3 Ways We Find Real Estate Deals

David:
This is the BiggerPockets Podcast show, 9 44. What’s going on everyone? This is David Green, your host of the BiggerPockets Real Estate podcast, joined by the other Dave, creating a double D. Dave Meyer. How are you today?

Dave:
I’m doing well. Thanks for having me on here today, and I’m excited about this show because we’re in a current market cycle that has low housing supply, but there’s obviously a ton of demand out there for homes which keeps home prices up, and we’re just not seeing a lot of housing for people to go out there and buy Deals are just harder to come by right

David:
Now. That is exactly right. Real estate is more popular than ever and in today’s show we are going to be talking about what you can do to find deals. Today. We’re going to cover several ways to do this, including both on and off market strategies, using your time and energy wisely, leveraging the power of relationships and most importantly, what to look for that other investors are missing. So very practical things that you would think others would know but they don’t. So make sure you listen all the way to the end to get the edge on your competition.

Dave:
I love it. Let’s get into it.

David:
In today’s show, we’re going to be discussing several different investing tactics and strategies, but they fall into three main buckets, how to allocate more time and energy to finding deals, how to create relationships and get more access to deals, and how to optimize your current strategy to find deals on the market. So let’s start with the first one.

Dave:
Alright, so the first bucket is putting more time and energy into finding properties at a deeper discount. So David, do you have any thoughts on ways to do that?

David:
Well, it does take a lot of time and energy to find these deals and that’s why we’re starting there. It’s funny, I often hear people at real estate meetups or some places say, where do I go to find off market deals? Which is funny to me.

Dave:
If you could just find them, they’d be odd market deals.

David:
It’s a market. It’s exactly right. It’s so funny. It’s like where’s the dispensary where I can go catch the fish that they’ve already caught, but I want to catch wild fish, right? You’re

Dave:
Like, that’s so true. I’ve never thought about that. Yeah, by definition there’s no place to

David:
Go. That’s exactly right. But there are ways to find them. You’re just going to be hunting. So we’re going to be talking about hunting strategies and the best one to start with is what we call driving for dollars. And this is basically driving around a neighborhood and looking for properties that look like they’re showing some kinds of physical distress that would lead one to believe that the seller is more likely to be in a financial bind or willing to sell the property at a bigger discount.

Dave:
Driver of dollars is a good strategy. I don’t know if the name is still the most applicable because do people who still actually do driving because you can drive, but there are other ways to sort of do this deep analysis too. So are you sort of talking about just any sort of direct marketing to sellers? Well,

David:
I think that there’s some ways that people send letters in the mail. That’s certainly true, but a lot of the people who own these properties either aren’t checking their mail, they’re getting bombarded with this stuff all the time. The idea is you’re trying to get to them through a means that they’re not used to being contacted. So one way is people will drive around, they’ll see a property that looks like the yard hasn’t been mowed, there’s a lot of newspapers stacking up in the yard, maybe there’s boarded up windows. And then once you find the address, you skip tracing systems to go say, I’m going to call this person directly and say, Hey, I drove by your house. That’s a little bit different than I’m just sending a whole bunch of letters to the same mailbox that everybody else is sending letters to

Dave:
As the recipient of many of those letters. I don’t like getting them and I ignore them, but I might be a little bit more skeptical of them because I’m in this industry and know who’s sending them to me. And so many times when I used to live in Denver, I would actually know the individuals who would send me those things. I was like, dude, you’re not buying my house for me. But yeah, so I mean it is a lot of work, but it can have a really good payoff. Right. Have you ever done this yourself, David?

