Deal Flow Key In Finding Real Estate Investment Gems

Especially in today’s market, most people think they can easily find good deals, and they are right, but you have to know what to look for; often times, what appears to be a great deal is only a bad one in disguise.

Sometimes a deal looks great on the surface, but once you know how to look beneath, you will see the truth.  The reality is that most deals, even if they look appealing at first, are not great.

These are the ones the average investor buys.  These are the deals that prove difficult to resell for profit in today’s market sitting vacant with “for sale” signs out front.  These are the deals that require a strong fight to obtain financing for purchase.  I share my secrets, you can use to find the real gems.

What is a Gem?

Here is a “Gem” deal that I found a few months ago.  The bank was asking $120,000.  It sat on the market for a while, but the price dropped to $110,000 and finally $89,000.  Most people would have thought they had found a great deal, especially since the tax value on the home was $180,000.

And people did think it was a great deal.  It went under contract several times while I sat back and watched.  It would go under contract and then, pop back up on the market.  The deal would never close.  Why not?  I don't know, exactly.  There could have been many reasons.  My guess is that the banker didn't get the right price, so financing was a challenge.

I ended up purchasing this home for $57,807.  That's right, I purchased the home for over $120,000 under tax value.  And here is the best part:  the home only needed carpet, paint, and appliances.  No major renovation, just some minor cosmetic repairs that I took care of quickly and easily.

Here is another key element to the deal.  A smaller, older home sold for $99,000 in that neighborhood just a few days before I closed on my purchase.  I just sold that home for $106,000.  I made a little over $30,000 in less than 90 days.

Why do I bring up this purchase and sale, specifically, out of the many deals that I have done?  In particular, this one illustrates how easily you can get off track if you don't know the exact steps to follow.

Most people would think that if you could buy a house for $89,000 with a tax value of $180,000 (which it did sell for in the past), then it's a good deal.  This is where they would make a mistake.

Avoid Investor Mistakes

So how do you avoid making these types of mistakes?  First, you keep deals coming across your desk.  As long as you have plenty of deal flow, you will not get caught up in trying to make one deal fit your needs.  You need many deals so that you are not emotionally attached to one.  As the old saying goes, to the hammer, everything looks like a nail.  But if you have multiple tools, or multiple deals, you can choose the right one for the job.

Notice:  when I started telling you about this case study, I mentioned that it had gone under contract several times as I just sat back and watched.  This is a key strategy.  If I had thought this was my only deal or only chance of getting a deal, then I would have seen the bidders in a different light.

I would have thought they were my competition, and that I should bid against them.  In reality, though, I saw them as my helpers.  If they overpaid for the houses, they would provide a good comp for me when I wanted to sell my houses.  Also, I would be able to rent and sell my houses much cheaper than they could.  Therefore, I would sell mine first and also get a tenant first.

If they put the house under contract and did not close, they would wear the bank down a little more.  The bankers would count that house as sold in their monthly projections.  They would see it as gone on their books, and then it would reappear, a thorn in their side that I can pluck for an excellent price.

You see, as long as you have plenty of deal flow, you see everyone as an ally in some capacity.  You can think strategically.  Think through your deals and let others help you get the best ones.  Your deal flow is the key to your success.  If you don't have it, you will buy the first marginal deal that comes through, always fighting an uphill battle.