Here we are cruising right along in my 5-step process for quickly turning abandoned property into BIG paychecks. Today, we will begin by talking about the valuable details regarding abandoned homes and the science of striking a deal with the seller.
In my previous post, I gave you a bunch of strategies for finding those elusive motivated sellers. And as you know, some of them are decent options, but I encouraged you to focus solely on skip tracing as the easiest and quickest method.
If you want to check out all of the helpful and informative information about my vacant house deal process that I’ve been sharing over the past few posts, then you can start from the beginning by clicking here.
But first, let me start by reminding you what those 5 steps to the process are:
#1. Spot or Locate the Vacant Houses
#2. Find the Seller
#3. Strike a Deal with the Seller
#4. Flip the House to Another Investor
#5. Repeat 🙂
Sound familiar? Good.
So now….on to the good stuff– striking the deal.
Show Me How to Deal
Typically, striking a good deal isn’t as difficult once you’ve found the seller of an abandoned house.
Well this is because, oftentimes, these properties are junkers in need of repairs (and that makes your negotiating process pretty easy). It’s very unlikely that the motivated seller is willing to put in the money or time for the necessary repairs – or they would have done it already.
It’s important to keep in mind that the house being ugly and in poor condition is one of any number of things that motivates the owner to sell quickly and at a discount.
So here’s how to begin this part of the process…
Steps for Striking the Deal
Contacting the Seller
First, you have to reach out to the seller of the abandoned home. If you did a skip trace, then you’ll most likely have the owner’s new address and a phone number.
You may be wondering whether you need to send a letter or just call.
Well, that’s up to you.
Personally, I feel more comfortable picking up the phone. By talking on the phone, your relationship with the seller is likely to be more personable, thus allowing you to have a better understanding of the seller’s motives. Furthermore, by building this connection or rapport, you will ultimately make the deal with the owner quick and easy.
For instance, if you’re talking on the phone with the owner and he starts talking about his dog, ‘Cujo’. By asking him or her questions about their dog (and maybe you can share a relatable story about your 4-legged friend) you are able to build a connection with them….and in this case, it’s all about building a strong rapport, as people tend to do business with people they like.
Solving the Seller’s Problem
In order to do this, you must determine what their problem is. So…you might ask them the following questions:
- What’s going on here?
- What’s the situation with the house?
- Is there some way I can help you with this?
- What will it take to better your situation?
You might be thinking, “But Cam, these questions are personal.” Well, believe it or not, they’re supposed to be. In fact, the better you are at determining their problem, the better you’re going to be at solving it–which means making the deal!
So… the most important thing for you to do is to listen. And remember…this is not about you – it’s about them.
Accessing the Vacant Property
If you don’t already have an estimated repair cost from your bird dog, then you’ll need to get those numbers. However, if you do have the repair estimate, you will also need to have access to the house so that the end buyer you’re going to wholesale this house to, can see it.
Pro Tip: If you’re not sure how to get an estimate of what repairs cost in your area… check with other investors or local contractors so that you can best determine the typical pricing in your area.
If the seller is local, then you can just meet them at the house. If they’re out of town, they might have a local person, like a handyman or relative, who has a key.
You might also find that the person who has a key is a landlord. Perhaps over the years, the owner rented out the property and had a local landlord manage it.
Sometimes, one of the last things the landlord does before moving on is changing the locks to secure the property. This might mean that the owner of the abandoned home doesn’t have a key.
Well, it’s super easy to change a lock. Any handyman can do it. But you must be sure to get the permission from the owner before you do so. (This would come a bit further along in the process when you’ve actually struck a deal with the seller.)
This is a great opportunity for you to continue building rapport with the owner. For instance, you might offer to change the locks for them at no cost. Normally, a locksmith or handyman would charge at least $100, so by doing this, you have just solved a problem for them. And remember, it’s all about them, so not only will they appreciate you doing this, but it’ll help make you one step closer to striking that deal!
You’ll also want to hang a lockbox on the door. I know you’re probably thinking, “Why would I do this?”
Good question. Okay so…think ahead to your end buyer. By hanging a lockbox on the door, you can easily give access to your buyer by putting the key in that lockbox for him or her… and the best part? You don’t have to meet them there to let them in.
How to Proceed If the Owner Is a Bank
We also have to consider that the abandoned home might be bank-owned. If this is the case, then the seller of the vacant house is the bank.
If you started your search off right, then you would have already known this by researching the Tax Rolls, which would have contained the name and address of the person (or entity) that is paying the taxes on the property (in this case, it’s the bank). As you know, I talked extensively about Tax Rolls in my previous post.
So once you have the name of the bank, look on the bank’s website and search for the local agent who represents them. Or you can simply call the bank and ask.