David:
I never did driving for dollars. Almost everything that I’ve ever bought has come from the MLS. I bought a handful from wholesalers back in the day or occasionally word of mouth. I never did the direct mail system, but that’s also because I never really had the bandwidth to work that system. I’ve always had several different businesses and companies and so most of my energy has been spent towards helping people on the service side of real estate, selling homes, getting mortgages, getting insurance, things like that. So I haven’t done it, but I like what you said, Dave, there’s so many people that are doing this. You really have to do something to stand out from the competition. And the minute that we say do this to stand out from the competition, everyone hears it. The competition does it. Now you’re just like everybody else that’s doing it.
And that’s one of the reasons that I think it makes more sense to be driving for dollars as opposed to sending direct mail. Because if you can say, Hey, I just drove by your house, I noticed fill in the blank, the fence was falling over, your gutters are overwhelmed. I’m just curious. Tell me, have you seen the property in a while? Do you want to get rid of the thing? It gives you a little bit more of a human connection and the people who own these properties, I assume are getting bombarded with different text messages, automated systems, letters that are coming in because it’s easier for people to just send those than it is to contact someone. So you’re kind of coming in the back door instead of the front door where they’re used to seeing people come.

Dave:
That’s true. I think if you’re going to just do it a traditional way, you probably have to be in a pretty small market where there aren’t a lot of sophisticated investors. But where I lived in Denver, there are tons of house flippers, there are tons of investors. I’m sure it’s the same for you David in California. That’s a mature market so that maybe if you’re in a small town, these people aren’t being marketed to and so you could do postcards or whatever like that. But I think David’s right that you need to actually do this, really have sort of apply a personal touch if you’re going to do it. And then the other thing, David, you mentioned that I want to reiterate is you mentioned that you didn’t have time to work systems, and that’s really what it comes down to. This isn’t like a, I pick five properties and I’m going to contact five people. It’s a volume play. You have to do this dozens of times, hundreds of times before you maybe even get someone to talk to you. Then you have to convince them. You have to see if they are willing to accept a reasonable price. And so it really is building out systems to create a marketing funnel. And if you can do that, at least from what I hear from friends who do this, it can be extremely lucrative and worthwhile. But I do think it does take some time to set up and get good at those processes.

David:
A hundred percent. You also are going to need to put some money into it. So the people that I know that do direct mail typically spend between five and $30,000 a month sending these letters. Really? Yeah, that’s a lot. And then you got to pay somebody to answer the phone when the calls come in and that person has to be by their phone all the time. You also have to assume that you’re not the only person getting that call. You’re competing with the other people that are doing this. So this is no longer something that you do casually if you’re going to get into the space. You have to understand you are competing for an asset that a lot of other investors want, which means you have to be good at what you’re doing and you have to be better than them to make it happen.
And if they’ve been in the game longer than you have, they’ve got a headstart on you. Now that makes it more like a business, and we’ve been saying for years that being a real estate investor is a form of being a business owner, so this doesn’t need to scare people, but we are trying to set the expectation that this isn’t something you just walk out there, throw your pole in the water, get a bite and rail in a big juicy deal with $50,000 of equity. There’s also the method of calling lists of potentially distressed property owners as opposed to driving for dollars. People that have maybe like they never paid their property taxes or they’ve been issued a notice of default by their lender and they’re heading into pre foreclosure. People do this because it also gets you a better opportunity to get in touch with somebody who is likely to be in some kind of personal distress. We were talking about property distress when it comes to driving for dollars and now we’re talking about personal distress. Somebody could just be in tough financial times and be willing to sell that house because they’re going to lose it to some form of foreclosure Anyways.

Dave:
Yeah, I don’t have any experience with that personally, but I know that people do that. And yeah, these are effort ways. Again, this category, this bucket that we were talking about of the three main buckets for deal finding is ways that you can contribute time and energy into finding deals. So if what we’re describing sounds like it is going to be time consuming, it’s because it’s, and that’s the whole point. If you have time to contribute and you want to really set up a system to scale a large business, these are good options. But David, can I actually tell you a story? It just proves me to be a complete hypocrite.

David:
I was hoping that you would. Nobody tells stories quite like you Dave. Can I crack out the s’mores?

