Sourcing Real Estate Deals

John, Ryan, and Ben discuss deal sourcing basics and the range of options for finding deals. John and Ryan debate the merits and drawbacks of various deal sourcing techniques to find dynamite real estate deals in a competitive market.

 

(Transcript below.)

 

Ep. 4 - Sourcing Real Estate Deals - Transcript

Ben Shelley: [00:00:07] Welcome to the Brick x Brick Podcast where we take you from the ground up on all things real estate. I'm your host Ben Shelley. We are fortunate to have Ryan and John back with us today. The focus of this episode is another common investor question. Where do I begin to source deals for my own real estate investments? For this discussion our focus will be on different ways you can source your deals as well as strategies on where you can start your search on your way to finding diamonds in the rough. Gentlemen let's jump right into it. John why don't we start with you.

 

John Errico: [00:00:39] Yeah it's a great topic and it's a great question. I think from a very high level deal sourcing for real estate investing is sort of the lifeblood of investing. And I think even as we discussed in a previous podcast the really good wholesalers which are the class of people that we'll talk about that find deals will often go on to be investors because it's such an important facet of finding deals. But very broadly so when I first started getting involved in real estate investing the most obvious place to look for deals is sort of where everyone would go to turn to for buying a house which is a real estate agent. So a real estate agent will have access to something called the MLS which is the multiple listing service. There are actually many multiple listing services in any geographic area in any given house might not be listed on all of them for that area. I think in North Jersey alone there are at least three that I'm aware of possibly more.

 

John Errico: [00:01:33] And so the the MLS is a database that is controlled by realtors. And when someone is selling a house and use a realtor they will put that house, the realtor will put that house on to the database the MLS and then you as a buyer either as a buyer for your own living purposes or as an investor will have access to the MLS through your realtor. You'll see all the properties that are available. So the first house that I bought was off of the MLS and I think for some real estate investors using the MLS to source deals has like a bad name because they think oh it's just very overpriced or it's you know quote unquote market price because it's on the MLS. But you know four or five years ago in northern New Jersey you know we're talking like 2013esque when the real estate market was still quite poor you could literally throw a dart on the MLS and find an amazing great deal and that's how I found my first deal which is still proudly one of the best deals I've ever found. So the MLS is something that I still consult.

 

John Errico: [00:02:35] I still look at it for deal sourcing and finding deals but there are more and many many many more ways to find. I'll let Ryan chime in because he's perhaps much more so than me and much more creative about finding has been much more creative.

 

Ryan Goldfarb: [00:02:50] Yes I'll start by saying that while I try to avoid the MLS at all costs nowadays my first few deals I did procure from the MLS. Nowadays I tend to use the MLS more so as a data source than as a source of deals. More recently I have been sourcing from a variety of other channels. One of which it has been from wholesalers as John alluded to earlier. I've also I've also found some deals through SEO which is search engine optimization that is organic. SEO is the means by which a site like Google ranks websites, ranks results based on certain keyword searches. So for SEO I have targeted specific keywords to generate what should be a targeted seller profile to drive traffic to the website to ultimately lead someone to reach out to me as a potential buyer for their distressed property. Similarly there's also what is called pay-per-click which is generally abbreviated as PPC. That's what you see. Those are the page search results that you see on platforms like Google, Bing, Facebook and those are sponsored listings that investors, business owners, what have you will essentially bid up to get their name in front of you as the search, you as the seller or the target customer. So I've I've had some degree of success sourcing deals via SEO and by pay-per-click. Those are the main. Those are the main channels online. I know other people also have leveraged social media like Instagram for deal sourcing as well though I would argue that's a little bit tougher in the real estate space than it is for let's say a consumer facing business.

 

John Errico: [00:04:47] So I think to clarify you actually just said that people understand what SEO and pay-per-click means in this context. Ryan actually operates a Web site that is not necessarily affiliated with doesn't say like Ryan Goldfarb on it but it's a Web site that he runs. And I think you use a company right to help you run - InvestorCarrot, right?

