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When I was a real estate investing rookie, I found out pretty quickly that if I wanted to buy properties for a fraction of market value, I would have to send out A LOT of offers.
Finding deals with massive amounts of free equity is a numbers game. While this isn’t a terribly difficult concept for most of us to grasp, this remains a major obstacle for many new investors. Like them, I used to spend hours upon hours researching the heck out of every single property before I felt comfortable making an offer. It ate up a TON of my time.
All because a little voice in the back of my head kept telling me:
“You have no business making an offer on this property until you know everything about it, inside and out.”
I was a perfectionist. When I made offers to people, I wanted to be 100% certain about what I was getting into. I did NOT want to flippantly make offers without thinking them through, only to weasel out of the deal at the first sign of trouble. It just seemed like a sleazy thing to do.
But is it really worth doing it?
The Problem With “100% Certainty”
It seems like a noble aspiration, but there is actually a serious problem with being “100% certain” about a deal BEFORE you make an offer.
It’s pretty much proven that 90% or more of the people I talk to won’t end up accepting my offers. When you’re sending out offers for 10% to 30% of market value, this is just a natural law of the universe.
In a perfect world, we’d have plenty of time to go slow and uncover every potential problem about a property before finding out if the seller is even interested. But we don’t live in a perfect world. And this is time we don’t have.
With this in mind, my number one priority became simple:
Find the sellers who are willing to sell their property for a laughably low price and do it in the least amount of time possible.
3 Things You Need to Know
While my new priority was straightforward, I knew that there was another critical aspect to consider: There are a lot of garbage properties out there!
I couldn’t be sending out offers on just anything. For this approach to work, I had to be fairly confident that if/when a seller accepted my offer, it would actually be a GOOD THING. At the end of the day, I didn’t want to make an offer on anything that wouldn’t end up being legitimately awesome.
It took me a while to figure this out. Eventually, I nailed down three essential pieces of information that I simply had to have to make an educated offer on any piece of real estate. They are as follows:
1. A Parcel Map of the Property
This rule applies especially to land. But even when I’m looking at a house, apartment building, vacant lot, or some other type of property, I need to understand the lay of the land. In other words, I need to determine things like:
- The size and shape of the property.
- What the neighboring properties look like.
- The desirability of this property’s location.
- Will this be easy or difficult for me to sell?
In most cases, I could see a detailed parcel map (with satellite image overlay) with a service like DataTree or AgentPro247. I can also take a 3D tour of the property and its surroundings via Google Earth. Together, these services will allow me to understand the basic characteristics of the potential investment I’m looking at.
2. The Property’s Approximate Market Value
Depending on the property type, this process can be easier for some properties and more challenging for others. No matter how you slice it, though, this is a very important part of the equation.
I really can’t make an educated offer on any piece of real estate without some idea of what the property is worth. Granted, my valuation of the property doesn’t need to be flawless, but I do need to at least explore the situation. Keep in mind that whatever number I come up with, I’m only going to offer a small fraction of that value. So there should be a built-in “buffer” that protects me even if I do get a little too optimistic about a property’s value.
As I explain in this blog post, vacant land is one of the more difficult types of real estate to place a rock-solid value on. That said, there are different ways to look at the publicly available data to determine property value.
One way to do this is with a site like Redfin. Check it out here:
In my experience, Redfin doesn’t allow users to download an excel file in every market. But in the ones where this data is available in excel format, it can be quite helpful.
3. Some Indication I’m Dealing With a Motivated Seller
When I’m talking with a seller about their property, I love to hear a few key phrases. They usually go something like this:
“Send me an offer; I’ll consider anything!”
“I have no idea what this property is worth. I was hoping you could tell me?”
“Oh yeah, that property. I haven’t seen it in over 20 years. Just let me know your offer, and I’ll get right back to you.”
These statements are a pretty clear indication that I’m dealing with someone who is highly motivated to sell. Sometimes it’s because they can’t afford the property. Or sometimes it’s because they just don’t care about it. But whatever the reason—these are clues that I’m talking to the right kind of seller, and they’ll probably be willing to work with me.
Living With an Imperfect System
It goes without saying that these three items are not going to give you all the information. These pieces of information comprise an admittedly high-level overview of the situation, and all kinds of issues can be hiding beneath the surface. Every property needs to be thoroughly researched—but not until AFTER the seller has seen or heard your offer price and they’re still interested in selling.
The real differentiator with this approach is that we’re finding out which sellers are worth our time and effort. The LAST thing we want to do is gather enough information to write a short novel about a property—only to find out that we didn’t even have a shot at it in the first place.
Too Much Preliminary Research Can Be Dangerous
When we invest too much of our time researching properties on the front end, it’s easy to start making decisions that are emotional, irrational, and deceptively foolish. I’ve seen it happen over and over again. Heck, I’ve even done it myself on a few occasions! Some people are so thorough that they become attached to a deal, and it becomes a liability.
Do you know how it feels to pour a lot of time and effort into something only to walk away empty-handed? It feels terrible! As a way of dealing with this oncoming disappointment, some of us will subconsciously feel the need to justify our actions by “staying the course.” Even when it doesn’t make sense.
It’s an issue of sunk costs. I don’t know about you, but when I invest hours, days, weeks, or even years of my life into something, I want to see some kind of tangible result.
“What was the point of all that <monotonous task> if I’m not going to walk away with <desired result>? What a waste of time!”
Exactly. It IS a waste of your time—until you know you’re dealing with a serious seller.
Get Comfortable Walking Away
Obviously, if you’re going to make offers without all the information at your disposal, you need to be comfortable with the possibility that you’ll have to walk away from some deals. This is understandably disappointing to many sellers. Some people might even say that this is a lousy way of doing business. On the contrary, I would argue that walking away from a deal (after discovering a relevant problem through research) is actually the norm.
Look at any purchase agreement with an “Association of Realtors” stamp of approval, and you’ll find some kind of “out” clause that will allow the buyer to walk away from the deal and get their deposit back if you need to.
Making offers without all the information is a normal way of doing business. You shouldn’t feel guilty about walking away from a deal if necessary.
If your purchase contract is clear that your commitment is contingent upon an acceptable inspection of the property, there’s nothing dishonest about waiting until AFTER the acceptance to do your final research. Sometimes the deal will be a slam dunk; other times, you’ll have to renegotiate (or walk away) once you learn the story behind the property.
For this reason, you should make lots of offers BEFORE you have all the information while keeping a loose grip on any property until you know you’re dealing with a serious seller.
The seller, oftentimes, is the biggest and most stubborn factor upon which everything else hinges. Until you know all systems are “go” from this end, do yourself a favor and don’t feel like you have to spend hours researching a property before making an offer. Put it through this initial “stress test” (described above), make your offer (if/when the property fits the bill), and carry on!