Dave:
Yes. Well, I just went on a rant about how this is a systems thing and you have to do this a lot to be successful. I have done exactly one drive for dollar effort in my entire life and I got it. I’m one for one, I’m driving for dollars and then I just quit. I decided I was never going to do it ever again. Well,

David:
I mean it. Tell us the story of how you landed the thing.

Dave:
Well, I was biking around. I found this deal that I really wanted to buy and I didn’t even know what skip tracing was. This was before I worked at Pickpockets and knew exactly what I should be doing and I just went into the depths of public record website hell and found some guy’s phone number and called him up. It was actually my third day at BiggerPockets. I went out in the hallway, I remember and called this guy and just made him an offer and he accepted it. I bought the deal, I still own it. And that was the one and only time I’ve ever tried to do this. So it is possible, but don’t take that story as evidence that you could just do this one and done.

David:
Alright, so we’ve got some steps to take if you’ve got time and energy to put into finding deals. And if you don’t have that kind of time and energy or luck like Dave Meyer, we’ve got a few other strategies for you right after this break. So stick around.

Dave:
Welcome back to the BiggerPockets Real Estate podcast. We’re here talking about the best ways to find profitable deals even in a constraint market. Let’s jump back in.

David:
Alright, moving into the next bucket of the three are relationships. Now this is going to be something I prefer much more than the business approach of sending letters or driving for dollars and it’s good old fashioned belly to belly face-to-face conversation. So Dave, I’m going to let you start this off. What are some of your favorite ways for investors to build relationships with people who may have deals?

Dave:
Well, the obvious one is to work with wholesalers, which I’m going to ask you about because I’ve actually never bought a deal from a wholesaler, but I think that one of the best ways to do it is just meeting other investors, and this is probably maybe the most underrated way of finding deals is a lot of people I think when they first start assume that investors are all competitive with one another and that they’re all going to be fighting after the same deals. But I think in reality, different investors have different buy boxes. They have different types of deals they’re looking for. They have different price points, different neighborhoods that they’re targeting, and a lot of times if you’re in the industry, you’ll be able to find other investors who maybe come across deals that are better for you than they are for them, and you could sort of create these reciprocal relationships where you are looking out for each other because you’re not looking for the same types of deals and you can actually help one another.

David:
Yep. Now you can do this with wholesalers. A lot of times wholesalers will take a deal and they’ll just throw it into one big group. I don’t think that’s the best strategy. It could be if you have a really good group of people, and I’ve heard wholesalers talk about this before is like first come first serve, I dangle this thing out there, everybody looks at it and whoever wants it first gets it. It sounds good, but I’ve seen the same strategy with listing agents in real estate sales and I don’t think it works. It’s much better to say, look, here’s the number I’m listed at. If you get me this number, I think my clients will take it because people will pay more for certainty. In fact, this just crossed my desk yesterday, someone brought me a portfolio of 22 properties and there was a price on it and I talked to the person and I said, Hey, I understand you’re selling these properties for this price.
And they’re like, well, that’s the reserve price, but we’re going to have an auction. And I was like, okay, nevermind. He’s like, no, no, no. Write an offer. It’s like I’m not going to do due diligence on a 22 house portfolio just to find out that somebody was going to pay $10,000 more than I would. And I think that’s how most people look at it, which is why I advise people, if you’re going to do this, build relationships as a wholesaler with your serious buyers first. And if you are the person looking to buy the deals, be the serious buyer and build the relationship with the wholesaler directly. Don’t just think like, Hey, I’m going to get into these groups or wholesalers dangle their deals and overpay or spend all my time analyzing deals that never work out. That’s when people put things in contract and back out and don’t close and you get the big mess that we often see with the real estate investing community.

Dave:
Alright, well you just covered everything here, David, for wholesaling. Thank you because I’m not equipped to answer that one. What about your personal life? Is there any way that you recommend to people that they just work with people not necessarily even in real estate to find deals?

