Driving for dollars. Is this a game show, with the host saying: "Good evening, ladies and gentlemen. In tonight’s edition, we have…" Seriously, you can make a lot of money at this "game" – my favorite source of finding good deals in real estate.
Pick a neighborhood that interests you, e.g., in transition, being fixed up, near a river, and so on. Drive around it slowly and write down at least 20 addresses of neglected, vacant, or condemned homes. Often, they’re sporting signs saying For Sale, For Sale by Owner, or For Rent.
Next, contact the owners. You may have to be persistent and call and call to find their numbers and reach them. You can contact the Registrar of Deeds, get on the Internet, and go to the local tax records office. Ask a realtor to look them up on the MLS computer. Once you find them, call or write them to learn more.
Houses with Motivated Sellers How do you tell if a house or property might be owned by a motivated seller? Look for the following characteristics:
- Undeveloped Land
- For Sale
- For Sale by Owner
Neglected homes have gutters that hang, roofs with holes in them, and horrible-looking yards with trash lying everywhere. But generally in real estate, the worse the disrepair, the better the deal. So as an investor, begin to love houses that have black goo dripping out of the ceiling, animal dung on the carpet, holes in the wall, busted-out windows, and 14 feet of garbage in the yard. The more work the house needs, the more motivated the seller will be. The more motivated the seller, the better the deal will be. The best deal my friend John ever landed involved a house that had 35 feet of garbage in the front yard. Drug addicts had lived in it. When he walked into the house, he could not even get access to the basement because of the garbage.
But the real estate market was hot in this neighborhood and 50 people had looked at it – and walked away in disgust – during its first two days on the market. So John went into the trashed-out house, took a big breath in the smelly environment, and declared, "Eureka. The mother-lode." He figured that house was worth about $350,000 fixed up. He determined it needed about $50,000 of repair. So he put it under contract for $140,000 (less than half of its value) and got the deal completed.
My investor friend Bill in Nashville, Tennessee, finds big chunks of land – 20, 50, 200 acres – negotiates a selling price and puts the land under contract. When I asked where he found deals, Bill said, "I drive around, find land on the edge of town, and either talk to the neighbors or write a letter and find the owner. I have never used a realtor because the property is rarely listed." Bill asks owners if they would like to sell their land and gets an option to buy it. If it is unimproved farmland, he reads the property codes for that area and often gets the land rezoned to make it more attractive to future buyers. He might borrow money to put in roads and utilities, thus increasing its value immediately. Three months to two years later, he sells this land for substantially more than he paid.
If houses are empty, the grass high, the bushes overgrown, could those owners be highly motivated to sell? Put them on your list of possible good prospects.
Look for yellow tape that says, "Unfit for human habitation." This signifies a code violation at a property. It also excites investors because owners who have been to court (codes enforcement area of the Housing Administration) might be highly motivated to sell after being fined. The court’s message is: "If you do not fix this house, we will fine you more, and if you still don’t fix it by a certain time, we will bulldoze your property." Some condemned homes require a tremendous amount of work to fix up, maybe too much. The windows could be broken; the electricity or heat might not work. You always have to evaluate it as an investment.
A house is for rent (especially empty ones) might be owned by a tired landlord who bought the property 20 years ago for a fifth of its value today and is excited to sell.
For Sale / For Sale by Owner
As you drive for dollars, look for "For Sale" and "For Sale by Owner" signs. Some might also say "Make Offer" so pay close attention.
Because you are still driving neighborhoods and learning about them, make a point of meeting the realtors and brokers who are active in that area. You will learn a tremendous amount from talking with them…and reading the signs, too.
The Smaller The Sign, The Better The Deal
While driving around, Mary almost missed seeing a little bitty sign behind a bush. She got out of her car, jumped over a low fence, moved the bush, and saw one of those "For Sale" signs available for 90 cents at the hardware store. She could hardly read the phone number. In fact, she wrote down eight different phone numbers and the seventh one was correct. When she called, she asked the man who answered, "How long has your house been for sale?" He replied, "Six months. You’re the first caller." Mary bought that house for half of what it was worth, wholesaled it, and made about $20,000.
Robert Shemin is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.