So you want to be a Residential Rental Real Estate Investor... and Landlord - of course. Well, I already told you that I started in 2015 when things were rather easy in comparison to now. And those who started like 5 years before that really had it good. But its not too late to get started - you just need to be good at Marketing for Deals...
Welcome to Episode #46 - Marketing For Deals
So - Deal Flow... Whether you're a Wholesaler, Realtor, Flipper, Landlord - all of the above... You need a consistent Deal Flow if you hope to create a real business. And a consistent Deal Flow is created through effective Marketing for Deals.
You're not really much of a Wholesaler if you've got no properties to sell. So Job #1 is Marketing for Deals (and off topic for this episode, Job #2 is negotiating those deals). If you're a Realtor, you likely don't consider it Marketing for Deals - but you've got to market your services to find clients. And in my case (or any Realtor who focuses on getting Investors as clients) - you're Marketing for Deals on behalf of those Investor Clients.
If you're a Flipper, you're likely wanting to have more than one property - as you can't really claim the title and consider it a business having only done it once - so you've got to Market for Deals. And likewise, if you're a Landlord seeking financial freedom through Rental Real Estate Investing (like me) - its certainly going to take more than 1 or 2 properties to get there.
Let's say your goal is to replace your day job income with rental properties and you determine that you'll need $10,000 a month to live your desired lifestyle. Well if you're making only $200 of positive cash-flow per property (which is not an uncommon amount) - then you'll need as many as 50 properties to reach your income goal. And you won't get even a 5th of that amount without being good at Marketing for Deals.
So a great skill to have... A great thing to educate yourself on... a great focus of your efforts, and what I personally spend a lot of time on - is to learn how to effectively Market for Deals. But what is a "Deal"?
Marketing for Deals... But what is a Deal? Not so much for Realtors, unless they're representing themselves or Investor Clients. But Wholesalers, Flippers, and Landlords are all seeking "Deals" - which are properties that for whatever reason can be obtained for LESS than its eventual or ultimate value.
Let's say a property would have a value of $200,000 based upon nearby recent comps - if it were in ideal move-in / live-in ready condition with no significant repairs or rehab needed and no deferred maintenance. But instead, that's NOT the current condition of the home.
Maybe the roof leaks or is about to cave in. Maybe the HVAC system is on its last breath and would legally be of age to drink if it were a person. Holes in the walls and floors. Or maybe its like a duplex I went to look at this past weekend, where there is was literally a foot of standing water in the crawl space.
Whatever the reason, the house certainly isn't worth $200,000 in its current condition. In fact, you determine that it will take $50,000 of rehab and repairs to make this home THEN worth $200,000. So what would you be willing to pay for this house? At what price does it become a deal? $150,000? And then you put in $50,000 in repairs to make it worth $200,000?
Hmmm - I'd say NO... because there's no room in there for your expenses beyond the rehab and profit - What about the profit? You're going to have closing costs, and holding costs, and then you want to make some money - and have some equity present and profit potential. So maybe instead you offer $100,000 on the house, which then gives you a potential of $50,000 to cover those expenses and provides room for profit.
So finding a property that can be had for $100,000 and needs only $50,000 of rehab to then be worth $200,000 requires that you be good at Marketing for Deals. And finding them consistently may require that you be great at it. And again, off topic for this episode (I'll certainly do a coming episode on it later) - but if you've got some negotiating skills, you might be able to get that same house for $75,000.
And actually a common calculation for flippers to determine if a property is a deal or not, would be to subtract 30% from the After-Repair or Rehab Value (ARV) of $200,000 (in the prior example) - which is then $140,000. And then subtract the rehab budget of $50,000 (in that example) from this amount - which is then $90,000. So by that calculation, this hypothetical house becomes a deal at $90,000, and like I said, if you're skilled at negotiations, you might be able to obtain it for only $75,000 or even $80,000 may be good - then you've really got a deal.
But think about it... That's what wholesalers have to do. They've got to get a deal that leaves enough meat on the bone for a flipper or BRRRR Landlord to be interested in it - and then get it down another $5,000 or $10,000 or more to create some profit for themselves in the deal. That takes both great marketing and great negotiation stills. But yet somehow people think that wholesaling is an easy entry point into Real Estate Investing - good luck with that!
