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Many beginning investors are intrigued by the idea of sourcing off-market deals directly from Sellers, but they ask: “isn’t it a lot more work to go out and find—and then negotiate—all your own deals? Isn’t it easier just to work with a Realtor and have them do all the work?” It’s a valid question, and deserves a thoughtful answer. In this episode, Jeff discusses the differences finding properties the traditional way through the MLS, and marketing for your own leads off-market. Ultimately, you’ll see that sourcing your own off-market leads is not more work; in fact, it’s less work overall and results in much better deals.
Episode Transcript
When I talk to newer investors about how they find the properties that they want to buy, I bring up the idea of off market marketing. And many of them think it sounds great, but the number one objection I hear is, “Wow, that sounds like a lot of work and like it would take a lot of time.” So in today’s episode, we’re going to dive in and we’re going to dissect this exact question is going direct to sellers buying off market properties, and sourcing your own deals. Is it more work? Isn’t it easier just to look at listed properties? We’re going to pull this apart, take a look and you’re going to find out the answer. So let’s cue up the theme song. We’ll jump right into it.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs or just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented dealmakers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from a Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your blog. Now let’s go rack up a rental portfolio.
Thank you so much for joining me for another episode of racking up rentals. This is Episode 56, which means show notes for today’s episode can be found at www.thoughtfulre.com/e56. Please do yourself a big favor and do us a big favor as well by hitting the subscribe button in your podcast app right now. Just takes a second. And it makes sure that you won’t miss an episode and also sends a message back to the podcast platforms that this is a show people like and it helps them want to share it with other thoughtful real estate entrepreneurs like us honored with today’s episode.
So in today’s episode, we’re going to talk about this question, man going off market to sellers. It sounds fine. It sounds great. But also sounds like a lot of work. Isn’t it more work? So before we address that question exactly, I want to provide two clarifications. The first clarification is that we are assuming in this conversation that you want to buy long term hold rental properties. For the most part, maybe you occasionally want to turn one of those into a flip or maybe wholesale something here there. But primarily you’re looking for long term holds. And as a result, you’re not trying to do 27 deals a month where you’re going to get a $5,000 wholesale assignment fee each month, we’re looking for deals that we can put in our portfolio to build long term wealth. So our approach or this whole conversation is about quality deals over quantity of smaller deals, we’re trying to build long term wealth, not just build a short income in the in the meantime, the second thing that we are assuming here in this conversation is that we’re talking about thoughtful marketing, to off market sellers, not cheesy and sleazy kinds of things. We’re not talking about blasting out postcards with offer numbers printed on them on yellow highlighter or colored paper with a We Buy Houses message that we’re not talking about any of that we’re talking about our thoughtful real estate entrepreneur approach to marketing, which is primarily based on thoughtful direct mail, sending regular letters from regular people, that’s us to regular people, the owners, not distressed sellers and all that. Okay, so we’re talking about quality instead of just trying to churn out a whole huge number of deals, and we’re talking about thoughtful marketing. So in that context, people look at that and they go, okay, that feels good, that feels right. But it also seems like a lot more work. Isn’t it easier for me to just have my realtor do all the work? I’m not even paying them. For this, the seller is gonna pay their commission if we find a deal. And boy, this all sounds like a lot of work. So let’s let’s dive into that.
First, I want to just dissect, where does that belief come from that going direct to sellers is going to be more work than looking at listed properties. And I think there are kind of four things. The first one is just simply the learning curve. You know, real estate investing, has a big learning curve to begin with, forgetting about marketing or anything like that. Simply learning how to analyze a property and to evaluate whether it’s the right fit to try to figure out what the offer should be what the repairs should be. How are you gonna get the repairs done? What’s it gonna rent for after that? What’s the pro forma gonna be like after that? How do I even get a loan for this? That whole thing is a big learning curve in and of itself. And I feel like people are frankly probably just a little bit weary after kind of going through the process of trying to learn all of that stuff, too. Now, the idea of needing to learn marketing is like, oh, boy, that’s another learning curve to do. So I think that’s one of the objections.
