If there’s one thing I can’t seem to get enough of, it’s pizza. So when my contractor offered to buy me a slice in exchange for some real estate investment advice, I told him all he had to do was name the time and place. Though I’m from New York and he’s from Chicago, I trust his judgment on what it takes to make a good pie. And because I’ve been successfully buying, renovating, and selling houses for years, he trusts I know what it takes to build a good portfolio. We met later that week and he got right to his first question before I got my first bite: “How do you find leads on distressed homeowners?”
My contractor is not one to mince words, which is why we work so well together. So I told him I’d give the most common ways to find leads the once-over, then share my own personal strategy. He was clearly hungry to begin, so I took my bite and we got down to it.
Common Ways to Find Leads on Distressed Homeowners
From New York to Chicago, most real estate investors find leads on distressed homeowners in much the same way. Of course, every city is different, yet there are some common strategies for finding fixer upper homes for sale that cross state lines. For new investors, or contractors thinking about becoming one, they do serve as a good starting point.
When homeowners are unable to pay the mortgage, lenders take note. Then, they often also take the house. These real estate owned properties (REOs) are then released by the banks—sometimes after a quick ‘lipstick rehab,’ but usually in the same condition acquired–for sale to the public. Real estate investors tend to flock to foreclosed homes because they are frequently priced at a discount. Their thinking is that if a property is cheap enough and the needed repairs easy enough, the potential for turning a profit quickly is a sure thing.
Of course, nothing is a sure thing when it comes to REOs. For bank-owned properties, “as-is” typically means the house is in pretty rough shape to begin with. And its condition can go from bad to worse if the home sits vacant for a while. This can lead to an expensive renovation—and a shrinking profit margin—if you don’t perform an inspection to uncover all the potential problems up front. For this reason, many real estate investors choose to approach distressed homeowners facing foreclosure directly. If you go this route, though, tread lightly. One thing you can be sure of is that other investors are doing the same, and a homeowner looking at losing their home is not always a homeowner who’s going to be happy to see yet another investor.
A certain percentage of foreclosed homes are auctioned off, which suggests an opportunity to get them for less than if listed on the market with a real estate agent. Closings are also fast, ideally making quick turnaround times possible for getting houses rehabbed and ready for sale.
Fast closes, however, rarely allow for enough time to perform inspections when buying a distressed house and sometimes access to the home isn’t available at all. In most cases, you’re required to perform your due diligence—including checking for any undisclosed liens—before stepping foot into the courtroom. Deposits can be as high as 10% – 25% of the purchase price and often must be paid immediately if you win the bid. Depending on the auction, the balance might be due within days. Additionally, the bank usually sets a minimum price it’ll accept and you won’t necessarily know this going in. So what appears like an opportunity to get a good deal can quickly change into a mirage—and a waste of time.
Lead lists can be purchased from real estate agents or through third-party vendors. The information on these lists runs the gamut of ugly situations, from divorce to death to financial duress, in which homeowners are positioned to need to sell their homes quickly and cheaply. Real estate investors use these lists, believing the information is current, to find motivated sellers and contact them directly by cold-calling, sending mailers, or pounding the proverbial pavement.
Unfortunately, the information on these lists, which is culled from a variety of sources, is spotty at best. When you want to connect with distressed homeowners to earn their trust, and their business, the last thing you need is old or invalid data. But no matter the price you pay for lead lists, determining their worth will only come through trial-and-error. And because so many other real estate investors have bought the lists, this game of chance could lose you the attention, even the respect, of the homeowners you’re trying to help.
As you can see, whether you’re trying to find fixer-uppers in New York City or an investment property in suburban Chicago, these garden-variety options for finding leads aren’t bad, comparatively speaking. But contrast them with the opportunity to grow your real estate portfolio by having distressed homeowners reach out to you and you’ll realize they’re not great either.
Where is this opportunity? With a HomeVestors® franchise.
An Alternative for Finding Leads
When you become an independently owned and operated HomeVestors® franchisee, finding leads on home sellers is easy. Thanks to the nationally-known “We Buy Ugly Houses®” advertisements, homeowners in distress know who to call before they run out of options. Back in the day, opening a HomeVestors® franchise opened my eyes to a better way to run my real estate investment business—and I’ve never looked back.
My contractor and I finished off our pizza and parted ways for the evening, but not before he made a call of his own to HomeVestors. If you’re hungry for an alternative to finding real estate leads, you should do the same. Contact HomeVestors today!
Each franchise office is independently owned and operated.