So a "deal" is a property that can be obtained for enough below its ultimate value (or ARV), such that it can then be rehabbed or repaired as needed to rent or resale at that increased value - and have room present to cover all expenses and create some profit for yourself in the process (or equity if you keep it as a rental). But how do you go about Marketing for Deals?
So Marketing for Deals may entail many things... The most obvious and annoyingly visible of which are those "We Buy Houses" signs and the variants that you see everywhere. I HATE those signs, as they make us all in the business look bad. But Hey - They must work, or people would stop using them. Or maybe its just the newbies leaving the latest seminar or boot-camp that are still using that marketing method - and maybe it really doesn't work.
Certainly they worked years ago, but I have to believe at this point that most people with a house to sell are not looking to call some random google voice number on an illegal sign stapled to some street corner light-pole or stuck in the ground. Why would anyone believe that that person using that marketing method actually has any money to "Buy Homes For Cash" as likely claimed on the sign!? I don't get it! So I would say to stay away from the aptly named "Bandit Signs" - as they're often illegal.
Next is Direct Mail - which does still work. And I can attest to that... But it can also get expensive. There are many providers out there for Direct Mail. First you need a list of prospects to send mail to - then you need the actual mailing. I use a service that provides both a means of compiling an effective list, plus handles the actual message and mailing. I actually wish they allowed for greater and easier customization of the message, but many services exist that offer full customization of the message, handle the mailer and may also provide a means to compile the prospect list.
By whatever means and whomever you end up using for your Direct Mail (including the option of just doing it all yourself) - Direct Mail can be an effective means of Marketing for Deals. Now some will claim you need to hit the same list repeatedly, and that it takes something like 7 touches to get a response on average. But I couldn't disagree with that more. I think that is the sort of thing that people say when they stand to benefit from you doing a bunch of touches, such as the marketing company you're using.
For example, I've done some online ads for my tech company, and they claim that to get results, the ad needs to be online for months and be seen (you guested it) - 7 times on average. But I call BS on that. An ad that works will have immediate results - so if you send a mailing and get no results - don't repeat it even a 2nd time (and certainly not 7). That's complete marketing BS.
For direct mail, at best, I may hit the same list a 2nd time, 3 or 6 months later, but once is fine. And if do hit it more than once, its only when I'm targeting all homes within a certain community and I want to stay top of mind or increase the chance that my mailing lands right when the person is thinking of selling. But remember that my scenario is likely a little different than yours.
I'm a Realtor, so I'm marketing both for people who need a Real Estate Agent to help them sell their home at full retail price; as well as, I'm seeking people with a distressed house that I can buy myself at a discount. So my message may be some form of "I'll buy your house or help you sell it" / "I'll sell your house or buy it myself". So I'm marketing with a dual message that may benefit from multiple touches.
Whereas if you're just looking for distressed houses to buy, a person who likes your message and knows that they may seek to sell at some point in the future - they're likely to place your card aside. Then you get a call a year later on a mailing from the prior year. And there would have been no additional benefit to sending additional mailings during that period of time. In fact, sending such a person multiple mailings may anger them to the point of now they'd never want to do business with you.
So compile your list, perfect your message, and send your mailer ONCE to that list - or maybe twice per year. But certainly not more than once per quarter. And even that is likely too much. I'd stick with just once or twice per year / per list.
Now there are on-going debates about if you're mailings should appear to come from a business entity or an individual. I suggest that latter, as if you're just some guy or girl who happens to buy an occasional house or two. I think the more business like you appear, the more money someone might think you have and thereby expect you to pay a higher price.
But it could also be the case that someone might have more trust and confidence in a person to solve their problem, if that person appears to be apart of some established company that does this at a high level. Either or both can be true for one person or another - so if you're going to hit the same list multiple times, I'd suggest alternating between a personal versus business representation.
Also a matter of debate is the type of message that should be sent, such as hand-written (or appearing to be so) versus typed. Colorful versus bland. Yellow letter or postcard. There are even those who send more elaborate mailings - like mini-Rubik's Cubes with a message of "I can also solve your housing problem." - Anything to make yourself standout from all the other mailers the person may also be getting. Be creative = Nothing wrong with that, and it's all worth a try.