The second objection is what if that’s the first one is a learning curve; I’d call the second one a comfort curve. So now you’re telling me we have to learn to buy properties do face to face negotiation? Well, that sounds scary, you know, and people will say, I have it, I just I don’t know enough to do that, or these sellers won’t take me seriously, they’ll see that they’ll see right through me, they’ll see this is my first deal. So those are limiting beliefs about the idea of comfort. And I think that that’s one of the big walls, people threw up about not wanting to do this. But as we’re gonna see, as we discuss this, these are learning curves and comfort curves worth growing through. The third thing is, I think, just simply a time objection, people say I don’t have the time to ramp up my own marketing program, I don’t have the time to figure it out and to execute it. And I’m sure as heck not going to get up an hour earlier so that I can, you know, lick envelopes and address letters and stuff like that. And the last one is the money objection, because doing your own marketing does cost money, right. And as we said earlier, well, I can I just have my realtor do it all. For me, I don’t have to pay them at all. So I think those are the areas of concern that people have. But let’s actually kind of take a look at comparing and contrasting what the normal path looks like buying listed properties and getting bank loans and all that, versus what the off-market path looks like. And what we’re going to find here is that it’s really easy to want to compare those two things. But they’re actually very difficult to compare, because they are actually totally different games. So let’s take a look at the normal path in the short term.
Over the course of a week, or two weeks or a month, what does the normal path look like? Well, first of all, you are keeping your eyes and ears and all your senses on everything that is in the market, existing and everything new that comes into the market that’s even remotely in the strike zone of what you might want to buy, right. So maybe you’ve got your realtor who’s filtered out, you know, million-dollar homes and commercial buildings and bare land and stuff like that. But you’re looking at a lot of things, you have to keep your eyes on a lot of different things. And that means then that anytime any one of those many things seem to make any semblance of sense perhaps at all, you are running the numbers on those you are doing an analysis. So now you’re looking at 50 property listings for 50 properties a week. And now you’re running numbers on 25 different things a week. That takes a lot of time. Now you are making lots of offers. But you’re not really making lots of offers your realtor is writing up your offers over and over and over again. And you know, in the back of your mind, you’re thinking, “Boy, how much longer are they going to be willing to do this? We have written 25 offers. So far, we haven’t got a single one.” Why are they going to keep doing this and you’re kind of worried like, you’re going to burn them out. And you’re going to need to find somebody else. So you’re making lots of offers. And you might get say one out of like maybe 20 or 30 of those offers accepted. So you’re playing a volume game, you’re looking at a volume of things, you are analyzing a volume of things you are making a volume of offer. And you’re saying to yourself, “Hey, it’s a numbers game. If I make enough offers, I’ll get one accepted. And that’s all that matters.” And you might be worried that you’re burning out your realtor. And you’re gonna have to find somebody else who’s willing to write your offers that go nowhere over and over and over again each week. But that’s what the normal path kind of looks like. And if you’re doing the normal path, you know that that is indeed the case, especially in a time like right now where it is now it has been for a long-time kind of a mark market of limited supply and has been more of a seller’s market than a buyers’ market. But let’s compare now, what the short term of off market deal sourcing looks like. And as I mentioned, it’s completely different. It’s a totally different set of activities with a totally different approach.
The first thing you’re going to do is you’re going to need to plan your marketing. You’re going to have to decide which marketing channels you want to use right. And as I’ve mentioned, and as you know, we use thoughtful direct mail and our approach within the thoughtful real estate entrepreneur community. But you still need to plan it out, you need to figure out, who am I going to market to? Who am I going to get the list from? How am I going to prepare that list? And are the letters going to get created, and how are they going to get printed and assembled into the mail. So first, you’re planning and then secondly, you’re spending energy executing. Now, you might not personally be licking all the envelopes and addressing them all yourself, you might get some help with that. And so thus, you actually might be spending some money. If you’re sending letters, even if you’re doing all of the labor yourself, you’re still giving the Postal Service about 50 cents per letter that you send out. So there is a cost there as well. And then your phone starts to ring. So now you are spending some time investing in relationships and trying to build rapport with people. And of course, not all those relationships are going to turn into deals, but what you do find is that of the people who call you a pretty good percentage of those people turn into meaningful conversations. And from those meaningful conversations, a pretty good percentage of those people turn into proposal opportunities. And instead of buying or putting in contract, one of 20, or 30 offers that you’ve made with the traditional approach.