David:
Yeah, this is even better than the wholesalers. I mean, your ideal person is a normal human in your life that doesn’t know what BiggerPockets is, doesn’t know what real estate investing is, has never heard of a cash on cash return or a phrase like Burr or house hack. You want to find people that think that this house is a burden, not an asset that other people want. So I recommend that people go to their aunts, their uncles, their cousins, their friends, the person who owns the car dealership, any form of influential person in your town, the person running your PTA, the one coaching the T-ball team and just be like, Hey, I buy people’s houses. If you come across someone with an ugly house, a person that needs a quick sale, a person that doesn’t like realtors, give me a call. I’ll buy the house without any kind of hassle, any kind of strings in any condition, and you plant these little seeds in everybody’s mind and you do this continually and the hopes are you planted that seed around the same time that they heard about a death in the family, a divorce, a person that got a promotion, someone that’s going to be moving, and you go, Hey, my buddy Dave over there, he buys houses.
You should give him a call. He could buy it from you without having to go through what people call the hassle of putting it on the market. Now I say that a little bit tongue in cheek because so many people think that they’re saving money by not paying a realtor and then they don’t put their house on the market, which means nobody sees it and they get way less money by trying to save in commissions. But if that’s how someone’s thinking, you can take advantage of that as a real estate investor buying it before it hits the market where everybody else sees it. I

Dave:
Think that’s such a good point about just laying those seeds because it’s similar to people asking where you find off market deals. I’m sure you’ve heard this too, David, but sometimes people are like, where do you find a pocket listing? Well, it’s the same thing. You can’t go anywhere to find a pocket listing the way you get a pocket listing, and if you’ve never heard that, a pocket listing is basically kind of what David’s talking about. It’s like a listing that’s not yet on the MLS, but the person is sort of decided that they want to sell it, but they might shop it around to a few investors or a few friends before they put it on the market. And so the way you find that is there’s no central place for it, but you just have to be known as a good investor person who’s going to treat you with respect and go out and buy it in reasonable condition and do everything the right way, and that’s how you get pocket listings. But these things take time. These are seeds that you have to plant and you have to genuinely just be a part of the community of real estate investors. You can’t really fake it, at least in my experience.

David:
That’s exactly right, and you can’t be too shy. I don’t know. Another way to say it. What we tell real estate agents is you can’t be a secret agent. Everyone has to know you’re a real estate agent. If you want to grow a business, same thing as an investor. You got to work it into every conversation you have, somewhat fluently, somewhat comfortably that you buy houses. You don’t want to dominate the conversation talking about that, but you can’t be afraid to say it because you got to consider yourself Johnny Appleseed. You walk around throwing these seeds into the minds of everybody that you know so that you are the first person that they think of when it comes time to selling a house.

Dave:
Okay, we have to take one more quick break, but when we come back we’ll talk about our personal favorite approach on market deals. They are still possible and we’ll tell you how we find them right after this. Welcome back investors. Let’s pick up where we left off.

David:
Last but not least. In fact, this is my favorite. We have on market deals. This is where I’ve bought over 95% of my own portfolio. Dave, I believe you’re an on market guy. Totally. What do you like about on the market? Not the podcast, but finding the properties?

Dave:
I like it because easy can I say that it doesn’t take as much work as this, but I would honestly, I like the above strategies, but I like on market deals because it allows me to honestly analyze a lot of deals to filter down to just the best ones. I am in the habit of looking at 10 deals a week and just always looking at them and occasionally not all deals on the MLS are going to be good. That is very obvious, especially nowadays, but it does sort of allow you to practice and really get a good sense of the market if you’re always looking at on market deals and that way when a good one does come up that’s in your buy box, you’ll be really ready to pounce on it. So I like that. The second part I really like about is there’s just more information and data about it.
A lot of times when you look at a pocket listing or an off market deal, they’ll have really bad financials or there’ll be no pictures of the property or it’ll be really hard to get information from the seller and it just makes doing diligence and underwriting a lot more difficult. And on, on-market deals, usually the person has spent some time thinking about how they want to present the property and make it appealing to people. And so there’s just more information that you can use. And so yeah, I just think it’s just easy and abundant and it’s probably a very underrated way. Even in today’s market of finding deals,

David:
You’ve also got more protections. It’s regulated. That’s

Dave:
So true.

