There’s a secret of how to buy real estate at a discount that no one seems to talk about.
Maybe it’s because people don’t know about it… or they just aren’t conscious of it.
Either way, you’ve never heard it from this perspective before… and it could change the way you see your business – for the better.
How to Buy Real Estate at a Discount
Everyone wants to know how to buy real estate at a discount, but they don’t look at investing as a “search for problems.”
If you don’t see it like this, you’ll struggle to find deals, your offers will get rejected, and sellers will think you’re crazy. You’ll have an incredibly difficult time “making” it in real estate.
But once you see real estate investing as a search for problems, you’ll have an advantage in the marketplace. You’ll think differently than the herd and take more efficient actions than everyone else. You’ll be more resourceful at finding deals and get the ones no one else does.
Ultimately, you’ll do more deals, create more wealth, and find it possible to make a living as a real estate investor.
3 Principles For Discounted Real Estate Purchases
There are three principles to buying real estate at a discount that I, Matt Theriault, share through Epic Real Estate.
But first, make this your mantra:
“The foundation of every deal lies within the seller’s motivation to sell.”
Discounts come from a seller’s motivation. That’s where you get the term “motivated seller” from.
And what motivates a seller to sell property at a discount? Problems.
Principle 1: The Problem
Anywhere there is a crisis, there is opportunity. And where there is cash, there is potential for cash flow.
If there’s no problem, there’s no discount, and the bigger the problem is, the bigger the discount can be. You should look for all kinds of distress – financial, personal, property, etc. – because it’s distress that leads to a seller’s need to sell.
95% of all real estate sales happen because the seller wants to sell. These often go for market value because the seller isn’t experiencing any type of distress that might drive a fast sell, so they’re willing to wait for the best offer to come in. These are not the deals you’re looking for.
What you want are the 5% of sales that happen at a discount because the seller needs to sell. This is a big wake-up call for a lot of investors who can look back at all their unsuccessful deals and realize that they all failed for the same reason: the seller didn’t need to sell.
What Types of Problems Cause Sellers to Need to Sell?
There’s an unlimited number of problems that could cause a seller’s need to sell, but here are a few:
- Tax liens
- Code violations, divorce, etc.
- People in pre-foreclosure
- Fire damage
- Vacant houses
- Out-of-state owners
- Frustrated landlords (keeping in mind that any landlord with a vacant property is probably a frustrated landlord)
- Job loss or job relocation
- Weed abatement
- Short sales
A seller with any of these problems isn’t guaranteed to need to sell, but it does greatly increase your chances.
Why Farming Isn’t Practical for Investors
Many realtors market to every house in a given zip code, hoping to build a relationship and familiarity with the residents. Then, when anyone in the area is ready to sell, the realtor hopes they’ll be the first person the seller thinks of. This is called farming in realtor jargon.
I know some investors do this, but the grand majority don’t because the marketing costs would run them broke. Most investors don’t have the budget to wait around for people to finally raise their hand and say, “I’m ready to sell.”
Instead, it makes more sense to look for categories of people where the potential for need-to-sell is greater. That’s what the above list of problems is for. Each of those problems is a category that can be marketed to, and you’ll have a better-than-average chance of finding people who need to sell.
Principle 2: Identify Who Has the Problem
Now you know the types of problems you’re looking for. So, who has these problems?
The answer is simple: people who own or control real estate. These could be property owners, resident owners (people who live in their own property), or absentee owners (people who own a property they don’t live in).
What do I mean by “control real estate?” This would be the equivalent of the executor of a will or a wholesaler with a property under contract. The executor is in control of the will and the wholesaler is in control of the property at that point in time.
To sum it up, you’re looking for people who own or control property that causes them a problem that could be solved with a quick sell.
Principle 3: Develop a Strategy to Access People With Problems
Now that you know the types of problems and people you’re looking for, how can you actually find and gain access to them?
To do this quickly, it’s pretty simple. You can contact a list broker and buy data. They offer lists of people under certain categories. For instance, you could purchase a pre-foreclosure lists, a code reinforcement list, or a vacant house list. These range greatly in price, but you’re paying for the convenience. Listsource.com is one service commonly used by real estate investors, but if you Google “list brokers,” you’ll find pages and pages of similar services.
One downside of purchasing lists is that the data may or may not be fresh. Some places only refresh their lists once a quarter or every six months. You just never know.
Lists up for purchase can also be seen as low-hanging fruit. If it’s easily accessible, you’ll likely have more competition. As a general rule of thumb, the more difficult a list is to acquire, the better it probably is.
Build Your Own Lists
If you’re on a budget, you can build lists yourself for a fraction of the price or for free. Personal, property, city, county, state, and courthouse records are all in the public domain. It can be time-consuming and tedious work, but it’s possible, and the data you collect will probably be higher quality, more current, and have less competition.
Real estate is a good old-fashioned people business. That will never change.
Thus, developing relationships is a great way to gain access to motivated sellers. It may be the slowest way, but in my opinion, it’s the very best.
You see, with strong relationships in your network, the business can actually become pretty darn easy.
