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5 Steps To Turn A Distressed Property Into A Deal

By on August 14, 2018

One of the keys to becoming a successful real estate investor is turning leads into deals. Knowledge of the business, access to capital and a reliable team around you is important but doesn’t make a difference if you don’t have deals to work on. Instead of waiting for your phone to ring there are things you can do to be proactive.

Every day you are in the car you may drive by a potential deal, often without even knowing it. Distressed looking properties can be a homerun right in your own backyard. These are properties with overgrown grass, neglected maintenance, newspapers piled up and mail overflowing from the mailbox. They may be vacant or occupied by a tenant waiting to move out. The sooner you can contact the owner the sooner you can start working on a mutually beneficial solution for everyone involved. Here are five steps to help turn a distressed property into a deal.

  • Pick a market. There are more distressed properties out there than you realize. When you make a concerted effort to find them you will be surprised in the number you find. Instead of driving aimlessly looking for properties you should start by focusing on a specific market or two. Even if you only find a handful in your market you can pick and choose the properties you want to work on. The condition of the property is not nearly as important as the market. If the pocket of the market is to your liking, you should move forward with the process. Where many people go wrong is focusing on properties with little upside or in undesirable locations. By choosing a market and making it your own you will know which areas to avoid and which to pursue.
  • Data collection. You should be able to know when you see a distressed property. Not only by the characteristics listed earlier, but by the way it is taken care of. Even if the property isn’t technically distressed, if it looks that way it is worth a follow up. The first thing you should do when you come across a property that fits the description is to collect as much data as possible. Keep a notebook in your car to write down the address, neighborhood and any physical characteristics of the property that are noteworthy. It is a good idea to keep a good camera in your car that also has the capability to capture a video. If you look at a handful of properties in a day it can be difficult keeping them apart. Once you have all the info carefully stored you can either knock on the door or go to a neighbor’s house and ask about the property. Most friendly neighbors will provide any info they have, good or bad. If nobody is home, you should leave your business card in the mailbox or inside the front door. As uncomfortable as it may be your goal is to initial dialogue and not simply make a good attempt.
  • Diligence. There is only so much you can learn from a property by talking to the neighbors. The next step is to ask a friendly real estate agent for some history on the property. See when it was last listed and read the entire listing sheet. This should tell you if any work was done or scheduled to do. It will also give you some idea how much, if any, equity is in the property. You should also go to town hall and pull the field card and tax history to locate the current owner. If the owner is out of town they may be more inclined to simply take a fair offer and move on. Wherever the owner is the next step is to track them down and have a conversation about the property.
  • Contact owner. In 2018, it is easier to find someone than ever before. As we stated, your priority should be to knock on the door and attempt to have a conversation with the owner. If they are not at the house, or do not live there, you are forced to try plan B. Send a letter to the owner at their primary address found on the tax information in addition to the subject property. You can also find an email address with a couple quick searches and if you are ambitious enough you can message them through social media. Like any other marketing you do, you should attempt to reach them at least a handful of times. It is unlikely they will respond to your first effort, but if they see your letters or emails enough they will eventually respond.
  • Make proposal. Prior to reaching out through letters or phone calls you should spend some time determining your strategy with the property. You may not have a final verdict, but you should at least have some idea on price and exit strategy. This is important to know so you are ready right from the first conversation. If you and the owner are miles apart on price, you should circle back in a few months. No decision should be made until you see the interior, but you can give a wide range on what you may offer. This keeps the conversation moving and helps push the deal forward. Any discussions on price should always be backed up with some comparable sales or estimation of work needed. By backing up your price, you are much more likely to make a deal happen.

Reaching out to distressed property owners is just one way to keep your pipeline filled. Use these five tips to help turn a lead into a deal.

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