How to Find Deals in Real Estate Investing

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Before you get stuck in a box, as a one trick pony, are you well versed in finding deals? 

How are you aligning your acquisition strategy? 

How many ways are there that you can adopt into your everyday life?

Good questions?  

Well, let’s get started in learning the multiple ways investors are finding deals, on and off market properties. 

Also, I’m curious what strategies you are deploying, so be sure to comment at the end, to share. 

There are many people acquiring real estate investments and they are acquiring them in many different ways. 

From those buying with cash, to those buying with traditional funding, to those buying with non-traditional funding. 

This is the basis of every investment – the funding.  

The funding actually dictates the acquisition strategy. 

This is how we will organize our playbook today, by the funding type. Then, within each funding type, we will specify on-market and off-market strategies with each. 

Let’s get started.

Traditional Funding Source

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A traditional funding source is funding that is from a lending institution. This could be a bank or a credit union.  With any traditional funding sources, there  will always be contingencies.

These contingencies are as follows; a financing contingency, an appraisal contingency, a title contingency and an inspection contingency. If any of these contingencies fail compliancy, the transaction can be declined.

These loans usually have a 20% or 25% down payment requirement and can be coupled with a renovation product if you choose to pursue.

Be mindful, we are not talking about anyone purchasing their first property today. If you are an investor, you are at least on your secondary purchase. 

So let’s get into the deal scouting using traditional funding. While this funding source has significant costs up front, the interest rates on borrowing are comparably the best. 

While these transactions could be acquired using a trust, most commonly, these purchases will be made by an individual.

The individual will be evaluated personally to determine eligibility. Upon confirmation of eligibility, a pre approval will be granted. This occurs with both traditional and non-traditional funding sources.

Well, quickly, before we jump into scouting the deal sources, let’s complete an overview of good shopping practices. Here are some good “rules of thumb”.

Rule of Thumb

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  1. To align the best suitable property for you, you want to align your finances first. This means you should have already acquired a pre approval with your funding source before you begin shopping. Once you know how much you can afford to purchase, your shopping can begin.
  2. Use your projected mortgage payment as a underlying cost. You will use this a determining factor in what properties interest you. This is applicable in any investment since you should always calculate your costs throughout the term of the project. For example if your highest buying margin is $200,000, locate properties where you can get the most income for your money. This doesn’t mean be inconsiderate of the asset class of the area you are buying in. So make sure you are not buying in an area that does not interest you by checking crime rates, unemployment and the average household income of the area. City-Data is a great source for this.
  3. Locate properties that align with the asset class and cost you are looking to spend.  
  4. After identifying prospective locations that fit your buying margins, look for the properties that are capable of (or currently are) collecting the most rent income. After all your expenses and the mortgage payment, you want to equate what your cash flow would be. You should seek the best asset with the highest current or potential income. Check out a free audiobook (or book here) to help educate you on best practices when shopping for rental properties in this manner. If you are shopping for renovation opportunities, our last blog covers this practice well.  Please review How to Calculate ARV & Repairs. 
  5. Once you’ve located several prospective properties that align to your area of interest, and that would cash flow to your expectations, submit your offer.

Now, let’s proceed to scouting deals under traditional funding sources.

On-Market Opportunities

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There are plenty of deals that are on the MLS (multiple listing service) that you can pursue after you’ve aligned your ability to locate a deal that will make sense for you. These opportunities can be acquired with the partnership of a realtor.

Be mindful that if you are utilizing traditional funding, you won’t typically enter with one loan vehicle and transfer into another loan vehicle soon after, like you would with using non-traditional funding sources.

Most commonly, if you are using traditional funding, you will stay in that same vehicle for the long term unless you decide to refinance.

However, the opposite is common for those using non-traditional funding. They usually acquire with one funding source, and soon after they are refinancing into a different long term funding source. If not, they are cashing out of the original loan by selling the property.

These differences are directly related to business (or entity driven) transactions versus personal (individual based investing) transactions.

