Strategies To Acquire Real Estate Investment Properties
During supply-constrained cycles like the one we’re in currently, being good at sourcing can be one of the most value-accretive, yet challenging, aspects of real estate investing. Not only must investors move quickly to put properties under contract, but they also have to know what property types will lead to favorable risk-adjusted returns. Adding new sourcing strategies to their acquisition process helps investors improve the chances of identifying lucrative opportunities.
The ‘acquisition process’ encompasses all the steps involved in purchasing an investment property – from sourcing, or actually finding the home, to performing due diligence and ultimately closing on the investment. In this article, we focus on several different ways you can execute the first step: sourcing investments.
Aside from more tried-and-true methods, there are a number of channels investors may not realize can be utilized to expand their property search. Incorporating different sourcing strategies should be a priority for investors as it increases the likelihood of uncovering attractive investments.
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- On-Market Properties for Sale
- Foreclosure Auctions
- Direct to Seller Mass Marketing
- IRL Cold Contacting
Common Ways to Find Properties to Acquire
On-Market Properties for Sale
The most common (and competitive) sourcing method is to analyze properties being marketed for sale – this channel offers easy access to the approximately 1 million homes listed for sale at any given time on the MLS, and reposted on sites like Zillow, and Realtor.com, to name a few.
There are different ways to execute this method based on your objectives. The first is to simply spend time each day scouring the internet looking for properties that meet your criteria. However, this approach could waste a lot of time sifting through properties that aren’t a fit or have already been contracted by other purchasers.
To improve efficiency, you can set filters based on home characteristics, so you are instantaneously notified when a property becomes available that meets your pre-defined criteria. Filters can be set based on buy box characteristics such as square footage, number of bedrooms/bathrooms, or location, so you can spend more time focusing on other sourcing channels.
Using a Buy Side Agent
In addition to utilizing websites to find homes for sale, investors can partner with a Real Estate Agent who can act as a Buy Side Acquisitions Agent. Agents do the searching for you, and only send property listings that fit into your buy box. Another benefit to partnering with an agent is that they can offer expertise and help you work through other steps in the acquisition process – from negotiating prices to closing. This can be especially valuable for investors looking in a market they are not experienced in.
In exchange for their services, agents charge up to a 3% commission. It is common for the commission to be paid by the seller, which doesn’t feel like a cost to the investor. Even though it may not feel like a cost, the extra fees associated with having more people involved in the transaction could make an investor using an agent less competitive than investors not utilizing an agent. Something to consider when determining your investment strategy and whether or not utilizing an agent is right for you.
Other Ways to Acquire Properties
Now that we’ve covered the most common ways to acquire a property, let’s take a look at lesser known methods. Each of these strategies is focused on uncovering off-market opportunities, thereby increasing your universe of prospective investment properties, potentially with properties that are less competitive with other buyers.
As a real estate investor, partnering with Wholesalers can greatly increase the number of opportunities in your sourcing funnel. A wholesaler’s role is to identify properties that may be good investments, contract them, and subsequently assign the contract (or double-close) to investors. Additionally, similar to an agent, they can assist with closing and other aspects of the transaction.
In exchange for procuring off-market properties, wholesalers charge an assignment fee or otherwise mark up the price of the property above what the owner is selling for. Investors typically conclude the additional cost is worth it considering they wouldn’t have seen the opportunity otherwise. However, in some cases, it can make the investment more difficult to finance if the price being paid by the investor (inclusive of the wholesaler’s fee) is above the market value of the property in its current condition.
You might ask, how does one go about finding prospective wholesale partners to begin with? Well, there are a few ways to go about it, including finding and joining REI Facebook Groups where wholesalers may post properties, attending educational or social meetups which wholesalers likely attend, and networking with other investors. Once you find promising wholesalers, you want to ask them to put you on their email list, which is usually how they distribute investment opportunities to their network.
Another effective method for finding investment properties is through Foreclosure Auctions – which exist as part of the lender-owned sale process to help banks and other lenders minimize losses on loans that have gone bad.
Each state conducts real estate auctions differently. For example, Texas operates theirs the first Tuesday of every month at the county courthouse, whereas Florida has daily auctions. It’s worth researching how your state handles foreclosure auctions as it may be a great channel to help you find a good property for a low price.
In the digital age, auctions have moved online as well. Sites like Auction.com offer investors the opportunity to buy foreclosed properties from the comfort of their home.
Purchasing an investment property through an auction introduces risks since you are buying the property As-Is and usually do not have the ability to physically tour the home. Therefore, when buying at auction, it is important that the offer price is sufficiently discounted to account for the increased risk and unforeseen issues with buying properties in unknown conditions.
Direct to Seller Mass Marketing
Another channel to add to your sourcing quiver is Direct to Seller Mass Marketing. This method requires some upfront cash investment and additional work, but it can lead to great deals that may be unique opportunities for you.
To execute direct to seller marketing successfully, you want to start by using a data-driven approach to gathering a curated list of potential seller target contacts. There are tools to help with list gathering, including those offered by one of our partners Remine.com. Once you have your list, you want to try to contact the seller using one or many of several methods (direct mail, email, cold calling, etc.) to inform them you’re interested in making an offer on their property. Not every contact on the list will be interested in selling, nor even reachable, but investors willing to put in the work can uncover some of the best off-market investment opportunities.
IRL Cold Contacting
Otherwise known as “In Real Life” Cold Contacting, this channel is different from the others in that investors physically walk or drive around neighborhoods to search for off-market investment properties. Once a property piques your interest, you’ll do online research to find the owner’s contact information and inquire about the possibility of buying their property. While it can be time-intensive to locate properties that meet your criteria, you are increasing the probability of uncovering an attractive off-market investment with very little, if any, competition.
One approach that we’ve seen investors execute successfully for IRL Cold Contacting is to have others help you with some of the work. If you are unable to spend the time driving around town yourself, you can hire someone to do the legwork for you! Known as “birddogs,” they drive around and note the addresses of properties that meet your criteria.
An old school, yet fruitful, strategy to gauge an owner’s interest in selling is to simply knock on the door. Whereas cold contacting through phone or email often leads to ignored inquiries, speaking to owners directly can increase the chances of forming a relationship, leading to a higher possibility of getting a deal done today or in the future when they are ready to sell.
As you can see, there are several sourcing strategies investors can use to find off-market opportunities.
While all of these channels may not make sense based on your objectives, implementing even one new method can expose you to hundreds of properties you would not have otherwise seen. The more properties you have to choose from, the more likely you are to find one that is a good fit for your portfolio.
How can Backflip help?
Once you find a prospective investment property using any of these channels, the Backflip Returns Analyzer helps you quickly assess if an investment meets your target return thresholds. Backflip’s algorithms suggest current “as-is-values” and “after-repair-values,” supported by recent comparable transactions.
Using this tool saves you hours of time researching and analyzing, so you can focus on higher-value work like building out your sourcing channels and seeing more high-quality properties.
Additionally, Backflip provides borrower-friendly capital to finance your investment. With a streamlined tech-enabled loan application, we help you get deals done quickly so you can focus on creating value for your business and your community.