Now even more so than Direct Mail, I like Online Marketing. How could I not, when I have a Tech Company that provides Websites, Web Hosting and related services. Having an amazing Website that at least has the potential to rank well in search engines (meaning Google) is the purpose of that business, which is ViUX (V-I-U-X.com).
So if you go to ViUX.com, BlueChariot.com or andlandlord.com - hopefully (if I've done my job well), you'll be impressed with those sites. Well likewise, I've got various landing pages designed specially to rank well for certain keywords that a person with a house to sell is likely to enter into Google or on various Social Media sites. And beyond seeking organic ranking, I engage in certain paid marketing efforts, including PPC on Google Adwords, Facebook Ads, Instagram and retargetting - which causes my ads to follow a person around the Internet for weeks after they visit one of my sites.
But the best of both worlds is to merge your Offline Marketing (Direct Mail) with your Online Marketing. Instead of hitting the same Direct Mail list over and over again - likely making those people mad in the process. And I've never really understood how or why - but people can really get mad because you dared to send them a piece of mail inquiring about buying their house - "How date you!?"
So instead of hitting up the same people with repeated mailers (costing more money and risking making them mad), I download that list into a Facebook Audience formatted file, and use that to target ads to those same people on Facebook.
So I'm in their mailbox once or twice; and I'm on their Social Media Channels. Plus if they click through from Social Media, search me out on Google or otherwise come to my website - then I follow them around the Internet like a Stalker. I'm just short of jumping out of the bushes while their out walking their dog - saying "I want to buy your house for cash!"
So jokes aside - The integration of Offline and Online Marketing works well to stay in front of them (and top of mind) for whenever something clicks / something changes - and they're finally ready to sell their distressed house. And this just increases the likelihood that I'll be the one who gets that call when it does. And I might combine this with still more types of marketing integration.
So if I'm targeting a specific community, like a Townhouse development and I just want to own anything and everything in that community, I may choose to do some door knocking and leave some door hangers for those that don't answer. For those who do answer, I will introduce myself and leave a refrigerator magnet business card.
And in that introduction, I will likely mention that I've sent them prior mailings about possibly buying their house. And I'll ask if they might consider selling or know anyone seeking to buy or sell a house in the area. And I'll walk that line between seeking to buy the house myself at a discount or wanting to represent them as their Realtor in selling at retail to someone else. I'll say something like - "I'm seeking houses like yours to buy myself to then rehab into rentals. But if your home doesn't need any rehab, I can also act as your Realtor to get it sold for top price on the open market." - And I'm not sure I ever say it the same way twice, but you get the idea.
I'm leveraging the fact that I'm a Realtor to have two opportunities to monetize every lead. If you're a Realtor you should certainly do the same thing, as its one of many reasons for getting your license. But you can also partner with an Agent to send them leads for people who might not workout for a discounted sale, but are potential sellers at retail. However, even here it makes it easier for you to be paid a referral commission by that Agent if you've got your license.
You should also have your presentation ready (Realtor or not) as to why and how working with you to sell their distressed house is better than going with an Open Door or any of the other iBuyer's out there, including Realtors who have their own version of a "Guaranteed Offer" program. There's one Realtor who comes to mind in my market who's advertising a lot about their iBuyer program - and then Zillow is getting into that game. I expect to see Amazon and many others entering this business very soon (if not already) - so now is the time to build your brand and ramp up your Marketing for Deals Machine.
The cover-art for this episode has multiple paper airplanes flying - but one is a different color and is soaring higher than the others. You could consider that one to be the successful attempt at flight; whereas the others failed. Well, this is what Marketing for Deals is like. Each paper plane represents a different marketing method, channel, message or attempt - and you may have no idea which one(s) will take off and soar high into the air with success; versus which will fall to the ground in failure.
To be successful in the business of Residential Rental Real Estate Investing, you must be able to find an ample number of distressed properties that can then be obtained for below there typical value - even after accounting for the rehab required. And to do that, you must be good (if not great) at Marketing for Deals. And that's what this episode of the… and Landlord Podcast is all about. Marketing for Deals and creating your Marketing for Deals Machine.