Until recently it had been five years since we made an offer on the MLS because there aren’t any good deals there. Five doors – that’s how many doors we have put under contract from MLS in the last few months. How many opportunities did we miss in those five years by not offering on MLS listed properties? I hate to think about it.
I’ve been guilty of only looking at off-market deals for a long time because everyone said there were no deals on the MLS anymore. Maybe you have heard the same. And while I don’t think that MLS will be our main source of deals anytime soon, it could be your source for one or two this year so don’t overlook it. If you want to see how we found some of our other deals click HERE.
When we started investing in real estate our deals all came from the MLS. Then we found wholesalers and direct referrals. We heard MLS was picked-over and our experience essentially supported that. So we didn’t give it much thought. It was a seller’s market and prices were on the rise. Now we find ourselves in an even hotter seller’s market with even lower interest rates which increases buyers’ purchasing power. Our friends who are trying to buy affordable houses are getting stuck in bidding wars and are offering over asking prices to still be beat out. So why look at the MLS if it is seen by everyone who is willing to overpay for property?
I look there for property that isn’t selling. It’s either been sitting on the market for a long time or is back on the market. This signals a frustrated seller. These sellers thought they would be done with this property by now and they aren’t. They may or may not indicate why the deal has gotten cold or fallen through. But expect some kind of issue that needs solving. Either the buyer found something in the inspection that they didn’t like and couldn’t negotiate or the bank didn’t want to lend to that borrower or on that property. This is what we like as investors – problems. We see opportunities when we find problems that we can solve. Plumbing like this photo smells and deters others buyers but is really not a huge deal if you price it into your offer.
As usual, some problems are too big (but rarely at the right price) like a significant hazmat issue on the property. But when the issues are repairable, we can dig deeper.
When the problem is with the structure, we see what it will cost to repair it and we offer a discounted price. But we don’t discount by the cost of the repairs, we discount to the cost of repairs and the amount profit we need to make by taking on the risk. I see some people offering 25K less than asking price and then doing a 25K repair. In this case, we should just buy a turnkey property and save ourselves the headaches.
When the problem is with money or deal structuring I really get excited. Finding creative solutions that satisfy both parties is my favorite situation. Many of us only think about offering cash and a quick close but if we can find out from the listing agent or the seller themselves what they really need, we can potentially put together an even better deal. And sometimes these deals don’t need as much work as those with strictly structural problems.
Unfortunately with MLS listed properties you have to communicate through a middle person or two which definitely can make identifying problems we can solve difficult. If the agents are also investors and understand creative structures, you have a huge advantage but these are not your average agents in my experience.
The first three doors we recently purchased from the MLS were in the form of a triplex. This was a “back on market” property and we offered below asking price. The property was improperly zoned (problem) and was not individually metered (pain in the backside) so we settled on a price higher than our offer but below listing if the seller would consider carrying financing for a few months. The seller agreed and since my better half is a realtor, we also received a commission for the deal. The best part is that the seller was willing to carry financing at zero percent interest for seven months. The seller essentially became our private lender but at zero percent interest until we have six months of seasoning and can refinance. So while we had the zero interest period, we decided to pay a little more from our cash flow to reduce the balance that we would need to refinance. This worked primarily because we had a large down payment from the sale of another property (read about that sale HERE) that we could put down on this purchase but it helped that the seller was an investor and the seller’s agent understood creative structures and could communicate the offer clearly to the seller. You won’t get a “yes” if you don’t ask!
There is a strategy that I’ve heard of that definitely can help minimize the number of filters through which information has to flow. That is to contact the listing agent directly and allow them to represent you and the seller. Some brokers don’t allow this type of intermediary relationship due to the difficulty in representing both parties’ interests adequately. If they do, however, you have just aligned your interests with the agent’s interests. In other words, they are likely to consciously or sub-consciously represent your offer in a positive light being that they could make double the commission if the seller sells to you. Some brokers will assign a separate agent from the same office to represent you to avoid that perceived conflict of one agent representing both parties.
Don’t sign an agreement with the listing agent to represent you for all deals into eternity that you may find on your own. The agreement should be for this one property only. If they get to double their commission by working with you, they will likely bring future deals to your attention as well.
I had heard this strategy for years and recently employed it for the first time. I called an agent from Zillow regarding a property that had just had the price lowered by 10,000 dollars. I made a verbal offer explaining that my wife was an agent but we’d be very happy to allow the listing agent to represent us if possible. To make a long story short, we go it at 20,000 dollars below the new listed price. This led to two deals as the agent brought a second deal to us as soon as it was hitting the market and we were able to scoop it up too.
Our deals don’t come from just one place and this doesn’t replace all other methods of marketing and networking for deals, but it could provide some of your deal flow if you are willing to look for problems to solve.
I wish you the best of luck. It IS a seller’s market but there are still deals to be found if you are willing to get your hands dirty and make some offers. Remember that each “no” is one offer closer to a “yes”. If you aren’t making offers, I promise you will not get deals.
So go make some offers, get some “no’s” and, as always, keep the Main Thing the Main Thing!