Anyone who has been in real estate at all will tell you that finding good deals is most of the work in any real estate business. Using the right tools will maximize the efficacy of that work. Here are several strategies to increase deal flow by using creative financing. This works for multifamily or single-family real estate.
Direct to Owner
Contacting owners directly works great with smaller assets and is less effective as you move toward larger assets (100+ units). Direct mail campaigns work great for single family homes and have a decline in response rate (closer to 0%) as you move to larger assets. I have sent thousands of letters and postcards in my career.
Here are some tips for direct contact techniques:
1. Mail campaigns
- Automate this if you can. Get a list of names and addresses and outsource the mailing.
- Choose a specific market. Do not waste time and money randomly blanketing an area with mailings.
- Set this up to run in the background of your business. This should not take up more than 5-10% of your time or resources.
2. Calling/contacting owners directly
- Get a list of contact info for owners of buildings in your area.
- Call or contact them and simply state that you are interested in buying their property.
- Building rapport with a potential seller is important, but once you have an owner on the phone, get to the point. How much are you willing to pay? That’s all the seller is really going to care about.
- Before you call, look at comparable sales in the market and use an average capitalization rate (cap rate) for similar assets. Know your numbers before you reach out to sellers.
- Be willing and able to give a reasonable price on the first call. You don’t want to call someone and throw out a low-ball offer. You are not making a full offer here but simply letting the seller know about what you will pay for an asset like theirs.
Networking
Good old-fashioned networking can be a great source of creative deals. I highly suggest that you get involved (if you aren’t already) in your local real estate clubs and meeting groups. If there are not any good groups in your area, start one.
Most of these groups will have a “haves and wants” meeting in which people can discuss deals that they have for sale and what they are looking for. This arena is a great place to find potential sellers that may have deals that they would be willing to finance for you.
When networking for creative financing deals, you must be more strategic than waiting for someone to get up in front of the group and offer you creative financing. You need to be listening for problems that could be opportunities for you. Listen to people complaining about a property that they have. Listen for clues that would indicate they are “burned out” with an investment property.
They may not be done with the real estate business in general, but they may have a headache property they would like some help with. This could be an opportunity for you to get started. I suggest listening to people in your everyday life the same way. Listen for people complaining about rental property they own. Burned out landlords tend to be vocal about it!
Build a Reputation as a Problem Solver
Building a reputation as a problem solver in your market can bring more creative financing deals to you than anything else, but this will take some time. You will need to close some deals and solve a few problems first. It’s not good enough to tell people about what you can do; you need to be able to show them.
Once you’ve done about 3-5 deals, then you need to make sure you are getting the credit you deserve. This is when you go back to your networking. Start making more appearances at your real estate clubs. Offer to get up in front of the class and discuss the deals you have done and how you did them. You will instantly be elevated to “expert” status. People will talk about you and how you did those deals.
Word will eventually get around to the sellers and agents and they will start calling. At one point, I had an agent bring me a large commercial apartment complex and suggested that I make an offer of a master lease with an option to purchase, because he knew my reputation for solving problems with creative financing. As a result, I took control of a $5,000,000 asset with only $25,000, all because of problems that I solved for other sellers in my market.
Work with Realtors
This is actually the best way to find creative financing for real estate. Work with agents in your market to find off-market deals. Sounds strange? It’s not.
You need to meet realtors in your area and build relationships with them (Know, Like, Trust). The best way to do this is to meet the agent at the property and do a tour. Don’t start a conversation with them by asking for creative financing.
Analyze the deal as if you were going to buy it with a bank loan. If the numbers don’t work, then you explain to the realtor that the numbers (cash flow) don’t work using traditional debt. Ask if they and their client would be comfortable with a creative financing offer. If the answer is yes, send in the offer. If the answer is no, then thank them for their time and move on to the next deal.
Hope these tips help! For more information like this check out my site www.realestateraw.com.
Best of luck!
Bill Ham
