There’s five big problems that beginning real estate investors face. The good news is that by focusing on cheap investor houses you can either overcome or cut these challenges down to size. Here’s the 5 big problems (in no particular order):
Lack of Money for a Downpayment
This is the most common reason people give me to explain why they are waiting to get started investing in real estate. The funny thing is that if you are saving up your money to use as a down payment on investment properties then in most areas the value of that house may be going up faster than you’re building up your savings.
For the person who’s trying to save up for a down payment, each year that goes by actually puts them further behind than they would have been if they’d found a way to get into investing by starting out with cheap houses. If they realized that owners of cheap houses are much more likely to agree to creative financing that doesn’t always require a big down payment then perhaps they could get started much more quickly.
Don’t Have a Track Record
I was nervous when I first got started investing in real estate. I was an auto mechanic afterall, what right did I have to go out making offers on properties telling the sellers that I was a real estate investor?
In hindsight, because I was focusing on cheap investor houses, the sellers of these properties were probably thrilled to have someone with or without experience who was willing to take over their cheap houses. The owners of many of these homes are not only open to, but need someone like you or I to go in and buy their properties.
No Funding Available
The great thing about cheap investor houses is that sellers of properties like these are WAY more likely than the average homeowner is to consider accepting your “carry back all the financing” or other creative real estate buying strategy. Once you discover how to get the seller to provide the financing, or how to take over the existing financing, this problem goes away completely for you.
Hard to Find Investor Friendly Realtors
Most of the cheap investor houses that you find will be for sale by owner. The reason is that Realtors don’t want to put their time into a low priced deal with it’s correspondingly low sales commissions. This is perfect because you can talk to, connect with, and make deals directly with the sellers.
I’ve also discovered that when you do find a Realtor who’s involved in cheap investor houses they are worth getting to know because they are more likely to understand the investing business.
Fear of Making a Mistake
Hey, mistakes are a part of life. Real estate investing is no exception. The secret is to either keep your mistakes small and learn quickly from them, or to find someone who’s already made most of the mistakes for you. It’s usually cheaper and easier to learn from someone else’s mistakes rather than your own.
I hope you’ve found something useful in this post. Let me know what you think by posting a comment below : )
One of the best places to start finding real estate deals is by looking at cheap investor houses. In most towns cheap houses like these can be found in decent working class neighborhoods.
Look for an area that has plenty of lower priced homes but that is not in a war zone. The measure that I use is that you and your contractors need to feel safe while you’re in the area. If you’re concerned about your welfare or safety then you need to find a better area.
If you want to keep your costs down then it makes sense to use some of the proven cheap house finding methods. Putting up bandit signs (making sure that you follow all your local ordinances), or having “I Buy Houses” flyers delivered door to door is a great place to get started.
If you walk the neighborhoods yourself in the beginning you’ll get a better understanding of the area and maybe even meet a few sellers in person that you can connect with, who knows, maybe you could even buy their house.
I’m partial to the free cheap house finder tool that you can find at www.cheaphousefinder.com One reason that I like this tool is because we created it. The other reason is that it’s free and it finds cheap investor houses that you can’t find in the MLS.
This is basic stuff here but I’ve found over the years that sometimes the simplest things make the most sense.
When I got started investing in real estate it took me awhile to figure out out to actually put together a deal without using much money. The problem was that I did things like working with Realtors who didn’t understand what I was looking for.
Sure, I had explained that I wanted to get into fixer uppers and that I wanted to put as little of my money down as possilble. What I didn’t realize was that most Realtors don’t really understand what a motivated seller is or why that’s so important for a real estate investor who wants to put together a winning deal.
“You can get into this one with just $40,000 down.” The Realtor mentioned as we were leaving the third property he had shown me that day. I almost choked in response to this. First off, I didn’t have $40,000 and if I did then I most certainly wouldn’t put it all into one property.
