What do you do with mediocre deals?
I am curious to hear about your strategies how to deal with mediocre deals. By that I am referring to deals that you wouldn't want to invest in with your own money, maybe because you expect the ROI to be less than what you are looking for or the type of property would take too long to sell. In many cases, it may still be not a bad deal (the price could still well be under market value).
Do you let those deals "go to waste" or do you - other than trying to renegotiate - do any of the following:
a) send all neighbors a neighbor letter (you just have to invest some extra money for postage)
b) try to assign the contract (if local laws allow that)
c) sign a separate option agreement with the seller
d) something else?
I am curious to hear your perspectives on that. In any case, I think it's important to be transparent to the seller and let him know that you are not personally willing to move forward with the deal but that there may be those other options.
Johannes Pieper I will usually mail the neighbors just to see if any of them would be interested at a price that would make it worth my time. One time I had a neighbor who offered a bit less than that so I ended up assigning the contract to him so I wouldn't have to pay closing costs and the profit amount would still be worth my time. If neither of those work out I just file them away in a folder for the off chance that something might work out in the future.
I get a lot of mediocre deals coming through my buying website. They're all free, organic leads that come from many different markets and sellers, so there's a wide range of what I see there, and only a very small portion of them are acceptable by my standards. So, by "mediocre", I mean any of the following:
- The property is too small for me to spend my time on.
- The property has limited uses based on its features, and it could only be sold to a unique type of buyer.
- The property is valuable, but the seller won't accept my offer price.
- Some other aspect of the property makes it high risk, and I don't have the time or risk appetite to mess with it.
I've done various things with these over these years. Sometimes I'll send a polite "no thanks" response. Sometimes I won't respond at all. And for a while, I was forwarding these leads to other land investors who expressed interest in seeing whatever I didn't want... but I eventually found that even when I did this, the secondary person I forwarded these leads to also wasn't interested in them, because we were generally looking for the same kind of thing in terms of value and opportunity.
All this to say, I think it depends on how hungry you are, and how much time and energy you have to spend on the less-appealing deals.
For a beginner who is getting their feet wet and looking to make ANY kind of profit (even if it's just a few hundred bucks), these can be useful for the sake of getting experience (because every deal will help you learn something new), but for someone who already knows how a deal is done and has limited time to spend on stuff that doesn't make much money, it's always a viable option to just say no. Just like any business decision, it's gotta make financial sense and be a win-win for everyone involved.
To add to Seth's response, I think there is some value to saying "no thanks" in a way that maintains goodwill with the seller/property owner. I have had some scenarios where the deal didn't make sense for me, but I ended the conversation by offering advice to the Owner. I may suggest that they reach out to their neighbors, or give them a quick explanation on their property's value. Also, if they are not willing to sell at a deep enough discount, I think it benefits me to refer them to my real estate agent. Since I can feed my agent leads that I don't want as an investor, he only charges 5% commission. Lastly, I always ask them to keep my contact information in case they change their mind in the future.
Not sure if it's an option or not but if you stumble upon some of these less desirable deals for your scale I'd love to try a few to get my feet wet. I've only gone through my first couple of mailers and am still waiting for a spot to get my feet wet. If not I completely understand but I figure it can't hurt to ask.