Dave Dinkel's Insights: Greatest Fears #13

Greatest Fear #13 – I Never Get Deals but I Make Tons of Offers

I hear it frequently that students are frustrated with making offers and not getting deals.  Their biggest complaint is that other investors and prospective homeowners are paying above the list price for homes.  I agree that is happening and quite a bit  However, we are daily, I repeat, daily contracting properties that are well below the list price for REOs and short sales.

There is no question that if you go at real estate investing with the belief you have to pay above list, you will.  Aided by real estate agents’ pressure to get you a deal, you will over pay and get stuck in a property(s).  Your rationalization will be, “I am buying for the long term so if I pay too much, it doesn’t matter – better to have a property than none at all.”  I suggest for these people to start buying from our wholesale list as everyone is priced below the list price!

Likely man’s greatest renewable resource is real estate.  While there is only so much land, owners of these lands change on a steady and ongoing basis.  If you firmly believe you can pay too much and not worry about it, go do it.  For the others of us who don’t care that you spent all your money and are now “stuck” in what you believe are great deals, keep spending!

Making tons of offers is fruitless if you are just making offers and expecting something to happen.  Actually we see about once a week a seller take a price reduction of 40% to 50% off the list price of his property.  There are usually two reasons, first it may have a serious tenant or condition problem or the seller just doesn’t care about the price.  The seller wants resolution to his problem – how to get rid of his property and you are that answer.

Recently a hedge fund manager called and asked that I show him every deal we get before we send it out to our email list.  I had just gotten a signed contract on a SFH in the area this manager was buying and I said, “Try this one.”  Without asking the price he went to see it and called me to see what price I was offering.  It was listed for $89,900 and we had it under contract for $71,000 so I told him we would take $87,000.

He whined and complained that the price was too high and we were making too much money on the spread.  I said “OK” and sold it to an international buyer through another investor for $97,000 – obviously well above list.  Buyer felt he got a great deal and we are very happy for him as he is now the proud owner of a long-term rental of Single Family Homes (SFHs).   The manager didn’t think it was deal because he needs to justify his cost for income and potential growth for the Initial Public Offering his fund will be doing in a few years.

If you’re getting deals making offers at or above the list price or Fair market Value (FMV), that’s “OK” if you have an exit strategy that works for you.  Our exit strategy is to make money ongoing in any market – falling or rising by wholesaling using little or no money!  The only way this buy a FMV technique can be done effectively is to use private money to buy and hold until the market advances, you get tired of being a landlord or you have to sell.

If making offers and not getting deals immediately or very quickly frustrates you and it should, you have two choices:

  1. Quit and go the down desolate road that 95% of all real estate investors take or
  2. Understand that success comes with persistence and doing deals that make you money as soon as you contract them and these deals are worth the effort you have to put in to get them.

I have what I call a Critical Mass which is the point where students get in a certain number of contracts and deals start coming out of this pipeline.  I could easily tell you the number but it’s misleading.  It’s misleading because as soon as I say it, readers will think that by making that many offers they will have deals – WRONG!

Some students can make thousands of offers and not get a deal while others get deals for every 40 offers they make.  If you don’t make offers you will never get a deal but making money in real estate doesn’t come from just making offers.  If it were as simple as that, there would be computer programs that could make thousands of offers a day or week.  In fact, one student did make 22,000 offers with one of these auto-contract programs and not one deal.

In summary, the most successful real estate investors make tons of ridiculous offers but get only a few deals initially from these offers.  They make their money in following and tracking what is happening to the deals that are not sold and those that  linger on the Multiple Listing Service(MLS®) or where the homeowner finally decides to sell.  Essentially these students and successful investors are the “last men standing” when the seller needs them.  If you can’t believe this, don’t try, just keep borrowing money to buy deals and look for us to keep selling them to you.

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