If you are a new real estate investor, one of the easiest ways to get started is by being a bird dog or deal locator for other investors.
Why?
Because you don’t need to have any:
• Cash
• Credit
• Experience
And there is zero risk to you. Your only risk is time. And being a bird dog is hands down the best way to learn (that is how I started).
But you need to realize when you start out as a bird dog that the failure rate is very high (above 90%).
Why?
Because everyone is looking for deals.
Experienced investors are looking for houses to fix and flip. Other investors are looking for houses that would make good rental properties.
Investors are looking for houses with equity that have enough spread to make a decent profit even after factoring in borrowing costs, interest, fees, insurance and repairs. And these investors are looking for deals every single day. They have readily available cash in their checking account or private lenders that are willing to fund their deals. Some of these investors have millions of dollars at their disposal.
For these investors, cash is not hard to find. The thing that is hard to find is good wholesale deals with equity.
As a beginner, you are competing with these professionals. And they have money. They have employees. They can pay for subscription services to comparable sales providers. They can market for seller leads. They are real competition for you.
You are also competing with every real estate agent who is looking for wholesale deals for their investors. You are also competing with other real estate investors and cash investors looking for properties. And you are competing with every single wholesaler in your town.
If you don’t know what you are doing, you will most likely fail.
Now I don’t want to discourage you.
I want you to succeed.
But you need to understand that starting out the odds are stacked against you.
But I will tell you a little secret.
There is one hidden weapon that you can deploy and have in your toolbox.
And that weapon is information.
You see many of the wholesalers out there, don’t know their numbers that well. They are not 100% certain which houses will make good fix and flips. They don’t know which houses have illegal additions. Some wholesalers are lazy and don’t visit the houses they get under contract. This is especially true of the beginning wholesalers. But I have seen even veteran wholesalers with 10 plus years of experience that don’t have a good handle on ARV or what a house is worth. Or the estimate for repairs. If a wholesaler has a good buyers list then they don’t need to have a good handle on those things. But you do.
Real estate agents looking for deals for investors usually know even less than wholesalers. Many of them have been trained to think retail. So they will instinctively use the MLS to search, call the listing agents and submit offers as a buyer’s agent. If they knew more about investing than they do about submitting offers then they would be flipping houses themselves instead of working off the less than 3% commission on the deal. They would also know that the best deals get sold directly by the listing agent and submitting via a buyer’s agent will kill many of their offers.
So that is your edge. Some of your competition is not that smart and not that knowledgeable. There might be a ton of people looking for wholesale deals. But many of them don’t know what they are doing. They wouldn’t know a good deal if it bit them on the head.
New investors face sensory overload.
For example, we send out wholesale deals to our lists of thousands of investors every Monday, Wednesday and Friday. How many of these “investors” even open those emails? The answer is about 10%. That means that even if we emailed a smoking hot deal with $50,000 in equity, 90% of the people receiving those emails won’t even click on them.
The same can be said for all of the Facebook Groups where wholesalers are posting deals. As a new investor it is overwhelming. So many houses for sale. How do you know which one is a good deal?
That is your one advantage. Pay attention. Look at every deal. Learn how to spot out the good ones. Remember that other investors are desperately looking for deals and having a hard time finding them. That is because they have real estate agents and wholesalers with mediocre knowledge sending them deals.
This is where you can shine.
You can invest in the foundation of your knowledge by learning three things.
You will need to know:
1. Comparable Sales
2. After Repair Value
3. Repair Estimates for Labor and Material
And this is where the new investors start falling by the way side.
You see, if you don’t have knowledge, if you don’t have education, then you have nothing. The first step as a beginner is to educate yourself. Let’s go through the above 3 steps.
Comparable Sales (Comps)
If you are using Zillow, the Property Appraiser or the MLS for comps then I have an advantage over you. And all the other professional real estate investors have an advantage too. You see a beginner is probably not going to shelve out $200 a month for a subscription to a comparable sales service. And that means they are going to miss out on a lot of information. Information like whether the seller was related to the buyer. Or whether the sale was a cash sale or a sale with a mortgage and a lender and an appraisal. This information is crucial to know. Zillow won’t give you that info.
After Repair Value (ARV)
Even experienced investors screw up this step. They use comparable sales to estimate what the property is worth. But they skip one crucial step. They don’t check the MLS to see what the property could sell for. Remember that comparable sales show the past not the present. A comp from 3 months ago could have been under contract 5 months ago. In some cases, if a property had liens the property could have been under contract even 7 or 8 months ago. If you are in a rising market then prices are moving up. And being stuck with looking at comps from the past makes no sense. You also need to see where properties are selling for on the MLS and where properties are being listed on the MLS in that same sub division. The best way to do this is to get in your car and drive the comps. See all the comparable sales. Then look at all the houses that are pending sale (contingent).
Look at all of the houses that are listed and active. Visit some of the open houses on the actives and get a feeling for where you think you could successfully list a property on the MLS. In many cases that could be 10% higher than what the comparable sales show. Remember when looking at comparable sales to look at comps which show the past and look at the MLS which shows the future. Pay attention to inventory levels and get a feel for the market and you will sense when markets are about to pop. That is how we get some of our best deals with the biggest spreads.
Repair Estimates, Labor and Materials
Go to Home Depot or Loews. Take a yellow pad or notebook with you. Go aisle by aisle slowly through the store. We do this at our Fixing and Flipping Houses Boot Camp. Give yourself around 2 hours for this exercise. Make note of the costs of materials like paint, tile, carpet, laminate flooring, base boards counter tops, cabinets, faucets, shower doors, tubs. Learn how much drywall costs and learn how to estimate what the materials would cost for a job.
Then get a good handle on labor and what it will cost to do the work. Take your materials cost and your labor cost and combine them to get an accurate estimate of your repair costs and you will know 90% more than most of your competition.
Armed with your repair estimate and your ARV estimate you are now able to estimate the project and see if there is enough profit to make a fix and flip worthwhile. Use our rehab calculator to get a handle on potential profits on a fix and flip.
If you put in the time to learn and do the above steps you will have more information than most of your competition. And that means you will learn how to find diamonds when everyone else is looking for a needle in a haystack
Happy House Hunting. Go find that fix and flip or wholesale deal!
