-Yesterday I published a blog post about the massive changes that I’m seeing in real estate investing.  You can read part 1 of the blog post here.  Today I continue with part 2-

So in yesterday’s blog post I told you about how finding good deals on the MLS is becoming more difficult than ever before, and I also shared with you how in multiple markets I’ve been focusing on, cash buyers are coming in and OVERPAYING for properties.

This means that as real estate investors, we’re going to need to do a better job of actually FINDING the deals, because the days of cherry picking deals off of the MLS (if you were lucky enough to live in a market where that existed) are quickly coming to an end.

What This Means For You & What You Should Do About It

I’m sure you’re aware that the lifeblood of any business are LEADS.  Without new, fresh leads coming in the door, we don’t have anyone to sell our products or services to.  In real estate investing, this means a steady supply of motivated sellers.  As I wrote in my blog post yesterday, the need to find your own, private, DIRECT motivated sellers has never been more necessary.

I read a lot people (some are “Gurus”, some are in the media, some are bloggers) saying that the banks are the real motivated sellers in the current real estate market.  Now while this might be true, just because the banks are motivated, it doesn’t mean that they’re going to sell their homes at a discount.

Why is that?  Because as we’ve indicated, there are plenty of people (some are “investors” and others include hedge funds like we discussed yesterday) overpaying for property right now.  So while the bank is motivated to sell the property, if there’s a line of people waiting to buy their assets, the good deals aren’t necessarily available to you.

So What Can A Real Estate Investor Do?

I have an expression which is “I like to zig when everyone else is zagging”.  I am also a firm believer that “real estate investing is a contact sport.  The more contacts you make, the better you will do”.

That means that while the “normal” or “average” investor is combing the MLS for “deals” (a practically fruitless endeavor, because some maniac will overpay for the property based on our real world experience), being a smart investor, you’ll need to head where the other investors aren’t looking.

You need to find more sources of motivated sellers.  Based on where you live, (due to market forces and the legal system), you should consider marketing to any of the following groups or sub groups of motivated sellers:

  • Probates (because dead people don’t need houses, right?)
  • Evictions (do you think that a landlord who just went through an eviction is motivated to sell?)
  • Code Violations (what happens if your property isn’t up to code, and you don’t have the cash to do the work?  You would probably want to sell)
  • Absentee and/or out of state owners (lots of people get sick & tired or managing properties from afar)
  • Bankruptcy (depending on the stage of their BK, they might need to get rid of their property fast)

Now for the groups of people I’ve listed above, you’re going to need to do some sort of marketing to them.  The easiest and most efficient way is going to be via direct mail.

“But I Don’t Have Any Money For Marketing For Leads!”

I’m not going to lie to you: this is a tough one.  Tough because no longer can you just surf the MLS looking for deals, but rather, to make it in 2013, you’re going to have to cultivate your own leads.  So what can you do if you don’t have any extra funds to spend on direct mail?

  • Partner Up (find a local investor willing to mail to those lists, but help him cultivate the lists instead.  For example, you could get the probate leads from the local county courthouse, and do the mailers, and have your partner pay for printing & postage)
  • Network (instead of mailing to the probate, eviction and bankruptcy lists, start calling probate, eviction and bankruptcy attorneys to find out if their clients have real estate they need to liquidate)
  • Join a community of like-minded investors (Are you in a mastermind?  If not, I would strongly consider you join something like this)
  • Mine Craigslist (I really don’t like this idea, because finding deals on Craigslist is like looking for a needle in a haystack.  However, it is free, and you can find deals…just be prepared to do a LOT of looking before you even find a deal).

If any of those strategies that I’ve listed above sound scary, it’s because they require 2 things from you.  The first is to actually get up and do some hard work.  The good news about this hard work?  About 99% of your competition either isn’t smart enough, or isn’t willing to do it.  The second is that it will probably require you to step outside of your comfort zone.  You won’t be able to hide behind your computer screen and “look” for deals, but rather you’ll have to get out there and hustle.

But What Does This Have To Do With Real Estate Changing & Hedge Funds?

The old “We Buy Houses” business model isn’t dying, but it sure is on life support.  The reason is that you can forget about getting deals off of the MLS.  You need to market, make contacts, do some more marketing, and make some more contacts.  The days of blasting off thousands of offers on the MLS is over & dead.

The hedge funds have either come into your town, or they’re on their way, and they’re gobbling up everything in site.  This includes heading down to your local auction and outbidding you (or your bidding service) on nearly every deal, as I explained to you in part 1 of this blog post series.

So How Do I Beat The Hedge Funds? 

The answer is, you don’t beat ’em, you JOIN ‘EM.  That’s right.  Instead of trying to compete with the hedge funds, let them continue to overpay for deals.

So how do you join them?  Well I’m not suggesting that you go out and get a job with a hedge fund (although you certainly could).

What I am suggesting is that instead of competing with the hedge funds (which you’ll never be able to do anyway), you work with them, by SELLING your inventory of deals to them.

That’s right.  If you know the hedge funds are buying deals at near retail value, why don’t you just sell your deals to them, instead of selling to the rehabbers and fix ‘n flip guys (like me).  We like to buy at 60-70 cents on the dollar.  I’ve already found hedge funds willing to pay 99 cents on the dollar.

So How The Heck Do I Flip A Deal To A Hedge Fund?

It’s actually not that difficult.  However this blog post has run so long, that I’m going to write a “Part III” talking about flipping deals to hedge funds.  I’ll post that tomorrow, but in the meantime, if you’re serious about selling to hedge funds, PLEASE watch this important video presentation here.

After you watch it, keep your eyes on an email from me with part 3 of the blog post.  In the meantime, enjoy this video which will give you some extra insight.

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