Before long I discovered that focusing on cheap investor houses made so much more sense than trying to buy that really nice home that had already been fixed up. As for Realtors, I said goodbye to this one but ended up meeting others who had a better understanding of what us real estate investors are all about.
One example of a cheap house that I bought – by calling on an Realtors ad – was an older home that the owners Bill and Gloria had inherited from Bill’s father when he died about five years previously. I found out later that Bill and Gloria had originally sold the house for $110,000 and carried back the financing.
That’s one of the reasons that I like to look for cheap investor houses is because the owners are often more willing to finance it for you. This may be due to the fact that it’s harder to get new financing in some of these areas.
The home was divided up into four units which included a 2 bedroom apartment, a 1 bedroom, and two studio units. When I spoke with the Realtor he told me that two of the units were vacant and that the owners had just taken the property back in foreclosure from the people they had sold it to 5 years previously.
It had been on the market priced at $89,000 and the owners had just lowered the price to $79,000. I ended up getting it for $69,000 with the owners carrying back the financing for most of the purchase price.
After all the prorations at closing I ended up needing about $3,500 to buy the house. I learned quite a bit while owning this properties and some other similar cheap investor houses including how to put down carpet, vinyl flooring, and how to fix basic plumbing.
When I sold it a few years later it was fully rented and looking much better than when I had originally bought it. I found another investor who was going to live in one of the units and therefore qualified for owner-occupant financing.
The check that I took home from closing was equal to about three years salary when compared to what I used to make as an auto mechanic. Cheap investor houses may not sound glamorous but they are a good way to get started investing in real estate.
Beginning real estate investors tend to have many of the same fears that I did when I first got started investing in real estate over 25 years ago. Here’s a few of them:
One of the best ways to work through these fears while keeping the risks low is to “Flip a Contract.” The way that you do this is to get out there and make plenty of low, all cash, offers.
Don’t worry about the “all cash” part because if you do this right you won’t be closing on the property and buying it yourself. You’re goal is to get a great deal under contract and then “Flip” your contract to another investor in exchange for two to five thousand dollars or so.
There are three keys to making this work:
Make sure your offer price is low enough
Your accepted, under contract, purchase price should be at the very most equal to 70 percent of the “After Repair Value” of the property LESS the cost of all the repairs that are needed to put it in ready to move in condition.
The biggest mistake many new investors make is to agree to pay too much or to underestimate the cost of repairs. The nice thing about using the “Flip a Contract” method is that if you make either of these mistakes then you won’t be able to find another investor who wants to buy your contract and your deal will fall apart .
This isn’t your goal of course, but it’s not a big deal as long as you make sure to:
Use a contract with a strong escape clause
The purchase contract that you use should absolutely have a strong escape clause in it. Get your attorney to look over any contracts you use before putting your real estate deals together. It’s very much worth it.
The typical escape clause gives you plenty of time to inspect the property and the financial details (including your repair estimates, etc.) so that you can get out of the deal if you can’t find another investor to flip your contract to.
As far as earnest money goes I don’t put any earnest money into a deal until I know for sure that the deal is a go. When you’re flipping your contract the way that you know you have a green light is when you’ve found the investor to flip to and they have given you the earnest money. That’s right, they give you earnest money to buy the flip which is what you use as your earnest money for your contract.
This takes us to:
Begin building your investor/buyers list ahead of time.
Call all the “I Buy Houses” signs, ads, and websites that you can find in your area. Create a list that includes the investor’s name, email address, phone number, and mailing address. Make a note of their preferences – what areas they will consider and what types of properties they are looking for.
Because you’ve built this list ahead of time when you get that hot little deal under contract you can let all of your investor/buyers know that 123 Main St. is available for X dollars. The price you give them is your purchase price PLUS the two to five thousand dollars that you are going to make by flipping your contract.
If none of them want your deal then you don’t really have a deal. You’ve agreed to pay too much or you’ve underestimated the cost of repairs. In deal making language, you didn’t leave any money on the table for the investor coming in after you.
