I have been mentoring for many years and have found that my best deals come from actually “speaking” directly to a Seller and working out a win-win situation. Since I first started investing back in 1998, I have not purchased a property directly from the Multiple Listing Service. However, some Investors would prefer not to talk to Sellers and would like to be fed deals from other Investors or from the Multiple Listing Service. We each have different personalities and based on your personality and your personal preferences, I may be talking to you. If this is your mind set, then I would recommend the following:
1) Find at least 2 Realtors that will be willing to set you up to receive listings that are emailed directly to you for your review, along with Expired Listings. You will want them to do a search for some of the following key words: TLC, Handyman Special, Must Sell, Seller Motivated, Short Sale, and REO.
Currently in Florida, it is a Sellers’ market, so when these listing are received by you, you must immediately make offers on the properties. In order to make offers, you will need to use a Formula called the Maximum Allowable Offer which is MAO. Your exit strategy will be important, because if your intention is to flip the house without fixing it, you will need to make sure that you leave enough money in the deal for another investor or a cash buyer. An FHA Mortgage Buyer will require you to own the home for at least 90 days prior to selling, called “seasoning,” and all repairs need to comply with their guidelines. Many Investors will use 70% of the After Repaired Value of the home, minus repairs to make an offer. Some Landlords will pay up to 80% of the After Repaired Value on the home to hold as a rental. Having your Formula, along with knowing average repair costs ready to use, will help you quickly make offers.
What you will also need to know is the After Repaired Value of homes in the area where you are making offers. Therefore, I would also recommend that you have sold comparables of no more than 6 months old and no more than .5 miles away from the property in which you are making an offer. You can have these sold comparables sent to you from your Realtors. This will allow you to get a good idea on the values in the neighborhood so you will be able to make an offer immediately. Be prepared to make lots of offers based on your Formula, in order to get one or two accepted. Please remember that a Realtor gets paid on commission and many do not know if the property is a good deal, it will be your responsibility to know the values.
Many new Investors are worried about making offers on houses sight unseen. However, if you are looking to get deals from the Multiple Listing Service in a Sellers’ market, it will be very important that you make an offer on the same day you receive the listing from your Realtor. Remember, you always have a clause that you will have 15-day inspection period. If your offer is accepted, you will be able to go and look at the house and see if this is truly a deal or not. If it is not a deal, then you can cancel your contract. You will need to have an earnest money deposit, up to $1,000, and submit the check within the 3-day time frame per the MLS. Another option is to place a paragraph in the contract that states that your earnest money deposit will be sent in after inspection. I would recommend that you have your Realtor already be prepared with a Standard Purchase Agreement already filled out with all of your information, terms and conditions so that all she/he has to do is fill in the Seller’s Information. You will also need a Proof of Funds letter at the time your Offer is submitted. Therefore you need to get pre-qualified with the Hard Money Lenders in your REIA group so that you will be able to provide a Proof of Funds letter with your offer. Even if you decided later that you are going to wholesale the deal, you will still need an earnest money deposit and a Proof of Funds letter.
As a Realtor, when I set up a search for listings to be emailed to Buyers/Investors, I am able to set them up with a website that allows them to save the favorites and delete the listings that they are not interested in. In addition, having the Sold Listings sent to you will also provide you with the values of other deals in the same area in which you are looking.
2) Have your email placed on all Wholesalers’ lists in your Local REIA Group or anyone else who would just want to wholesale directly to you. I would also ask if they have any references of individuals that they have sold to in the group, to see if that Investor ended up with a good deal.
When working with Wholesalers, it is important to know how they work. That is, are they doing an assignment of the contract or a double-closing? If they are doing an assignment of the contract, then it is important for you to know their terms and conditions on their contract, such as “how many days you will have to inspect the property”, and “will your earnest money deposit be refunded, if the house isn’t acceptable per the inspection?” Each Wholesaler works in a different way, so understanding how they work, will allow you to be able to get more deals.
Knowing the After Repaired Value and the Repair Cost on the home IS your job as these two numbers are just an opinion and could be drastically off, which could stop you from getting a good deal. Many Wholesalers will re-sell other wholesalers properties and that is why you will see the same house on their list of deals being sold for higher or they might even just split the wholesale profit between 2 or more wholesalers.
I hope this article will help you make offers on properties and still remember that negotiating is the top paying job in the United States. So ... I still believe direct contact with a Seller will bring you in more money because you can negotiate directly with them and cut out the middle-man; however, it will take your personal time to market and find the deals. Happy House Hunting!!!