Now you are putting in contract one to two out of five proposals that you make. So you’re not playing a volume game, you’re playing a quality game, you’re playing a depth of relationship game. And in fact, you’re not even writing up offers until you’ve already got kind of a verbal and handshake type of agreement in principle to what you are going to be writing up with this particular seller. So we have two very different approaches, look at everything, run the numbers a million times, make a lot of offers, play the numbers game and hope to get one accepted. Or we can play the off-market game, which is about spending a lot more energy with your planning and your execution of your own marketing program, spending some money to do it. But knowing that every time that phone rings, that that is a much higher likelihood of putting a deal together. And as we’re going to talk about in a second, a much higher likelihood of putting, frankly, a better deal together in long term. So those are the short-term perspectives on the normal path versus the off-market path. But let’s take a second, before we get off this topic and think about the long-term benefits or the long-term perspective of doing your deals off market versus doing your deals on market.
If we take a long term perspective to this question, and we don’t just say, Well, what is it going to be like in the next two weeks if I do off market marketing versus listed properties and think about it short term like that, if we take the long perspective, and we say over the course of five years, 10 years, 20 years? How much work is it going to be to do our own off market marketing and deal sourcing, rather than continuing to buy properties through the traditional channels and play the volume game over that same long term. And I would tell you, that when you do your off-market deal acquisition, in the short term, you have one experience, but over the long term, you’ll find that it is much, much less work. And not only is it much less work, frankly, you are going to put better deals together. Now you might say why are they better deals? I mean, aren’t all deals? I mean, if I negotiate them correctly, aren’t all deals the same deals? And the answer is no. And I want to highlight here two fallacies that I hear and experience with people all the time.
The first fallacy is about lead generation. And the first fallacy says it doesn’t matter how you get a lead, as long as you get the leads. All these leads are the same because all the properties are the same. It’s like saying, if you end up with a sheet of paper in front of you that’s got 10 addresses and 10 sellers names on it. It doesn’t matter what means those arrived on your piece of paper because that doesn’t impact the leads themselves. However you can get those 10 leads is fine. And it is easy to understand why people might think that from a common-sense perspective, but frankly, it is not true. The way that you generate the lead will have a huge impact on the type of conversation and the type of negotiating dynamic that you have later. If you’ve got your 10 leads on a sheet of paper, and three of them came from bandit signs to came from some sleazy direct mail thing too came from personal referrals. And then the rest came from some other channel, all of those are going to have very different dynamics because of the context of the way that you generated the lead.
The second fallacy that I hear a lot also is kind of similar. But it says, however you get this property into your portfolio, it doesn’t matter. Once it’s in your portfolio, that’s all that matters, how you get it into your portfolio is irrelevant. And I would also tell you that that, too, while maybe seeming like a common sense, thought, is also not true. And this comes back to the long-term benefits of doing your deals off market. When you do your deals off market, you get to see the seller, the situation, the context and everything firsthand. in HD resolution, you’re not seeing a fuzzy picture as Translated by a realtor as Translated by another realtor that originally came from the seller, you are seeing the reality of the situation and this person, and who they are and what they care about and what they think and what matters to them and everything else about them first hand. And what that means for you is that you will be able to craft a deal that is far more tailored to both of your needs than you could ever possibly craft, when you are doing deals at arm’s length through realtors. And when you can tailor those deals more to that person’s needs, that can create much, much better long-term benefits for you. Let me give you an example of a visual that’s in my mind all the time.
If you’ve ever been to or at least seen in a photo, or in a movie, or a TV show, a sound studio where somebody goes to record music, for instance. And the person who they hire to do the recording and to do the mixing is sitting in front of a soundboard that has got about a million little knobs and dials and sliders on them. And you look at that and you go oh my gosh, how does that person keep track of what all those things are and what they do. But to them, there’s an art in making fine adjustments and fine tunings to each of those little knobs, little sliders, etc. So if you are sitting in front of your seller, and you’ve been getting to know them over time, there are little ways that you might be able to adjust these knobs in in a way that works for them, but also makes things far better for you. Let me just give you a very simple example. If you have a proposal out to a seller and you’re talking about it with them, you’re getting their feedback.