Now, let’s look at the types of purchases you can scout. (On-Market Opportunities continued…)

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  • Performing Asset – This is an asset that is already occupied with tenants and is currently producing income.
  • Value Add Asset – This is an asset where you can add value either by reducing the overall expenses, increasing the market rate rent, adding square footage or by adding value through cosmetic upgrades. This can be performed with the proper due diligence to identify this type of opportunity.
  • Occupy – Renovation Project – This is where you intend to use a renovation product like a 203k or the HomeStyle Renovation Program to add value to a property you will live in. See the definitions of each below.
  • 203k Definition – An FHA 203 (k) loan is a type of government-insured mortgage that allows the borrower to take out one loan for two purposes โ€“ in particular, for home purchase and the home renovation.  
  • HomeStyle Renovation Loan Definition – The Fannie Mae HomeStyle Renovation Loan is a government-backed mortgage that provides funds to remodel and repair a house. The loan can be in the form of a purchase mortgage or the refinance of a current mortgage with extra cash for improvements. 
  • Non-Occupy – Renovation Project – The HomeStyle Renovation Loan is a loan that can be used here as well. Check with your county on other possible renovation loans from institutions that are available in your state.
  • HUD Homes – HUD (or the the U.S. Department of Housing and Urban Development) has programs that cater to low-to-moderate income housing seekers. Check HUDHomestore.com for more details.

Off-Market Opportunities

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  • For Sale By Owner (FSBO) – Many owners are trying to save expenses by self listing. You can find opportunities here as well. Just be certain that you are prepared to perform the buying process without a realtor. This is not advised for any first time home buyers or anyone that is not well experienced in performing due diligence and purchasing real estate. A few sites are Zillow and ForSaleByOwner.com
  • Wholesaler – Many investors use wholesalers as their source for prospective investment opportunities. A good place to find wholesalers could be your local REIA meeting, Facebook, BiggerPockets.com or through ConnectedInvestors.com.
  • Direct to Owner – Going direct to the owner is always an option. You can send them a letter, knock on the door and express your interest, or try to give them a call if they are not on the do not call list. Lead sources for those that may be interested in selling will be discussed in more detail in the Non-Traditional Funding Source section. Due to this practice being more prevalent for those using non-traditional lending sources, we will use the next section to review these scouting opportunities.

Non-Traditional Funding Source

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A non-traditional funding source can be from a 401k, a partnership, a hard money lender, a private money lender or the owner of a property.  

We will cover the entity funding sources here and not go into detail regarding owner financing. Due to the level of detail, it is a separate topic, but be aware that this is an opportunity for funding as well.

These sources of lending can vary from being a brokerage firm account, a group of individuals who have organized (forming an entity) together, a private money lender who could be an individual or an entity, and lastly a hard money lender who could be a individual or an entity.

The size of these entities can vary widely.  It could be your neighbor next door or an entity who is lending nationwide.

With any non-traditional lending source, there is variance with any contingencies. Be assured, that the investment will always have to make sense financially for any lender to support you.

However, some may not have any contingencies while others may have appraisal and financing contingencies. The financing contingency is to confirm the numbers make sense.

Whether contingencies exist or not, thorough evaluation must be confirmed. Many will establish a relationship where the lender trusts the investor enough where they may provide leniency on underwriting.

This is where some contingencies may be waived.

These loans usually vary from a 30% to 0% down payment requirement, which usually involve a renovation product. These loans are highly used for adding value to an asset.

Most commonly loans cover 90% of the purchase price and 100% of the rehab costs. While these funding sources can cost you significantly less up front, the interest rates on borrowing are comparably the highest.

These transactions are always purchased with an entity and not an individual. The asset will be evaluated and not the individual personally to determine eligibility. So let’s get into the deal scouting using non-traditional funding.

On-Market Opportunities 

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There are plenty of deals that are on the MLS (multiple listing service) that you can pursue after you’ve aligned your ability to locate a deal that will make sense for you.

These opportunities can be acquired with the partnership of a realtor. Examples of sites using the MLS are Zillow, Redfin, Homesnap, Realtor.com and Trulia.com.

Be reminded, that these opportunities are acquired usually with hard money, private money or bridge loans to enter the investment. Then, once entered and the value add component is completed, the investment is refinanced into a new long term loan.

Again, all of these type of acquisitions are performed under an entity and not by an individual. Individual based purchased was discussed above because those purchases are solely used by traditional funding sources.

