk to motivated sellers.
The script you use simply has questions you need to ask.
The questions can be answered in any order. Try to make it sound like a conversation instead of a question and answer session.
In most cases you will know if you have a deal or not within 2 minutes.
You can get a super effective script tested and perfected over many years and thousands of leads the Ebook – How To Attract More Real Estate Investing Leads Than You Can Handle.
When talking to sellers, you can quickly tell if they are motivated. For example, if someone cannot tell you the mortgage balance, they are not motivated enough.
Most motivated sellers have no problem talking about their mortgage balance; they talk about it as casually as the number of rooms.
Some motivated sellers will be pre-screened through a good real estate investor website.
A few of them will still prefer to call.
In my business, they have to be motivated enough to leave a voice message.
My virtual assistant then calls them and enters all the information on my website. By the time I get to talk to them, I already have all the numbers and I know if it’s a deal or not.
This way, I avoid wasting my time or the seller’s time with houses I might never buy.
3) Build good rapport with motivated sellers
Do not represent yourself as Mr. Big Corporate House Buying Company.
You are just a regular guy that wants to buy their house as an investment property. Their house seems to meet your needs.
Build rapport with them as you talk, especially when you establish you can make the deal happen.
Don’t try to be Mr. Big Stuff.
It never works….
4) Listen, listen, and listen
Listen, listen, and listen – and since you are leading the conversation, learn how they got into the predicament, what repairs are needed, etc.
They will tell you all you need to know to determine their level of motivation, asking price, equity and repairs.
And usually this will happen naturally if you lead the conversation, without sounding like you are “reading a script”.
5) Negotiate the price
Always negotiate lower even though the asking price looks good.
You’ll be surprised how much more you can get by simply asking, for example, “Is that the best you can do?”
You can negotiate on appliances, closing costs or even furniture, not just the price.
One simple way of negotiating is letting them understand what your costs are in the deal.
I always let a seller know that even though it seems like they are giving me a deep discount on their property, I have to fix it, then sell it, probably hold it for a few months and eventually sell it at a deep discount.
And sometimes when the market is low, I’ll probably not be able to sell it at all!
I explain that I might lose most of my profits when I hold it. When most sellers understand these facts, most of them relax.
They stop thinking you are trying to take advantage of them.
Make this clear before you make an offer. I have come to learn that even though motivated sellers really need to get rid of their properties, they do not like to feel like they are being taken advantage of.
Usually I negotiate over the phone even before I see a property.
Of course I will only make an offer after I see the property.
Let’s say a motivated seller wants $65,000 on a $100,000 house that needs repairs. Even though they’ve already given me their asking price, I’ll ask:
“If I can buy your house all cash and close quickly, what is the least you can take for it?”
“$65,000 dollars?? Hmm”
I can pause for as long as 1 minute. This works like magic.
And they will probably talk their way down.
Then I’ll ask “is that the best you can do?”
Again, I will then listen as they talk their way down. Then I’ll go see the house.
Once I see the house, then I will make my offer.
If their asking price is still too high for me, I will still make a lower offer, while still looking out for the needs of the seller.
Most of these offers will get accepted.
Remember that until you have a signed contract, you have no deal.
A contract will stop them from shopping your competition.
As long as you remember to treat them nice, with respect and with sensitivity, they will be as keen to sell you their house as you are to buy it.
What do you do if the house is listed for sale?
Sometimes motivated sellers try to sell their houses with a real estate agent.
As a real estate investor, do not make your offers through a Realtor. You can never wholesale such properties.
Explain to the seller that you can buy the house, but due to real estate commissions, your offer cannot work for them.
Ask them to call you when the listing expires.
You’ll find lots of them that have listed the houses for months with no buyer.
Usually they will ask their Realtor to cancel the listing. Then you can make your offer as a wholesaler.
How To Handle Simple Objections From Motivated Sellers
Sometimes you find a motivated seller who just needs reassurance that you are genuine.
For example, they may feel uncomfortable discussing the mortgage balance and how many payments they are behind on.
So how do you overcome these objections?
First of all, I only get to talk with motivated sellers who have already been pre-screened and the numbers already make sense to me. Learn how you can do the same.
Sometimes a motivated seller will ask you “why do you need to know my mortgage balance?”.
Your reply should be something like:
“In order for me to able to evaluate the deal and make a fair offer that makes sense both to you and me and pay off the outstanding mortgage when I buy it, I must know everything that is owed on it.”
Then shut up… say nothing!
They will provide the information.
How to establish repairs when pre-screening motivated sellers:
Don’t be surprised that their repair estimate is always on the lower side.
Always assume you will need to do paint, carpet, bathrooms and kitchen.
Your conversation should go something like this:
“How long have you lived in the house?”