For example, because of the relationships I’ve built over the years, I’m able to buy, hold, and sell in more than 10 different markets, but I’m only on the ground and in the trenches of two of those markets. Most of my deals today are sent to me on a spreadsheet from my relationships. This is obviously a great way to do business! But I never would’ve reached this position had I not put in the upfront work of earning a reputation as a competent and trustworthy real estate investor.
In particular, it’s a good idea to build relationships with people who have access to troubled property owners. Some of those people might be:
1. Family law attorneys
Family law attorneys deal with divorce, probate, and inheritance. Many times, there are assets that need to be liquidated quickly. Family law attorneys find a lot of value in working with someone who can help their clients quickly sell assets because they want their clients to be able to pay their attorney bills and legal fees.
2. Bankruptcy attorneys
Bankruptcy attorneys deal with, of course, bankruptcy. Many times, there are assets that need to be liquidated, especially with all the new laws. If their client is in debt and needs to start liquidating assets to pay off debt, you might be a great person for them to have in their database.
3. Bank executives & asset managers
Bank executives and asset managers are the people responsible for managing the bank’s assets and real estate. Since the last big crash in 2007, these are prominent positions in banks. Banks used to not manage real estate at all and would just sell it as fast as they repossessed or foreclosed it. Now, it’s a big, long, political conversation, but they’re holding onto more, so it’s a great idea to form relationships with these people.
4. Property managers
Property mangers’ clients are absentee owners and landlords. These people have problems all the time. If you’re in the business very long, you’ll certainly have your number of repairs, vacancies, turnover, and rehabilitation of properties. Some people aren’t cut out for it, so they sell their properties and get out of the business as fast as they can. So there’s a lot of opportunity with property mangers.
5. City and county clerks
If you have a good relationship with the city and county clerks, they’ll likely help you when you’re pulling records, digging through tax liens, looking for code violations, or searching through probate court files.
6. Wholesalers or other investors
Wholesalers have problems all the time. They have properties under contract that they’re trying to sell quickly.
Other investors have inventory. They’re constantly reallocating their funds or resources, buying, selling, and re-buying, so they’re also great people to have in your network.
7. Mailmen, gardeners, city & county employees, etc.
Mailmen know when houses are going vacant due to the mail piling up. Gardeners have a similar situation.
City and county employees are great, too. In our Memphis market, we have a guy who’s an awesome resource for us. Every time a property gets condemned, he’s the one sent out by the city to board up the windows, so he’s sent us a lot of deals over the years. Each time we close on one of those properties, we send him a little referral fee. Because of that, he keeps sending us deals.
8. Realtors, lenders, brokers, etc.
These are the obvious relationships you want to maintain, along with professional services like list brokers.
From Hotel Front Desk to Investing Badass
Catalina Gomez is a relatively new client of mine and a great example of finding real estate at a discount.
Catalina lives in Norman, Oklahoma and works full-time at the front desk of a small hotel. She invests in the Oklahoma City area on the side, but she’d rather invest full time and do her desk job on the side. She enjoys her job, but investing is her true passion.
Up to the point when we met, Catalina was getting all of her deals from a local realtor and from looking on the multiple listing service. Oklahoma City isn’t too difficult of a market to buy cash flow in real estate right off the multiple listing service, but she wanted to flip more properties then she was at the time and get some big chunks of cash in her portfolio. But it’s tougher to buy from the multiple listing service with equity in place. It might cash flow, but the equity won’t be there.
Catalina almost didn’t become a client of mine because she couldn’t imagine buying a property any other way. She didn’t think it was possible! Who would ever want to sell their house at a discount if they’re so easy to sell on the multiple listing service in her market, right?
So, we shifted her mindset. Instead of looking for people who wanted to sell, she was going to look for people who needed to sell. And the reason they’d need to sell was because of a problem – a problem that could be mitigated or relieved by quickly selling the property.
Catalina shifted what she was looking for and changed her mindset. If the seller didn’t have a problem or she couldn’t uncover a problem, she’d send them an offer with her name and phone number and just move on to the next lead. She did not dwell on sellers without problems.
In just a few months, Catalina flipped three properties. The proceeds from those three deals paid for another cash flowing property for her portfolio in full. So she flipped three, took the profits, and bought a property, and owns it outright. She currently has four more under contract and she’s starting to prepare to take her investing full time. And she’s doing it all much faster than she ever thought she would.
That’s a real estate investing badass right there!
How to Get Started
Now that you know how to buy real estate at a discount, here’s how to put these methods to work in your own business.
If you’re just getting started or restarted, buy lists to be able to do business right now, and start networking to be able to do business later.
Don’t wait to start building relationships – it’s not something you can rush at the last minute. The longer they take to build, the deeper they go.
Start now and provide value first, expecting nothing in return. That’s how the best relationships are built.
If you’d like to meet some badasses like Catalina who have done this in real life, go to EpicCaseStudies.com. There, you can see exactly what your future will look like with a shifted mindset, awesome relationships, and a whole lot of extra cash flow.