Most likely, you’ll be ahead of the game here – you already know there’s no sign in the yard of the house, and there may not even be a listing on the house yet, which means it hasn’t hit the MLS.
For example, you may reach out to that agent and say:
“Hey Mr(s). Agent, I found this vacant house at 123 Main Street. It’s in need of major repairs, and it’s something I’d like to buy. I’d like to make an offer on it as soon as you have it available.”
By saying this, you’ll impress the Realtor by knowing about it so early. And when they do get the listing agreement ready, they’ll probably come back to you before they list it on the MLS.
Here’s why it behooves them to do this…
If the Realtor submits your offer and it’s accepted – they’re not only the listing agent, they’re also the selling agent –they get paid twice. And really, I don’t know any agents out there who don’t like double paychecks. Am I right?!
By doing the deal this way, not only does it give you a leg up on the investor competition, but it also serves a dual purpose – you’re building rapport with an REO listing agent.
Relationships with these Realtors can be very valuable.
Pro Tip: You have to follow through when doing deals this way. When working with listing agents like this, do what you say you’re going to do – and you both can continue to profit from your working relationship. If you don’t follow through – they’ll cut you loose and never work with you again.
Pulling Comps and Determining Price
Your next step is to pull comps to know what the house would be worth after repairs are made. In other words, you need to determine the After Repair Value (ARV).
Personally, I use the custom comps tool that you can access through iFlip Real Estate– my business automation CRM (and it works great for determining the ARV)! Click here to try it out risk free if you haven’t yet.
Where else can you get comps?
- Your Realtor – with access to the MLS
- Tax Assessor’s office – pull local, similar, recently sold properties (not the assessed value)
In order for us to determine the value of the abandoned home, we have to pull comps. Until we do this, we can’t make an offer until we know what the house is worth (taking into account estimated repairs and our profit). And remember, you can use my 3-categories method: Bad, Really Bad, Awful to help determine those repair costs.
Here’s where we run my Purchase Formula, which is .70 cents on the dollar, minus repairs:
ARV x .70 – Repairs = Your Likely Sell Price (when Wholesaling)
Read this part carefully please…
Your end buyer is going to want a good deal on this property. When you can sell the house to him/her at or above the Sell Price above and you’ve built in a profit margin you’ll make money. And by doing so, you’ll be turning those abandoned houses into pots of gold as a wholesaler. 🙂
A simple rule of thumb to factor in your profit is to take 5% of the ARV. For instance, if the house has a $200,000 ARV, that’s $10k profit for you. Or, if the house has a $500,000 ARV, that’s $25k… (You get the point).
…So deduct that from your Sell Price and that’s the price you want to pay the seller for their house. Finally, you turn around and sell it to your investor at or above your Sell Price – and that’s where your profit comes from.
Make the Offer
Now you can make an all-cash offer or pre-approved financed offer to your seller. When you are pre-approved, and my funding clients are, you can waive the mortgage contingency. You may also want to waive the appraisal, inspection, etc. contingencies too. When you do, your offers are nice and clean, and banks like that!
Pro Tip: I have a super-informative course about PSA’s, which you can – and should – check out here. And ALWAYS have an experienced attorney review your legal documents, before you use them, to ensure you’re protected.
Don’t be concerned about making a cash offer without actually having the capital. You don’t need it (and you’ll see why in my follow-up post). Actually, all you need is a small Earnest Money Deposit. And with these types of deals, usually a $10-$100 EMD is sufficient for the seller.
You may come across some sellers saying that you don’t need an EMD at all. But you do! In order to make that PSA (Purchase & Sale Agreement) binding and legitimate, you have to put up some deposit money.
You also want to set your closing date 30 to 45 days out – this allows you time to find your end buyer.
Once you and the seller have the signed PSA, you need to have the title checked to ensure there are no liens, encumbrances against the property that might prevent you from moving forward.
So you turn over your PSA to either your title company or closing attorney and let them open escrow. Part of the escrow process is to do a preliminary title check–the results of which you want to get in writing. It should say something like this:
“Based on a preliminary title check on [date], we have found that the title for the property at 123 Main Street is clear and marketable.”
By seeing something to the effect of ‘clear & marketable,’ you’re good to go.
Okay, so if you’re at this point in the process – you’re close to closing the deal. The finish line is in sight…
One More to Go
Can you believe we’re just about finished with my 5-step process? Most of the hard work has already been done!
You or your bird dog located the vacant house, you found the owner/motivated seller (probably with a skip trace), you worked a deal with the owner of the abandoned home, and now you’re ready to wholesale this property to another investor!
… and in my next post, that’s exactly where we’ll pick up!
If you have any questions or comments about striking the deal with the seller of abandoned houses for sale, please leave a note below. I personally monitor and respond to them.