The main difference between new real estate investors, and expert real estate investors is the willingness to spend money on marketing.
And this really boils down to understanding marketing costs and how marketing to motivated sellers really works.
The first thing that you need to understand is the cost per lead. If I mail out 10,000 postcards at a cost of 42 cents per postcard then my mail campaign cost me $4,200.
If I get a response rate of 1/4 of 1 percent then that would work out to be 10,000 x 0.0025 which is 25 leads (sellers).
If I spent $4,200 to generate those 25 seller leads, then my cost per lead is $4,200 divided by 25 which works out to be $168 per lead. So with that marketing campaign, my cost per lead is $168.
If after speaking to those 25 sellers, only 10 are truly motivated to sell and I decide to go on 10 seller appointments then the cost per seller appointment is $4,200 divided by 10 which is $420 per appointment.
If I can close 1 out of 10 appointments then I would be able to buy 1 house and my cost per contract (house) would be $4,200. If I could buy 2 houses out of the 10 appointments then my cost per contract would be $2,100.
Currently, this is what our average cost per lead looks like for the past 30 days
I find the most consistent deals to be from direct mail and pay per click (Google Ads)
A good acquisitions rep can close one out of 7 to 10 leads. An average acquisitions rep can close one out of 15 rep. And a not so great acquisitions rep can close one out of 20 leads.
If your average lead cost is $200 and it takes you 20 leads to close a deal then your cost per deal is $4,000. If you are good, you should be able to bring your cost per deal down to half of that. I have found that on average most deals cost around $3,000 to $5,000 once you factor in everything.
If you add in overhead and payroll then that number can go up to $6,000 or more. But if you are just starting out, and you don’t have overhead and staff you should be able to get a house under contract for marketing spend of $5,000.
So to be conservative, you should be willing to spend $5,000 to generate a deal. Let’s look at it another way. If you are buying houses to fix and flip or keep as rentals from wholesalers that are marking a deal up $20,000 or $30,000 then you are paying $20,000 or $30,000 more for that house.
You just don’t feel it because you didn’t spend the money on marketing to generate the contract. But if you had spent $5,000 to get that same house you would actually have saved yourself $25,000.
That is how you should be looking at it. That’s not to say that you shouldn’t buy from wholesalers. You should buy any good deal you can find. But you will find more deals at better prices if you are marketing to motivated sellers directly.
Do you want to be competing with every other cash buyer out there looking for deals from wholesalers? Or do you want to learn how to get deals yourself? At the end of the day, regardless of whether you are wholesaling, buying rentals, Airbnb’s, or fixing and flipping houses, you are better off marketing to find the deal yourself since you will eliminate a lot of competition.
And if you are going to be marketing to motivated sellers, then you need to understand that there is a cost to generating a contract. And you should be willing and able to spend that marketing money to generate those deals.
If you are just starting out and you don’t have a marketing budget yet then use guerilla marketing methods like bandit signs and driving for dollars to generate your first few deals.
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