And they tell you that there’s one element of the proposal that could be a little bit better in their minds. You know, for instance, I will give you an example from my own business from yesterday, I sat in front of the seller and his wife yesterday, and I made a proposal to them to buy their duplex. And they wanted to do seller financing. And so my proposal, of course, included seller financing, but in my market, when you look at the ratio of rents to purchase prices, it’s difficult to create much cash flow. And so as a result, I made my proposal to include interest only payments to that seller, because at the end of the day, at the end of the month, rather, there just isn’t enough cash flow to be making larger payments. But there are other reasons why I really want to buy this property.
And so as I spoke with the seller about that they asked a couple questions about if the payments could also have some principal in them. And I told them, yes, it’s very possible that we could change the payment structure here. So that there are is some amortization, and there’s some principal included in each payment. However, I said at the at the end of the month, there’s only so much net operating income that’s coming off of this property. So there’s a maximum there’s a ceiling on how much debt service I can have on a monthly basis here. So what that means is that if you would like to include some principle, I’d be happy to discuss that and play with these different numbers or in my visual to play with the dials on the mixing board. But that probably means that that the interest rate might have to change a little bit that down payment might have to change a little bit, because we have a finite amount of noi at the end of the month from which this payment can come. So that might mean adjusting the interest rate down a little bit for instance, to make room for some principle.
Now we, in my real-life scenario, have not finished that conversation. And they have not decided for sure whether that’s something that they want or not. But the idea is that they were feeling like maybe this one dial could be a little bit better from their perspective. And so I say, Sure, I’d be happy to adjust that dial for you. And in order to do that, then I just need to adjust this other dial for me to just make that even feasible. If we decide to do that. Now, let’s say maybe I’ve gone from a 4% interest only interest rate down to a three and a half percent interest rate, so that I can pay them principal each month, that’s a win by their standards of what a win is. And it’s a win by my standards of what a win is, as well, because now my interest rate is going down, and I’ll be chipping away at the principal each month. But it’s only through this off market context, this off market situation, a face to face, meeting at their kitchen table, that we even have the ability to take a look at all of the little dials on the board, figure out how we can tweak those dials in a way that will serve us both, including me really serve me better over the long run, as well, but also serve them better over the long run as well. So here’s the thought that I want to leave you with on this whole topic.
It actually is very difficult to compare buying properties on the market versus buying properties off the market. It’s easy to look at that and say oh, that’s just two variations on the same game. But it’s not two variations on the same game, it’s actually two completely different game, it’s two completely different ways of creating those leads, it’s two completely different negotiation processes. It’s almost even two completely different definitions of what the word negotiation means. And it is very much two entirely different outcomes, both in the short term and the long term. I want to point out and connect to something that I’ve talked about before on this podcast is that there’s a difference between being a real estate investor and being a real estate entrepreneur, a real estate investor gathers resources and then they find a vehicle into which they can place those resources. Real Estate entrepreneur, on the other hand, goes out into the world and creates opportunity, and then assembles the resources needed to capitalize on that opportunity. In other words, an investor has a confidence in their resources, an entrepreneur has a competence in their resourcefulness. And when you are doing off market marketing, you are definitely stepping far more into the category of being a real estate entrepreneur instead of a real estate investor. An investor is usually content to just look at the vehicles that are available on the market because they’re not really worried about creating more opportunity creating more value there. They’re just looking for something to place their resources into but if you were a real estate entrepreneur, creating new value that did not exist in the world before new opportunity, then off market marketing is going to be like moving from watching fuzzy black and white over the TV over the air television signal to watching color high definition video.
That is a wrap for today’s episode of Racking Up Rentals. So again, show notes are at www.thoughtfulre.com/e56. Please do us a big favor by hit that subscribe button we’d so appreciate that. And if you could take just a second to rate and review the show, that also would mean the world to me.
Did you know that we have a group on Facebook for thoughtful real estate entrepreneurs as well? We do. It’s called Rental Portfolio Wealth Builders. And we would love to have you join us there. You can either search Rental Portfolio Wealth Builders or easier just type group.thoughtfulre.com into your browser and it’ll redirect you right there and you can hit that Join button. If you liked this episode, and I hope you did, please do take a screenshot of it, post that screenshot to Instagram and tag us @thoughtfulrealesate on Instagram. I will see you in the next episode.
Until then this is Jeff from the Thoughtful Real Estate Entrepreneur signing off. Thanks for listening to Racking Up Rentals where we build long term wealth by being a win-win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the process.
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