Wednesday, January 06, 2010

The Motivated Seller

After a recent conversation with a potential client, I thought this topic was good to post here. He mentioned that his mentor told him to only buy 3-D (death, divorce, debt) motivated properties.

Many of the properties we buy are undervalue and most of the reasons fall under the 3-Ds as it is a broad blanket. In real estate you call it the 'grave dancers' people who only target sellers in hardship. I'm not a grave dancer but I do look to help sellers in hard times out of their situation with dignity and yes, that sometimes means that properties are purchased under value.

Not all seller's initially jump out and say 'Hey, I'm getting a divorce and I'm totally broke- take this property now!' Some Realtors may put that spin on things, but it is not always the case.

When you train your team to ask the right questions you'll uncover these and other opportunities.

As an investor you must be active in finding your deal, not waiting passively for it to come to you. If you are only hunting the 3-Ds you miss other opportunities or pass over what appears not to be a 3-D deal only to realize later it was.

For example, a mortgage broker I know has a property that he's been trying to sell for a few months on MLS. It's priced right, but there is a lot of competition for that product.

When I spoke to him about it he told me the listing was his, he's knock the price down $15K as he was just diagnosed with a serious health condition and wants to simplify his life. He doesn't want to blast his personal life out there to anyone and let the vultures set in.

One last and important point, being active in finding your deal means that you look at 100-50-25-10 properties in your target zone. You cull the numbers down to say 10 properties based on your investment criteria (profitability). Out of that 10 you may have 1 motivated 3-D seller and 2 regular solid deals. You then work the deals by priority. If you were only targeting 3-Ds you might have missed the other 2 viable opportunities. See, you still get the 3-D deal AND you get 2 more from being active.

It's really a chicken or egg situation as you could lump most motivated sellers in the market today, as motivated by debt. Either current or impending. The first two Ds usually cause the last one.

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