“Have you done any remodeling on it?”
“So what repairs does the house need?”
When you take your conversation like this, you are likely to get more accurate answers that you can rely on.
How To Identify Properties With Equity
To succeed in real estate investing, you must buy your houses low and sell them high.
So how do you know that a house has enough equity to make a profit for you?
Let us take an example:
Suppose you are buying a $200,000 house for $160,000.
At first glance, it LOOKS like you have an equity of $40,000.
Let’s assume the house just needs a new carpet and paint plus a few touch-ups before you can sell it.
Your monthly mortgage payment will be $1300.
We will assume that you’ll complete repairs within 30 days, and that houses are sitting an average of 90 days on the market before you can sell them.
Your numbers will look something like this:
You only stand to make just $4550!
If anything goes wrong, you’ll make a loss.
For example, if you spend more in repairs, or it takes two more months before you can sell it, you’ll make a loss in the deal.
Scenarios like these are very common with real estate investors.
Do your calculations in percentages
As a wholesale rear estate investor, you should only work with PERCENTAGES not dollar figures.
I acquire my properties at 65% minus repairs or lower.
Remember you will need to wholesale your properties at a good price to sell them fast.
Let’s look at the same deal if we buy it at 65% minus repairs.
You would make $44,550 in the deal – about 10 times!
This of course assumes you can sell it at its actual after repair value.
Even if something happens, such as longer holding period or you spend more on repairs, you still have some room.
Assuming you used hard money at 14% to borrow $130,000 to buy the property and fix it, you would spend an extra $18,200.
I am using simple round figures to make the calculation easier. Hard money lenders have costs like points, doc prep. fee, appraisal, home warranty, etc., so this should cover all costs safely.
Your total profit in this deal would be $26,350.
Stick with percentages and you will stay safe.
10 Things To Take When Going To See Houses
If you are already an active real estate investor, you probably see a few houses every week.
What you might not realize is that what you do when you go to see your houses determines the consistency with which you close deals.
Before you see a house, you must pre-screened the deal to determine you can make money from it.
When you go to inspect the house, here’s a list of things to take:
When you go to see most houses, you are likely to find the utilities disconnected. So you do need a flashlight.
This applies to most vacant homes you will go to see.
2) Face dust mask
As unlikely as this sounds, I have found it necessary to wear a face mask several times when I inspect a house.
I am referring to the mask that covers your mouth and nose, not the ninja type mask.
Recently I went to see a house that had been vandalized. They vandalized everything including the copper in the plumbing.
And the good old vandals left the water spraying all over the house. By the time the neighbors called the city to turn off the water, the house had been flooded for a few days.
Of course, this resulted to mold in the house.
And I had to cover my face and make sure I did not breathe the mold just to see the house.
Keep a simple face mask in your car as part of your toolbox. A box of dust mask at Home Depot costs about $7.
3) Hand sanitizer / insect repellent
Lots of vacant houses stink and are infested with fleas.
You end up touching dirty doors, knobs, etc.
Sometimes you end up getting infested by fleas. I always spray my shoes with insect repellent and sanitize my hands after I am done inspecting a house.
4) Digital camera / Video camera
Get a good digital camera and video recorder.
In most cases you just need a good smart phone.
Always take some pictures and video whenever you go to see your houses.
I have made a habit of recording my voice to narrate useful things whenever I go to see a house. I find it easier than having to take notes.
Of course this is an obvious must have. I generally find the one on my smart phone enough for my needs.
This is one tool you will always need, whether you are estimating repairs, making offers, etc.
6) Screwdriver, hammer
These come in handy when you find houses that are boarded up. You have to gain entry, then re-board it after you are done.
Keep these in your car, you never know when you will need them.
7) Deal analysis
By the time I go out to see a property, I already know about the repairs needed when I pre-screen the sellers.
My visit serves to confirm the information I already have.
I already have comparative sales done and I have an idea of the offer I will make.
I can revise these numbers if things on the ground change.
Always be prepared to make an offer before you leave. If you have done your pre-screening well, you will already know the asking price when you go to see the house.
Most motivated sellers will accept your offer right there.
Most people will accept an offer that you make face to face than an offer you make over the phone or by email.
8) Purchase agreement
The time to sign the contract is when the seller accepts your offer, not later. Take a copy with you!
Keep some blank ones in your car, but by all means, have it ready to sign when they accept your offer.
9) Business cards
Most motivated sellers know other people who are in a situation similar to theirs.
Make sure you pass your business cards to them. Of course, remember to promise a gift if they refer their friends.
10) Yard signs
As soon as I get a house under contract, I put a “We Buy Houses” sign on the yard, with the owner’s permission.
These signs can bring you a lot of extra business.