David:
It’s insanely regulated. I mean, when you get into real estate sales and everyone thinks I’m going to be a real estate agent and save on commissions, most of them lose money because how much money they have to spend to hold these licenses and then they don’t sell a lot of houses. So I bought a house from a wholesaler one time that was advertised as having 1800 square feet. I ran my numbers on it, I bought it at about 70% of the A RVI found out after I closed, it was only 1300 square feet. Well, I bought it cash. There was no appraisal that was done. Nobody ended up measuring the property. I didn’t go walk the property. I was buying it out of state. And if I had bought that on the market, that would’ve been a huge, huge problem for the seller that sold it to me.
They would never have been able to advertise it as more square footage than it was, but because I bought it from a wholesaler, they can literally put whatever they want on that flyer and it’s all buyer beware. Do your own due diligence. So I learned the hard way on that deal. This was years ago that you cannot trust anything that’s being said now. You should always verify everything you’re being told, but when it’s coming through a brokerage that has legal responsibilities, there is a lot of recourse that I would’ve had. And because of that, there’s so many steps that these properties go through before they’re advertised that you are much more protected. That’s one reason that you should buy on the market. Another one that we didn’t talk about earlier, oftentimes, and this is a funny thing, that nobody that sells off the market courses is going to tell you the effort and energy that you spend finding those off market deals ends up costing you more money than what you made in equity when you bought it, if you had just gone to work and made money and then bought deals from the MLS.

Dave:
That’s so true. Yeah,

David:
It would’ve been net positive. I’ve heard people say, I made $60,000 on this deal, and I’m like, what’d you do? And they spent $20,000 and nine months of time to get it. I’m like, that’s not even a very high paying job. Yeah.

Dave:
It’s like you just made $4 an out.

David:
Yeah, that’s exactly right. You just don’t hear that in the Instagram post or the TikTok post or the person bragging about this great deal that causes the fomo that makes everyone listening to the podcast say, ah, I’m doing something wrong. Where do I find my off the market deal? And it puts us back into that. There is no place to find it. So if you buy your deals on the market, don’t feel bad. It actually can be financially advantageous if you’re not spending a ton of time and money and energy to do so. Now, I will say this, I don’t buy turnkey properties on the market. I’m always looking for a value add play or some problem, and that typically is reflected by having a higher days on market number for that particular property than the average for the area. So houses that have tenants stuck in them, houses that have construction problems, holes in the roof.
One of my favorite things to look for is a house that won’t qualify for a conventional loan. So if it’s missing flooring, if it’s missing appliances, if it does have a leaky roof, different things can automatically make a property not eligible for conventional financing, which eliminates 95% of the people that are looking on the market. Well, they don’t advertise that. What you just see is it’s gone in and out of contract a few times and in different books that I’ve written for BiggerPockets, I’ve talked about, I target the phrase back on the market and I target high days on market. Those are both indications that there’s a problem here, but I didn’t have to spend $30,000 in marketing to find the problem to then go negotiate it. I just had to look for the house that’s sitting on the market longer ask why. Another thing that I’ll look for is square footage that has not been converted but could easily be converted. I look for sun rooms, California rooms, basements that haven’t been converted, really big detached garages or even attached garages that I can make a part of the house. I don’t want to build a structure from nothing that takes a lot of money, but if I already have structure that is not included in the square footage of the house, I find an easy value add opportunity sitting right there on the market for me.

