Today, Bob Diamond explains how real estate investors need to start with a large amount of leads and offers in order to secure a few deals.
Marketing strategies don’t always provide certain results and but in order to get deals, you must make offers and take action.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Bob: Hi, this is Bob Diamond, attorney, investor and educator, here with the REI Classroom. Today we’re going to talk about marketing funnels and marketing funnel systems.
Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.
Bob: Owning your own business has two distinct parts. First, you have to do the business of the business. So whether you’re a carpenter, a baker, or a real estate investor, you’ve got to do the actual business. So if you’re a carpenter, you’ve got to build something. If you’re a baker, you better bake something. And if you’re a real estate investor, you better find some deals to do. So that’s the doing of the business, and pretty much everybody can do that.
Where people often fall apart is doing the other part of the business, which is getting the business. Somehow you’ve got to, we used to call it in law practice, you eat what you kill. So you have to go and find the deal, and that’s what you’re going to make your money off of.
So for marketing, one of the things that I think causes people a lot of uncertainty and a lot of failure in marketing and not doing anything is the fact that marketing is, on a micro basis, very uncertain. Meaning, if I flip a coin, I know that has a 50/50 chance of coming up heads or tails, but I don’t know in any given flip which is going to happen. But I know if I flip that coin a hundred times, on average, about 50 times it’s going to come up tails and about 50 times it’s going to come up heads. And that is marketing.
Marketing is more like the hundred tries are going to result in some tails, some heads, but on any one thing, you’re not going to know what’s going to happen. So what this means is that we need to generate a lot of leads, meaning prospective deals, as real estate investors, in order to find a few deals. And a good ratio to keep in mind is look at, or become aware of, a hundred prospective deals. That’s step one. That could be something as simple as you get a hundred foreclosure listings or you get a hundred houses listed from a realtor.
Step two is you make offers and negotiate, meaning seriously negotiate, for at least 20 of those properties. So those might be properties you pick out that are in neighborhoods you like, or that are in a price range you like, that have the appropriate amount of renovation that’s needed, or that have indicators that there’s some seller distress, and that will make it a better deal for you. So we’re going to make offers on at least 20 of those deals.
If you do that, you make offers and you negotiate, you should expect to get at least two of those deals under contract. Maybe as many as four of those deals under contract. And of those, get one of them to closing. One of them is going to be a great deal.
Now, what’s so hard for an entrepreneur, is first of all the thought of going and becoming aware of a hundred deals. You’ve got to do that somehow. Again, could be foreclosure listings, could be a realtor, could be HUD listings that are REO properties. Could be a lot of things. But you’ve got to become aware of that, you’ve got to make at least 20 offers.
I find, when I’m talking to students who are not doing deals, they’re not making the offers. It’s really simple. They find 53 reasons not to make an offer. But that is the bottom line, they’re not making the offers. You have to make those offers and very seriously negotiate.
I’ll just give an example. We were investing in Las Vegas and I went out there and on each successive day, I would look at 15-20 houses and then I would go back to the realtor’s office. We’d make offers on, typically, between 7 and 10 of those properties, and I would get a couple of properties a week doing that.
And every time they made an offer, the realtors would say, “You’re crazy. That offer will just insult the seller. It’d never happen.”
And I’d say, “Well, those are my prices, so if they don’t like it then they can turn it down,” but I knew what my economics were, and I got property after property after property. And that’s the same way that investing works right now. You have to find, number one, a good lead source. Number two, you have to go and actually see properties, make offers and negotiate for them, and then you close on the deals you actually get.
Now, how good your lead source is and how fertile it is, is going to control the efficiency of your funnel. Meaning, if I went to Hollywood, California and I started making offers on properties in the Hollywood Hills, where all the stars live, and I made low-ball, 60-cents-on-the-dollar offers, I could look at a thousand properties before I get one. It would be almost impossible.
What you want to do is look for a seller that is more likely to be distressed. So what does that mean? It’s someone who is under pressure to sell. Maybe they’re under pressure because there’s a foreclosure sale that’s happening shortly. Maybe they’re under pressure because the property’s in an estate and the beneficiaries of the estate are saying, “Hey, get this thing sold. We’ve got to get our money out of it.” Maybe there’s a government agency that’s fining them because the property is vacant and it’s got weeds all over it and the government agency’s fining the heck out of them. That’s a topic for another day.
The most important thing is, understand that business involves two parts. One is marketing to find your deals, and the second is actually doing the deals. In the marketing part, you have to look at a lot, which is like the top of the funnel, and then a few are going to come out of the bottom of the funnel. So we can talk another day about what the best sources are, but look for motivated sellers. But in the meanwhile, always think of this as a funnel. You’re going to get aware of a lot of deals and a couple are going to drop out of the bottom. That is the way all business works, and real estate investing is no different.
So this is Bob Diamond from Diamond Law Center. I hope that you find great success in your investing career, and I hope this advice gives you some help and speeds you along the way. I’ll see you next time.
Mike: HomeVestors, the We Buy Ugly Houses folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level, or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.
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