Most real estate investors believe they are in the business of real estate investment, so they refer to themselves as investors. From the outside looking in, all you may see is a guy with deep pockets riding through your neighborhood and snatching up all the empty houses. You may even think of these real estate investors as shysters who are out to dispossess property owners of that which is rightfully theirs.
I do not refer to property buyers as investors. I prefer to call them problem solvers. At least that’s what I consider myself to be. Real estate problem solvers come to the aid of property owners who may be suffering from one or more property-related problems. These property-related problems are challenges the property owner either does not want to solve or does not have the resources (time, money, energy, etc.) to solve. These challenges are what transform property owners into motivated sellers.
The motivated seller prefers money over the challenges associated with keeping the property. I provide an “out” for the property owner. They turn the property and its challenges over to me or another investor with the resources to address the challenges and the seller accepts a fair payment for the property.
Property-related challenges. That is the number one reason property sellers are willing to sell a property for a fraction of its value. When I bought my first property, I bought it from a distressed owner. In this case, the distressed owner was the US government. Yes, governments can be distressed. It was 1987, the market was down and the Department of Housing and Urban Development (HUD) was sitting on a large inventory of vacant properties; they had to get rid of them.
After a bit of searching, I called my agent and we settled on a property that I thought would be a good investment for me at the time. At the time I made my offer, the property was worth about $115,000. HUD accepted an offer of $78,000 on the property. I instantly walked into almost $40,000 equity.
Six months later, I took out a Title I loan to fix the property up a bit. You can get up to $21,000 for home improvements. If you do the work yourself, or have money left after you spruce up your property, you can keep the money and do whatever you like with it. In my case, it came in handy, and I immediately started a small business. During the 20+ years I owned that home, I was able to pull out over $150,000 equity from the home by refinancing each time the market went up. When I finally sold the house, I made money too.
Build your real estate investment portfolio by finding motivated sellers. As you can probably imagine, there are a number of reasons a property owner will sell their property for less than its real value.
- Bad tenant
- Bad Neighbors
- Crazy laws or codes
- Loss of jobs
- Job transfer
- War in Iraq, or Afghanistan
- Tired of the property
Over the course of my career, I have encountered each of these scenarios. That is why it is possible for people like me to buy a property for 40 or 50 cents on the dollar.
I am not in the business of buying properties. I am in the business of finding motivated sellers.
Once you find the motivated seller, they will actually sell you on buying the property, not the other way around. They will practically beg you to take their headache away.
Once, a condo owner gave me, $5,000 to take over their monthly payments of $595. When I acquired the property, the amount of the loan still owed on the property was $45,000. I rented the property out for about four years before finally selling it for $150,000. Did I buy the property or was it a gift? You decide. But one thing I know: The previous condo owner appreciated my willingness to solve their problem so much that he paid me $5,000.
In deciding which owners will have the benefit of your problem solving services, you first have to decide what the specific property-related challenges are. Smart real estate investing requires you to assess the entire situation before agreeing to the purchase. Is the problem with the property, the owner, or both? Once you determine where the problem lies, you can tailor your solution to fix the problem.
That is the magic of real estate.