Dave:
That’s such a good point. Yeah, I think that targeting specific things on the MLS are really going to help you. And to your point, if you’re looking for a turnkey property, which just so everyone knows is like a property that is already been stabilized, it’s in its highest and best use. Basically the people who put that property in its highest and best use, they know what they got. They’re not selling at a discount. They didn’t fix up the house and make it nice only to sell it under its maximum value. The job of an investor is really to go out and look for unseen opportunities, as David said. So I think that you nailed it right on the head. One I actually was looking at, I didn’t actually wind up offering on it, but one thing I just learned about the other day is that I found a property that had two structures on one lot, and that means it does not qualify for conventional financing. And if you can buy it for cash, which I was considering doing, you can actually do it. But I got a little worried about trying to resell it if no one could qualify because

David:
That’s

Dave:
Smart. Even if I fixed it up, I would have a limited pool of buyers, so I got scared.

David:
Well, the only way to make those ones work is you have to find out why it’s not. Qualifying is probably a zoning issue. So if you could buy a cash, you could get it at a discount, not other competition. It’s a form of distress. Then if you can fix the zoning issue, you split it into two different parcels. You get the city to say, we’ll rezone it as a duplex or two units on one lot. Now the next buyer can get conventional financing. But what you’re describing is literally something that I’ll target. Like the big property that Rob and I bought in Scottsdale, we got that thing 6,500 square feet for less than the cost of the land. It was on, it’s on five acres. We bought the whole property beautiful for less than the cost of the land because nobody could qualify for financing to get it.
When a house is on five acres or more, the lenders don’t like to lend on it because they have these, they call them overlays where they know if we have to foreclose on this property, we don’t know that the value is in the property or in the land, so we’re just not going to lend on it at all. I’ve never heard of that. Now, if you actually look at the house, you’re like, obviously the value is in the property, but the lenders that are lending the money don’t look at the house. They’ve got a manager that oversees an employee that oversees a person, and so they don’t trust that any of those people are going to make a good judgment call. So they just make these rules where they’re like five acres or more. We don’t lend, and that’s what they’re worried about is someone goes and buys 20 acres with a little stick cabin on it somewhere and then they have to foreclose and they can’t find a buyer.
But how do you think we found that house high days on market, gorgeous property, amazing thing sitting there. For a long time it had been in escrow twice and had fallen out and it was because of the financing. So because I have a mortgage company, we were able to work around that and I was able to make it happen. Then if we ever go to sell it, I’ll just use my mortgage company to find the lender that will do it. If the buyer’s financing falls through, I’ll just say, well, we’ll have our company finance it for you. These are all the strategies that you need in today’s market. You just got to get out of that attitude of, I’m just going to go to Zillow, find a house I like. It’s going to have a great cash on cash return. I’m going to buy it for 70% of what it’s worth. I’m just going to walk right into a bunch of money and I’m going to take my space amongst the real estate investing elite at my local meetup and sit in my ivory tower of cashflow.

Speaker 3:
Well said.

David:
So there you go folks. Three buckets that you can start working on today to find deals. The first one is driving for dollars, sending letters. These are the traditional off-market strategies that people use. The next is relationships. One of my favorites. You can go out there and find people that aren’t real estate owners themselves, but know people that do own real estate and say, come to me before you call a real estate agent. And the tried and true on the market strategies. If you know what to look for instead of finding a deal, you make a deal. You can still buy deals in today’s market. Anything you want to add there, Dave? No.

Dave:
You just put a very nice little bow on

David:
It. Alright. If you like stuff like this, you can find more Dave Meyer on the Market BiggerPockets podcast. You can also get our information in the show notes if you’d like to follow us on social media, and please do, because I don’t have any friends, so I need some new ones. And as always, if you like this, check out another BiggerPockets podcast episode where you can learn more about how to build will through real estate investing without all the hype. Also, if you haven’t already done so, make sure that you subscribe to the show wherever you’re listening to your podcast. This is David Green for Dave, the Lance Armstrong of real Estate, biking for dollars. Meyer signing off.