If this happens, make sure to let the seller and or Realtor know as soon as possible that you are going to exercise your escape clause option. Obviously you’ll need to get your numbers dialed in sooner or later since no one’s going to want to deal with you if you fail to close on the deals that you sign up.
I hope that you’ve found this helpful.
It is so much fun to be around friendly people. One of the best things about investing in real estate is that you get to meet wonderful people and help them out. In a recent webinar I shared some ideas on how to quickly make friends with sellers and get them to say “Yes!” to your creative offer.
I’ll describe a little known secret for making friends quickly which means that you’ll be able to get more sellers to feel good about selling you their house when they accept your creative offer.
One of the concerns that was brought up by many of the beginning investors that I met was this: “I’d really like to make a full time income as a real estate investor but I’m just not comfortable taking advantage of sellers who are in a desperate situation.”
This common misconception is believed to be true by beginning investors and also by much of the general public. How can you make money without “taking” money away from the seller of a home? One simple answer to this question comes to you through the magic of appreciation. Appreciation is where some of the biggest profits are made in real estate. By owning or controlling an asset like a nice home in a nice area, you get the benefit of any increase in value as the market moves up.
By using a lease with an option to gain an ownership interest in a nice piece of real estate, even if your purchase price is at today’s full market value you’ll be making a large chunk of money as real estate increases in value. Once you learn how simple it is to put together lease purchase deals and that sellers will actually thank you for helping them out, you’ll never worry about taking unfair advantage of sellers again. You really can help sellers out and make a bunch of money for your efforts.
For example, if you were to pick up five to ten properties over the next year using purchase option techniques like the lease purchase, you’d be in control of about a million dollars worth of real estate. If you structure your deals correctly, you won’t need much of your money and you can even get your tenant buyers to take care of the maintenance.
Once you control a million dollars of real estate, when the market for nice homes goes up just five percent in the next year – you’ve just made $50,000. If you need more than $50,000 to create a full time income then go out and use purchase option techniques to control five to ten more homes. You have now created a six figure income and also have the freedom to do whatever you want each day.
This is because you are creating passive investments which free you from the responsibilities of traditional real estate investing. Now you can enjoy more time with your family, go for a mountain bike ride, or drift lazily down a river on a raft if you want to.
Here’s how I learned a powerful secret and how you can use this idea too. A few weeks ago Darcy, our operations manager, said “Peter you really should smile more often, you have a beautiful smile and it’s a shame to keep it hidden away.” Oops! I know I should smile more. I thanked Darcy for her comment and then set a goal to beam a huge smile out to ten people before the day was over.
I discovered that people smile back! This was so much fun that I continued through the next weekend when I was out buying properties with several students. We had set up appointments non-stop all weekend long so I had a chance to beam a great big smile at close to a dozen sellers. I found that sellers were quickly warmed up by this newly re-discovered secret. Even the sellers that didn’t end up doing a deal with us were pleased to have met my students and intrigued to learn about the win – win purchase option offer we shared with them.
You can tap into the power of this simple little secret starting right now. Your objective is to get ten people to smile back at you in the next 24 hours. You can’t say anything to them. The only thing you can do is smile at them. You’ll discover as I did that anything you practice will soon become a habit. Practice enough and you’ll soon have sellers smiling back at you as they nod their head saying “yes” to your creative offer.
Little habits like this really do make a difference. Good Luck!
One of the messages I am constantly sharing with my students is the need to
get out there and do whatever it takes to get that first property under their belts.
It is scary and intimidating, but it is also a magical threshold.
Once you get that first deal done you will find a liberating courage that
will make you many times more effective in every aspect of your investing. It is
all based on the power of belief. After your first deal you will have a growing
sense of belief in your ability to put these deals together. Because of this belief
you will be more persuasive with both motivated sellers and hungry buyers.
I’d like to share with you the story of one of our coaches, Gary. It comes
from his first purchase option deal. As my students who work with Gary know,
he’s quite a sharp investor. But believe it or not he made lots of mistakes on his
first deals too! And because he survived them and went on to be quite successful,
you know that you can do the exact same thing.
