The full extent of the coronavirus pandemic’s effect on the real estate market is not yet known, and with uncertainty comes more risk. If you’re buying houses to flip or for long-term investment, do you really know what the value will be in the coming months and years?
Nobody ever really does but we have trends and the trend has been on the up and up for so many years now. We all know the real estate market is cyclical…so it’s not a question of whether we will see a drop in values, it’s a matter of when.
That could be sooner than later with the massive economic consequences of so many not being able to work.
What does this mean for house buyers real estate investors?
Cash Buyers Likely to Decrease
Sellers are well aware that houses have been selling rather quickly in most places for years now. Many will have a hard time believing people will not pay what they would have 3 months ago.
With this uncertainty there are a lot of investment property lenders across the nation putting a freeze on their lending. With many landlords unable to start the eviction process during the pandemic, and facing rent defaults due to the soaring unemployment rates across the US, these lenders are bracing for loan defaults.
Plus, they foresee the upcoming opportunities and want to be as liquid as possible. Smart.
But this also means many real estate investors that rely on hard money will not be able to get loans to invest in real estate.
Without buyers paying top dollars, wholesalers are likely to suffer. This could result in a big number of wholesalers dropping out of the market.
Real estate wholesalers rely on deals. They do a ton of marketing, which costs money. If they aren’t doing volume, they may not last.
This leaves sellers with less options when it comes to getting an investor buyer for their house. This means big opportunities for the savvy investor that knows how to make the most of the situation!
But remember, sellers may lag in their acceptance that they need to sell for less. How to we address this problem?
Opportunity Is Already Here to Buy Lower
With this uncertainty, I want to buy lower now. I don’t want to wait for sellers to adjust their mindset on the state of the market.
In order to buy lower I will need to offer less. Because I do not know where values will be I want to buy cheap enough to have several options.
For instance, if I’m picking up a house that needs a full rehab and might not be on the market for several months, I will want to make sure I buy cheap enough to be able to sign a lease agreement and it instead. This way if the market shifts, I can put a tenant in to cover my debt costs.
If I offer less, I can get better deals!
But, wait a minute…
Didn’t I just say sellers likely won’t accept these lower offers right away? Yes, that is possible with the help of our trusty sales friend: FOLLOW UP.
That’s why follow up is paramount! You should be following up anyway, but now it’s even more important.
Be There When Motivation Changes
From years of marketing directly to find motivated sellers, I’ve learned a huge lesson. Not everybody is motivated to sell – yet!
What changes motivation is time. Situations change over time.
When that seller receives your first letters and postcards, they may be collecting rent like clockwork from their tenant. They have no desire to sell that cash cow right now.
But what happens when the tenant stops paying, the owner goes over to collect and gets threatened with violence and sees giant dogs roaming around inside a destroyed house? Do you think they might think about wanting to just be done with that nightmare? Of course!
This is why direct mail works if you send a series of letters and postcards over a period of months and even years.
It’s not because they were being more and more enticed by each letter, it’s because one of those letters arrived precisely when they themselves decided maybe they should get rid of the house.
I once bought a house after eight years of follow up. I had actually stopped following up around Year 4 or 5. Why do you think the seller called me after so many years had gone by? Because I was top of mind for the seller when time caused motivation to reach the level it needed to. I bought that house and sold it as-is for a $50k wholesaler fee!
If you are the only one reaching out over and over for months, and their situation changes, who is going to come to mind for them first?
Follow Up Isn’t Just for Generating Leads
Sending direct mail to homeowners over and over isn’t the only form of follow up. When you get a lead, you likely spent quite a bit of money in marketing to get it.
If you don’t land the deal from the first visit with the seller (which happens only a small fraction of the time), you must follow up!
Yeah, they seemed unmotivated by your “low-ball” offer, but that doesn’t mean they won’t change their mind.
Some of the top-level real estate investors in the country have told me on my Flipping Junkie Podcast that 50-, 60-, 70- and even as much as 80% percent of their deals come from follow up. Meaning if they did not do their follow up they would only have ⅕ the deals they currently do!
How To “Properly” Follow Up
Proper follow up requires tact.
Don’t send messages frequently for highly unmotivated sellers. There is a fine balance between being top of mind and just plain pissing people off. If the seller was not motivated in the least, don’t send them a message every day for several weeks. Space those texts, calls, postcards, letters out with at least a week in between and, after a couple weeks, make it a month or several months in between.
Nobody likes to be spammed, after all.
The opposite is true as well though. Many investors fear they will piss people off with any sort of follow up.
This is just dumb.
If you are being friendly and simply reminding them you are still interested in buying their house, they usually don’t mind it and appreciate that you are professional enough to follow up with them.
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Automation Sucks When It Feels Automated
Messages that seem canned (like SPAM) and have no personality or personalization harm your chances of getting a call back.
If you are using an automated real estate investor lead platform for follow up like FlipPilot, you have the option to create automated drip campaigns that have short codes. This way the automated texts and emails you create will be sent with information like the seller’s name and the address of the house they are selling.
Don’t create follow sequences that rely solely on automation. There should be some reminders for you to physically pick up the phone and call – or review the lead notes and send a special text related to their very specific situation. FlipPilot calls these ‘Scheduled Contacts’. They work!
I never advise to use 100% automated follow up. Too many investors are trying to cut corners. That’s why I like the scheduled contacts so much. Be the investor that actually picks up the phone from time to time and win those homerun deals!
Buy Houses Cheaper Now
Don’t wait for the market to show whether it will continue being strong or drops off the cliff. Buy lower now. This way, if the real estate market does weather the storm, you have awesome real estate equity in your investments!
Follow up will play a crucial role in being able to buy these houses at lower prices. Don’t think you can’t buy lower; you can. It just takes persistence and follow up.
The good news: most of your competition don’t bother doing this.
Get out there and buy some houses!♦
How do you find motivated sellers and off-market deals? What are your favorite tips for scoring better deals?
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About the Author
Danny Johnson has been investing in real estate since 2003 and has bought and sold hundreds of houses. He is the host of the popular FlippingJunkie podcast and the founder of FlipPilot, a lead/deal management software system for real estate investors.