  • Performing Asset – This is an asset that is already occupied with tenants and is currently producing income. If you are not adding value, you ideally enter with the same loan vehicle you will stay in for the long term.
  • Value Add Asset – This is an asset where you can add value to the asset either by reducing the overall expenses, increasing the market rate rent, adding square footage or by adding value due to cosmetic upgrades.  This can be performed with the proper due diligence to identify this type of opportunity.
  • Occupy Renovation Project – Unless you see a great benefit in using a non-traditional lender due to the opportunity and your low credit score, you should never use non-traditional funding for a home that you plan to occupy. The borrowing rates are much higher and not recommended. Look into first time home buying programs that are made to assist you even if your credit is low and/or you may need down payment assistance. Check out a free audiobook (or book here) that covers this well (if needed). Also see the 203k and HomeStyle Renovation Loan products listed in Traditional Funding Sources above for other loan vehicles that are available.
  • Non-Occupy Renovation Project – These are your purchase, renovate and resell opportunities most commonly referred to as flipping. See the Off-Market Opportunities-Direct To Owner section below that will go into more detail regarding acquiring properties of this nature.

Off-Market Opportunities

  • For Sale By Owner (FSBO) – Many owners are trying to save expenses by self listing.  You can find opportunities here as well. Just be certain that you are prepared to perform the buying process without a realtor. This is not advised for any first time home buyers or anyone that is not well experienced in performing due diligence and purchasing real estate. A few sites are Zillow and ForSaleByOwner.com
  • Wholesaler – Many investors use wholesalers as their source for prospective investment opportunities. A good place to find wholesalers could be your local REIA meeting, Facebook, BiggerPockets.com or through ConnectedInvestors.com.

Direct to Owner (extended from Off-Market Opportunities…)

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These are all possible scenarios where a buyer may be preferred and of-benefit to the owner. Many times, if the condition of the home is not ideal for listing on the MLS or the owner has a preference to not list on the MLS, these could be opportunities for the buyer to purchase directly from the owner. In most cases, they are a large portion of the lead pool of investments, that the investor is acquiring.