Here, in Gary’s own words, is the story of his first deal:
“A while back Continental Airlines was moving its base out of the city I was
living in. This meant a lot of employees of the airline had to relocate.
I had a friend who worked for Continental at the time. He helped me get
flyers into all the flight attendant’s mailboxes. Basically all the flyer said was
that if they needed to sell their home I could help them do it quickly and easily.
One of the flight attendants who was being transferred to another base city
called me. She needed to sell her property. She had tried to get a property
management company to rent out the place but they were going to charge her 10
percent of the rents collected PLUS maintenance on top of that. Besides, do you
think some big property management company with hundreds of units to rent
out really cares about a single house?
By putting myself in the seller’s position I realized that she just wanted out.
She didn’t care about making a profit, only that she came out even. We went
back and forth for a little while and finally agreed on a price of $41,000 –
$4,000 BELOW the value of the home.
I also gave her $800 option money to lock in the right to buy the condo at
anytime over the next 6 years (this is called a “lease purchase”.) Now I know
better than paying any up-front option money if I can work it out that way. But I
learned so much from this deal that it was OK that I made that mistake.
I was renting the place from the seller for $550 a month and I got a $50 a
month credit. (That little $50 a month gave me an extra $1,800 at closing which
was a nice little treat.)
I found a tenant who also wanted to buy the property on a three- year
purchase option contract. He paid me $1,500 up-front option money (meaning
after I subtracted the $800 I paid up-front gave me an immediate $700 profit.)
He also agreed to buy the condo for $49,000. He paid $650 a month in rent.
That gave me a $100 a month positive cash flow on the property.
He moved out after a year (he decided they didn’t want the place) so I
found another tenant-buyer and collected another $1,500 option payment. Again
this person left after a year. So I found my third tenant-buyer and collected my
third $1,500 option payment, and this buyer ended up buying the place. (By this
time I was charging $725 a month in rent, which gave me a positive cash flow
of $175 a month.)
The bottom line was I made $12,000 from a tiny deal on a $45,000 property
over three years. The seller loved me. The buyer loved me (she actually cried at
closing! She thought she would never be able to own her own home.) And I
learned so many valuable lessons just by getting out there and doing my first
It only took me a few hours to sign the deal up, and several more to find a
tenant-buyer each year. I had to spend less then five minutes time keeping the
deal going each year after I had my tenant-buyers. I collected and deposited one
check each month from the tenant-buyer, and wrote out a separate check to the
seller each month. It was just so easy. That’s why I love purchase option real
estate so much.”
So get out there and do whatever it takes to get that first deal done. It will
give you the confidence and the skills to go on and make a ton more money.
I struggled to get my first few deals done so I can relate if you’re finding that
your real estate investing is taking you longer than you hoped to get started. Stick with it.
I hope this article helps.
– How can you determine the real needs of the seller?
– How can you meet the seller’s needs and maximize your profits at the same
– Here’s how to get a quick decision from the seller-a decision that works
for you and works for the seller.
Most beginning investors walk in to meet with the seller and hand
them the completed, written offer and sit back and wait for the seller’s
response. The trouble is that most sellers will tell you they need to think it
over, or that they need to speak with a friend/spouse/relative/etc. before they
can agree with it. This puts the average investor in a very weak negotiating
position. They are in what I call “chase” mode-chasing after the deal.
You are going to do things different. Instead of laying your offer at
the seller’s feet and hoping they do you the favor of giving you the deal you
are going to qualify the owner before you do them the favor of presenting
them with an offer to solve their real and pressing real estate problems. I’m
sure that sounds pretty good to you, but you might be wondering just how
you are supposed to do that. Here’s how:
What you are going to do is leave your offer in your folder, or better
yet in the car. You are not going to present the actual offer until the seller
To qualify for your offer you and the seller both need to agree on four
key areas. The powerful thing is that when you finish with all four areas the
offer is basically all negotiated. And it is at that point that you can present
your pre-written offer, or get out a blank form and just fill it out on the spot.
