4 Steps to Your First Deal in Real Estate
If you’ve been interested in real estate investing and you wish it were easier, you can rest assured that you’re not alone.
In fact you have a lot of company! Just check out this statistic: 77% of Americans ages 35-44 believe buying an outdated home and fixing it up to resell is a good way to make money, and 76% wish real estate investing were easier according to recent research.
So why might investing feel so hard, anyways? Of all the ways people are making money in real estate, one common struggle you might be facing comes down to actually finding a property you feel comfortable buying. After all, you can’t fix, rent, or sell a house you don’t have! And I would go one step further and say people struggle finding a true deal.
So what exactly do I mean when I say “true deal?" A true deal is an opportunity to purchase a property for a highly reduced price. You then use this property to earn a higher than average income. Finding a true deal is important because… For Example: if a house rents for $1000 today, it will rent for $1000 tomorrow no matter if you paid $20,000 or $100,000 for the house. By paying the lower $20,000 price, you will have $80,000 left over to invest in more houses.
By doing a quick Google search you may come across several ways to find a deal, but you may not know which method to use. Or maybe you have managed to decide on a method and try it for a period of time, but you might not see immediate results. Sometimes life just gets in the way.
You might struggle to make time for finding a deal, even though you want to. Today let’s move past what's been holding you back and break down a simple method for finding a deal that you can use, stick to, fit into your schedule, and ensure your progress using goals.
Here’s 4 steps to your first deal in real estate:
1. 🔥 Find a buyer.
Find someone who wants to buy investment properties (this could be someone else, or it could even be you!).
It sounds counterintuitive, but you’ll have clarity if you start with the end in mind.
Once you find a buyer, find what criteria they are looking for.
- Rents for $700-900
- 2+ bedroom
- Rehab needed: $0-20k
- Price range: $50,000 - $80,000
The buyer can be you or it can be someone else. A great place to start finding a buyer in your city would be local real estate meetups. The most important part of this step is discovering the buyer’s exact criteria so you can find exactly what to look for.
2. 🔥 Identify houses.
Use the driving for dollars app while cruising around in your car to look for houses that match the buyer's criteria.
- Find 100 of these houses
- Save the address
- Take a clear picture of the property
Spoiler alert - you're going to send each property’s owner personalized, real estate direct mail postcards prompting them to call you about selling their house.
We set a goal of 100 houses because that’s a large enough sample size needed to find one great deal. In reality, you may find more than one.
The picture you take of the property will be featured on your mailing in order to grab the owner's attention and avoid getting your mail thrown in the trash. Some owners have never even seen their property because they live out of state, so your mail may be the only photo they have (certainly it will be the most recent they have). Explore the best cities for flipping houses to begin your search!
3. 🔥 Reach owners.
Find the owner using the county property records online.
- Google the zip code along with the word county
- Search county name and property records
- Use the county property records to find who owns the property and their address
Send the owner direct mail offering to buy their property. Since you’ve taken the time to personally visit the property and take a photo, you can send a much more personal message than anyone else. :)
Once sent, get ready to answer your phone and evaluate deals!
Note: I recommend that you repeat the mailing to each of these owners every 4 weeks until they call you, or their house is sold, or you’ve mailed them at least 7 times.
Why 7 times?
Typically an owner will need to build trust with you before picking up the phone and calling you, and they may not be ready to sell the first time you mail them.
Sending repeat mail every 4 weeks is a good frequency to keep your offer in the mix and gives the owner a chance to fully become ready to call you over the next several weeks and months.
Following the 7th mail is usually a good time to reflect and determine if you would like to adjust your sending frequency in your real estate lead management software. Some investors will continue mailing to an owner until the owner calls or the owner sells the house.
4. 🔥 Evaluate deals.
Answer your phone when these owners call you and talk to them! Have a conversation about:
- Why do they want to sell?
- How soon do they want to sell?
- How much would they like to sell for?
- What parts of the property would most likely need a repair or upgrade within the next 10 years?
- What is their best estimate for rehab needed? (Their answer here may be accurate or exaggerated, but you can use it in your initial evaluation. You can confirm with your own rehab estimation during due diligence later.)
These open ended questions allow the owner to talk freely so you can learn critical info about the property. There are dozens of questions you could ask, but these will get you the information you need for the evaluation step.
So now that you have collected information about a home that matches your buying criteria, how do you know what price you should pay?
Here’s a simple formula you can use to calculate your maximum price.
Sale price = (Buyer’s Price Range) - (Rehab needed) - (Your profit $5-10k)
I recommend paying yourself $5k-10k for finding a viable deal, even if you’re keeping this property for yourself. This amount pays for your time and covers expenses you spent finding the deal. Structuring deals like this will allow you to pay someone else to do this work for you in the future, if you want to.
So once you subtract $5k-10k for your profit, if the seller is willing to sell below your maximum sale price, congratulations! You’re ready to move forward to phase 2: your due diligence and closing the deal. We can talk more about phase 2 soon. :)
So without even knowing it, you may have the FIRE acronym floating around in your head 🤔:
🔥 F.ind a buyer 🔥 I.dentify houses 🔥 R.each owners 🔥 E.valuate deals
That's because your friends will say you're on fire when they see you doing all these deals. 😉 So how long will this take? You’re busy! The beauty is you can choose a pace you feel comfortable with. I recommend “getting to 100 houses” is your main progress indicator. One investor claims to find 50 houses (and looking up owners and sending direct mail) in one hour using a technology called DealMachine, which I created to make this process easier. I encourage you to try DealMachine yourself by using it to send a couple postcards. The first two are free when you download the app.
You can use DealMachine's real estate investor software to accelerate your progress and make things easier once you do a few the old fashioned way. No matter what technology you use, by breaking down each step in this guide and using the 100 house goal to track your progress, you can finally finish finding your first deal in real estate.
About David Lecko
David Lecko is the CEO of DealMachine. DealMachine helps real estate investors get more deals for less money with software for lead generation, lead filtering and targeting, marketing and outreach, and acquisitions and dispositions.