  1. Pre-Foreclosure – This is the state where an owner has become delinquent in meeting their payment expectations with the bank and the bank is pursuing a foreclosure unless the owner becomes non-delinquent.
  2. Vacant – Due to many reasons, a property may currently be vacant. It is possible that the owner has not found a solution to their problem and you may be that solution. This could be an opportunity if your interest is expressed.
  3. Divorce – Not all, but some divorcees may have the preference of performing the divorce quickly. In some scenarios, a method of speed is highly desired.  Many factors may cause the owners to prefer a cash buyer with the home priced under market value due to many reasons. This could be an opportunity if your interest is expressed.
  4. Bankruptcy – A bankruptcy could be a situation where your assistance is needed. Either a property is not pristine and may be in need of repairs or speed of transaction is preferred. This could be an opportunity if your interest is expressed.
  5. Evictions – On the front and back end of this process, you may have a fed-up landlord that would rather remove the burden of owning this property. Many scenarios may align to a cash buyer being the best option. This could be an opportunity if your interest is expressed.
  6. Probate – When a property is inherited, the recipient is not always interested in becoming a landlord or the property owner. There are many responsibilities that align with ownership whether they are interested or not. Another factor is the condition of the property and the upkeep, maintenance and/or repairs the property may need. This could overwhelm the owner and be more of a burden. This could be an opportunity if your interest is expressed.
  7. Retiring Landlord – Many times landlords are and have been savvy investors for quite some time. It is possible that some may be willing to liquidate properties based upon what they purchased the property for. This purchase price may have been 10-20 years ago and is very inexpensive. Others may consider the current value based upon its current income and sell at that price. There could be plenty of room to add value. This could be an opportunity if your interest is expressed.
  8. Absentee Owner – Many times owners that are not local to their property, may incur many headaches that they wouldn’t incur if the property was where they lived. The lack of resources or the lack of showmanship from those they rely on, could equate to them being more willing to liquidate that particular property versus continuing to face their current hardships. This could be an opportunity if your interest is expressed.
  9. Tired Landlord – This is a scenario that is very similar to a landlord that has encountered evictions or is retiring. However, in the eviction scenario it could be related to a specific property versus that landlords entire portfolio. Also with the retiring landlord, they may or may not be concerned with price margins and not be as motivated as a tired landlord. The tired landlord may be highly motivated to sell quickly and is likely looking into reinvesting into another industry.  Possibly with the need to move quickly to secure another opportunity. This could be an opportunity if your interest is expressed.
  10. Failed Investor – This is a scenario where the investor could be facing multiple hardships and is highly motivated to liquidate. The pressure of meeting other demands due to unsuccessful investments could be a great help to alleviate their current situation. This could be an opportunity if your interest is expressed.
  11. Tax Deed Auction – These are opportunities to invest where a property owner has not met the tax commitment and now the property is being auctioned so that a new tax paying owner can take ownership. These are high risk-high reward opportunities, but you must be educated to understand this process. Each state and county performs this differently. Check out a free audiobook here to learn this practice.
  12. Bank Foreclosure Auction – This is where the bank has completed the foreclosure process and taken back ownership of the property. These properties are presented at auction for interested investors. Do not confuse this with tax foreclosure auctions. They are not the same. Check out the free audiobook listed under Tax Deed Auction for better understanding.
  13. REO’s – These are bank owned foreclosures that the bank has in their inventory but has or has not presented them for sale for any particular reason. You will need to locate agents that represent these properties on the banks behalf. This could be an opportunity if your interest is expressed.
  14. Relocating – Someone that may need to relocate due to many reasons, may be interested in selling their property. They may see a better fit for an investor to purchase their home versus listing it on the MLS due to several reasons. This could be an opportunity if your interest is expressed.
  15. Expired Listing – If someone has already tried to sell on the market, there are either two reasons why it didn’t sell. They either weren’t priced right which now they’ve learned or they have acknowledged that they listed on the market too early and did not prepare the property as they should have. Some owners are willing to complete the work necessary and then relist and others would rather sell at the lower price after acknowledging the true market value. If there is a value add component that could be performed, this could be an opportunity if your interest is expressed.
  16. Code Violations – This is a direct indication that the property owner cannot keep up with the necessary upkeep. When consistent code violations are occurring the owner is showing inability to perform as needed for this investment. There are many reasons that this can happen, but it could be an opportunity for a buyer if the owner would rather liquidate and move on. This could be an opportunity if your interest is expressed.
  17. HUD Homes – After HUD homes are offered to owner occupants, there is usually a time period to where those same homes will be available to investors if not purchased by an owner occupant. This could be an opportunity if your interest is expressed. Check HUDHomestore.com for more details.
  18. Arrests – If a loved one is facing sentencing or the possibility of sentencing, it is possible that their loved ones will want to help them fight the case. Due to astronomical expenses involved with court litigations, it may be upon the owners of property to consider liquidating to assist in a scenario like this. This could be an opportunity if your interest is expressed.
  19. Fire Damage – Fire damaged properties, especially if not insured, could be a disaster awaiting relief. No one wants a dilapidated, fire damaged property near their place of residence. You could be a solution to this problem. This could be an opportunity if your interest is expressed.
  20. HOA Liens – Financial hardship does happen. If someone is delinquent to the point that the HOA (Home Owners Association) has filed a lien on their property, then the owner could be considerate to some relief. If this is beneficial to the owner, you could be a solution. The reasons they may not have sold on their own, could be several and justified. This could be an opportunity if your interest is expressed.
  21. High Equity – Although this status alone, does not equate to an owner being motivated, it could align with other characteristics that align with other forms of motivation listed throughout this list. This could be an opportunity if your interest is expressed.
  22. Tax Delinquent – Being tax delinquent does not mean an owner will consider selling. However, it may align with hardships the owner is encountering and the need for options could be beneficial to them. There are many reasons that they may consider a sale, but have not been made aware of options that can be of assistance to them. No one wants to lose their property to a tax sale. This could be an opportunity if your interest is expressed.
  23. Attorney – At times, attorneys may be in a situation where they would prefer to close a case and a cash buyer may be the most ideal option. Anything that would lengthen the case may not be of interest to the owner or the attorney. Best practice could align with selling the property with its flaws to an investor. This could be an opportunity if your interest is expressed.
  24. Job Loss – If an owner has unfortunately lost their job, and also is fortunate enough to own an asset that can help them, you may be a solution to their problem. There are many reasons why you could be the most suitable option. This could be an opportunity if your interest is expressed.
    • Note: With any of these options, I always recommend that you act in the best interest of the owner and you look to support them in the best way possible even if that means you can’t purchase the property yourself.  Have your resources aligned and look to provide a solution that is most favorable to the owner. The relationship you’ve gained will have much more value, and consciously you would have done the right thing. 

Conclusion

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Happy investing out there and I hope this article has been helpful. 

Thank you faithful readers-future leaders for joining us today for this journey. 

Peace and blessings to all.  Love ya and strive to help someone else along the way if you can provide something beneficial to their growth. 

Please comment if you have purchased by way of any method mentioned here and how your experience was…