Of course if you and the seller cannot come to agreement in each area
then you simply stand up, thank the seller for his time, and start to walk out.
Nine times out of ten the seller will plead with you to stay and present your
offer-their curiosity alone will get them to ask you to stay to finish working
through the four areas and to present your offer. This is the ultimate tool for
putting you in the role of the reluctant buyer. We have found it to be the
easiest, most effective way to help the seller feel good about talking us into
giving them an offer on the property. And this will help you to smoothly
transition the seller to say yes to your offer.
The first area is called the “Up-Front Agreement.” You simply
explain to the seller that you are a straight forward type of person and would
appreciate either a yes or a no answer from them. In return you will give
them your own yes or no decision. The key in this quadrant is to let the
seller understand that you will take any “think it over” answer as a NO.
The way that you do this is to tell the seller that you will respect his
and your time by giving a yes or no answer and you are asking for the same
courtesy in return.
Area two is where you are going to talk about the seller’s needs. Ask
the seller what they were hoping you could do for them. and then be quiet
and listen. As they bring up areas of concern the very best thing you can do
is to draw out those problems in an innocent and gentle way. For example, if
a seller’s problem is that he hates being a landlord you can say something
like, “The good thing is that you probably enjoy working with renters and
putting the time in to care for your rental property.” Because you say this in
a caring tone of voice the seller will most likely pour out his guts about how
he hates dealing with renters. This approach is radically different from most
investors where they will argue with the seller over all the problems the
seller faces. All that does is put the seller on the defensive.
Area three is about money. You are going to go over some specific
dollar amounts with the seller before you ever get your written offer out.
This could be the monthly payments (on a lease, or owner carry-back), and
the sale price. This way you know what the seller’s real financial needs are
and whether you can meet them and still make a profit for yourself.
Area four is the “What If?” step. Rather than give a seller your offer
and hope they will say yes, you are going to make sure they will accept your
offer before you ever officially give it to them. How can you do this? By
using the two magic words in all negotiations: WHAT IF.
“Mr. Seller, what if I were to cover your payments for two years and
then cash you out of the property? Would that work for you?”
“Mr. Seller, what if I were willing to give you $212,000 for the house,
would you be willing to carry back a second?”
These magic two words lets you make your offer in a completely
hypothetical manner. Then when you finally come up with the winning
“what if” scenario you simply write it up and get them to sign right there and
Now you know how to get a seller to say yes to your creative offer.
Good Luck with all of your investing, I hope you’ve found this helpful.
I don’t care if you’re buying a car or a house or a skyscraper, if you are buying for cash, always go back and ask for more off the price.
For example, today I bought a car (heather and I got rid of our last two cars before we moved to Virginia). I couldn’t resist going for one last nibble with the salesperson. Knowing that they wanted to control the commitment and environment by having me come in to the dealership I made sure to use this nibble over the phone.
I said, “Paul [pause and sigh] I know there is probably no way you can do this but I’m going to ask anyways because I’d hate to not be able to buy this car. I understand you can’t come down any more on the car, is there any way you can give me a token concession [notice the labeling going on here] by waiving the dealer processing fee [$500].
It’s embarrassing to share this, but I have to live with Heather for a long time, and this would let me save face and get to be a hero in her eyes. Can you make that happen for me?”
And guess what, Paul did… And when I told Heather she sweetly [read gently sarcastically] said I was her hero…
Who said there was no such thing as a happy ending when shopping for a car. You can apply the exact same principal when buying for cash.
The major reason investors don’t ask for a deeper discount on a cash deal is because they are scared to look cheap or of the other party blowing up. Notice how I used negative phrasing and powerful labeling to protect myself from that happening.
Try it in your next negotiation with a seller.
Hope this helps
This nice post was written by David and posted by Peter Conti