I used to run TV ads in order to find houses to buy, and I’ll give the pros and cons of doing it.
1) One plus is that more people are seeing your ad for every dollar spent than just about any other media. This can help to build brand awareness so that if someone falls into trouble a year after they saw your ad, they will hopefully remember your company’s name and look you up.
2) It will also increase your response rate with other ads you’re running. If someone sees your commercial one day, doesn’t respond, and then later gets a letter in the mail from you later on, they will be more likely to respond to your letter because your company has already gotten a foothold in their mind. This is what J. Conrad Levinson teaches in his Guerilla Marketing books.
3) It makes you look pretty darn professional. People who see the commercial know that you’re a serious player and will call you and trust you a heck of a lot more than if they just saw some handmade We Buy Houses sign teetering in the wind on a street corner.
4) You get a good amount of leads. When I ran TV ads, I got about 26 calls per month for the first month or two. The usual number of these leads were motivated sellers-about 1 out of every 8 or so. So, if I could have closed one deal out of every 3 prospects who called me, then I could conceivably have done one deal per month just from TV ads.
I became a licensee of another company that let you use their name and their pre-made TV commercials (I’ll go into this more in Part 2). The total cost of the ads plus their monthly fee was $2600. Would you pay $2600 in ads to find one house to buy every month? I would, though it’s a little high. My goal is to spend less than $2000 per deal on marketing costs.
5) Another plus was that I did not have to spend any time brainstorming, writing ads, or managing any of the pains that come with other kinds of advertising (getting paper and stamps when you’re running low, making sure someone was sending mailers out on time, hanging up signs, etc). I would just send a check every month and be done with it, and that was nice.
So my cost per lead (call) ended up being about $100, at least after the first 2 months. Since one out of 8 leads was a real (motivated) prospect, my cost per prospect was $800. This was terrific. Then, for some reason, the ads didn’t work well a few months in a row. After about 6 months, I felt I had enough data to use to decide if I wanted to continue or not.
After all, you can’t judge an ad campaign solely on its first month’s performance. It might have been a really good month or a really bad one, and the only way to know for sure is to try it for a while and see how it does over time.
After 6 months, I looked at the numbers. It had cost me $15,600 in ads and we had done 3 deals from it. This meant that my cost per deal was over $5000, which was unacceptable. Think of the ways you have found deals before, and what they cost you. Would you have kept doing it?
I would have kept running them if it were for a different industry than real estate. If I could pay $15,600 now and sell $60,000 worth of my courses, I’d do it in a hearbeat. But real estate investing is different, because:
1) Each house requires even more money to make the deal work. So it makes sense to have the lowest cost per deal imaginable, so you can reserve your limited funds for things like repairing houses, paying your assistant or yourself, and actually doing deals.
2) Each deal takes time to do. So you might spend thousands of dollars on ads, and tie the money up for 3, 4, 5, 6, or more months before you get it back again from the sale of the house. If you keep the house as a rental, it may take even longer. Most of us cannot afford to have our limited funds tied up for so long, and the more you spend on ads, the more likely you are to wake up one day with a negative balance in your bank account.
3) Each house contains an element of risk. You may believe that you will make $20,000 or $30,000 from the sale of a house, but you never know for sure until the deal is done. It’s not as sure of a thing as simply handing a customer a product in exchange for payment the same day.
These are all things I would keep in mind when considering television ads to find houses to buy. My experience was mine alone, and yours might be totally different. If after reading this, you’d prefer not to run TV ads, fine. If you’d like to try it, remember to keep these considerations in mind and give it the proper planning and budgeting that any serious ad campaign deserves.