The Temptation to Pay TOO Much for ugly house - by Becky Sanders

As you get out there looking for rehab deals, you will find realtors and even other investors who will tell you that you can't get deals at the prices you want to bid. You might find that the properties are being sold at prices much higher than your MAO and start to believe them. You'll be tempted to offer more than MAO because you'll think that MAO doesn't work in your marketplace or in this decade.

If you start to think this way, then you're just looking for your deals in the wrong places. It's true that many HUD homes and VA homes are being sold at prices that are more than the asking price and very close to full value. This is because the RE market has been very strong for a number of years, and the recession we've had over the past two years hasn't effected the RE market very much (yet). Because of all the new buyer programs and the extremely low interest rates, more and more people are qualifying for homeowner loans and that's who you're competing with on these properties. Obviously, you can't compete with homeowner buyers. So don't.

Keep looking for a Realtor who understands how you do business and look to develop relationships with those who get the REO listings, because they know about the properties for sale before they are even listed. If you begin to think that properties cannot be bought for cheap, then take a look at the RE transfer records in an area that's being rehabbed. You'll see what other investors have bought properties at and sometimes you'll even see what they later sold the same property for. I've even found same day flips (double closings) in the areas I'm working in done by other investors where they've profited $50k-$60k in the same day! Obviously, they didn't do any work.

If you want those deals, too, then you have to do what those investors did. Find the listing agents for the bank REO's and develop a relationship.

The other way of finding the deals that'll fit into what you can pay is to hunt for the vacant houses and contact the owners and also to advertise. First, pick a neighborhood or neighborhoods you want to work in. When choosing, what you're looking for is a neighborhood that is changing (from not so good to better). As you've been told, stay away from war zones, but look for areas where there has already been some rehabs done, but there is much more to do in the neighborhood as a whole. Look for vacant houses or pay bird dogs to look for vacant houses. Take the opportunity to talk to the neighbors (just go knock on their doors) about the vacant house. At the same time, let the neighbors know that you are buying houses to rehab and if they know of anyone who's selling or of any other vacant houses, that you'll pay them a finders fee of $200-500 (whatever you think is appropriate) if you buy the house and then give them your card. If you really develop a rapport with them, why not ask if you can put a sign in their yard (We Buy Houses) and offer them a little money ($20 bucks?). Go to businesses in the area and talk to them about the neighborhood and ask them if you could put up flyers in their front window or on the door. Put up signs at major intersections and along highway exits (but beware, you might get a phone call from the city asking you to take them down if it's against city ordinance). You can also run ads in the paper. You can also target a neighborhood with flyers or door hangers, or postcards or letters.

If this does not work for you, then you've either chosen a neighborhood that doesn't need improvement or you just haven't done enough marketing. Let me just say here that I have not done all of the marketing methods I listed above to find my properties, but I would if I needed to. It certainly wouldn't be costly. You'll probably find that if you just do some of the things, you'll find the deals. But if you don't, then keep doing more.

If you pick the right neighborhood, the citizens of that community are going to want you there. When you start your first rehab, you'll have neighbors and people walking up to you at your house to ask about what you're doing, and 90% of the time they'll either give you a good lead or will be selling themselves. So always have a stack of business cards with you wherever you go.

Your goal is to make sure that everyone knows what you do and how to reach you because if you target them people who need to sell or who know who needs to sell (which generally are the citizens and business owners of that community), then the deals will come to you and you'll end up with more than you can handle. By the way, you'll also find a lot of preforeclosures this way.

At the same time, if you're doing this much marketing in a targeted area, you probably will also have buyers, other investors, and handymen/laborers contacting you in the process because they'll be able to find you.

I recently found a Realtor who chases the REO properties as a buyer's agent and also does some rehabbing himself. After looking at a few properties and submitting bids, he told me I was way too low. Well, this is not the first time I've heard that from a Realtor. In fact, I had given up on working with Realtors last summer and since had bought all my properties from private owners. But this time, I had some more leverage. When he told me I couldn't get properties at those prices, I showed him the purchase contracts of the properties I had bought, and, boy, was he shocked. So, now, we're still working together and he doesn't comment on my offers. Credibility goes a long way - and if you haven't done your first deal yet, you'll get there.

So shut up the voice in your head that says "maybe everyone else is right". Everyone else isn't buying houses at good prices. Remember, you're profit depends entirely on how much you buy the property for. If you don't buy right, then you won't make money, or worse, you'll lose money. If the deals were easy to find, then everybody would be doing it. The investors who don't make it in this business are simply those who haven't done what they need to do in order to find the deals.

So go do what it takes. I know you can. Just make a your marketing plan and schedule when you're going to do these things, and go do it.