Of the past six investment properties that I have purchased, only one was listed on the MLS (Multiple Listing Service). The recent upturn in home sales and appreciation have increased competition between buyers in Nashville, TN. Any new listings that appear to be priced below their value quickly receive multiple offers so that the bidding rises well above the listing price (as I have experienced). As a real estate investor, my focus is to find and purchase properties at a discount. Growing my business is dependent on finding these deals. Since I haven’t been able to count on a regular supply of good deals from the MLS, how have I been acquiring discounted properties?
I have tried several different methods of purchasing investment properties apart from the MLS. Some have resulted in closings, others have not. I will only discuss the strategies that have succeeded.
In the summer of 2014, I found a for sale by owner (FSBO) rental house advertised on Craigslist. After looking at the property, I made an offer and closed the deal three weeks later. Craigslist is a resource that can provide solid leads, but many days it is just scrolling through properties for sale that aren’t applicable. If the house isn’t in one of my target areas, I don’t pursue it. So I end up only clicking on one or two listings out of a hundred. But I have purchased two deals from Craigslist, and those properties proved that the reward is worth the effort.
Another source of good deals is through foreclosure auctions. The foreclosure notices, which are placed by the substitute trustee of the lender, are issued publicly through several newspaper and online outlets. Many times the auction for the advertised property doesn’t happen, as the loan in default is restructured or the owner finds some other means of reconciliation. Before bidding, it is wise to check each property to insure that it has a clear and marketable title. I pay to have this done through a local title company, although one can search through the local register of deeds office. Several times I have been thoroughly excited and prepared to buy a foreclosure property, only to find out that it had an unreleased deed of trust. Various issues can cloud a title including a judgement, claim, encumbrance, or lien. Sometimes these issues can be corrected at a minimal cost and the property is still worth purchasing. Other times a clouded title is too large of a risk to take and it becomes a deal breaker.
In the spring of 2014, I purchased an East Nashville cottage at a foreclosure auction. I had been tracking foreclosures for quite awhile and attended several auctions in Davidson County. At that particular auction, I faced off against three other bidders and got the house for less than what my limit was. I was thrilled to be the winner, and the purchase verified that foreclosures are a legitimate source for investment properties. I would recommend one attends a few auctions and solidifies their knowledge of how this system works before bidding. The auctions usually require cashier’s checks for the full amount due immediately, so there is no turning back for the highest bidder.
Another deal that I procured “off the market” was a purchase from a wholesaler. The wholesaler is an investor himself, who places a property under contract for only the amount of the earnest money (usually $500-$1,000), then reassigns the contract to a buyer. In the purchase that I was a part of, he made about $5,000 at closing. In effect, he is taking on some of the role of a real estate agent by connecting a buyer and a seller, but wholesaling does not require a license. I was glad to pay $5,000 for the service he provided, as that property has doubled in value since I bought it.
Getting connected to wholesalers happens through networking and being involved in real estate. I just got a call two days ago from another wholesaler who had a “deal of the century” for me. I politely declined, as the house was not in an area I invest in, but I want to keep getting those calls because they are a source for potentially great deals.
The real estate agent that I work with was another source for an investment deal. Yes, I paid a commission at closing, but it was worth it because I didn’t face any competition from other buyers on the MLS. This was an interesting deal. My agent had been in contact with the owners of the property and found out that they were open to selling, but didn’t want to list the house for sale and have potential buyers in their space. My agent approached me to see if I was interested, and after walking through the house, we submitted an offer. There was a bit of negotiating until we reached an acceptable price, and then we closed a few weeks later. Again, this was a deal that came to me by valuable connections. All I did was analyze and act.
Succeeding in real estate investing comes down to purchasing quality properties. Dozens of real estate transactions close every month that are not listed on the MLS. Good deals are out there, it just takes some treasure-hunting to find them.