 

Ryan Goldfarb: [00:05:07] So they are one of several options in the space. They have templates for... They have templates for Web sites that are tailored specifically to real estate investors. So it comes with content packs and it comes with templates that are already specifically tailored to this use. So it's somewhat of a plug and play option though it does require some degree of refinement especially in areas where you're facing a lot of competition.

 

Ben Shelley: [00:05:31] So before we jump in because I think the listeners would benefit a lot from hearing some specific examples from you guys on how you've used these methods to secure net positive deals in the marketplace. But I just want to clarify just sort of separating the three things that you guys just talked about. So when you talk about purchasing or finding a deal sourcing a deal via the MLS you're really talking about using a broker and their access to the MLS to secure the deal. When you're talking about a wholesale purchase you're talking about really not needing necessarily to use a broker though there are wholesale agents in order to secure a property, usually I would say at a discount to market. And then when you talk about SEO optimization you're talking about using a Web site and keying in on sort of key search terms to allow for search engines to move your listings or your site up the ladder when people are doing generic searches to click on you and bring deals to you as the investor is that generally correct?

 

John Errico: [00:06:27] Yeah. And I think that you bring up an important dichotomy between agents and kind of deal originators. So there is as you mentioned there's a class of real estate agents and those people normally get deals from the MLS but they could have found deals from other places. There's also a class of wholesalers which are also functionally agents, though they are not maybe regulated as that way but they also originate deals through whatever means that we're talking about. And one of the ways that they could originate deals is by their own SEO or pay-per-click both real estate agents and wholesalers take advantage of that. So there's the sort of agency class which is brokers and wholesalers and then there's like the originating class which is as Ryan said before pay-per-click, SEO optimization than other techniques that we can that maybe Ryan can allude on to.

 

Ryan Goldfarb: [00:07:13] And then separately from all that there are some other ancillary means of sourcing deals just off the bat leveraging your own network. If you know people who are willing to sell or are interested in selling or if you know people who know people who are looking to sell that can be a great way to find deals. We actually had a deal come through recently that came through someone who we know who noticed that their neighbor had been cleaning out the house and presumably prepping it for sale turned out it had been in an estate somebody had passed recently they were cleaning it out and getting ready to list it and we were able to swoop in and buy it before it hit the market. In addition to that there are Sheriff auctions or sheriff's sales, property auctions. They have different terms in different states based on the means of foreclosure but that those are broadly speaking classified as foreclosure auctions. We've also dabbled in the tax lien space and we've obtained property through tax lien foreclosure more recently that's a little bit more of a niche product but nonetheless that is a that is a way to procure deals. There are also valuable relationships you can cultivate with attorneys whether they are bankruptcy attorneys or foreclosure attorneys or estate attorneys all of which can...

 

John Errico: [00:08:33] Divorce attorneys.

 

Ryan Goldfarb: [00:08:34] Divorce attorneys... [banter]... All of which can be a good gateway to real estate opportunities so you can get creative with this. I mean there are plenty of options outside of what we discussed just now. But the key is finding and sourcing deals in ways that the masses probably are not.

 

Ben Shelley: [00:08:57] So maybe to to sort of help this come alive for listeners particularly those who are looking to become investors and are still asking themselves the fundamental questions about how they want to go about sourcing their deals. We've just given them a lot of helpful context here. But you both said that the first deal you guys closed was through the MLS. So can you talk about in context why was it that you went in that direction first based on maybe where your the amount of capital resource you had on hand at the time. And how is your network grown from there. From a deal sourcing perspective.

 

John Errico: [00:09:28] Yes. So the reason why I went to the MLS initially was because I didn't know any other information at the time. And I had a real estate agent that was that I still trust and is great and was very helpful had access to the MLS and she would feed us listings and say oh this is great. At the time this is I bought my first place in 2013 2014 essentially the market. There were so many foreclosures that were working their way through the system and many of them were appearing on the MLS that as I said before it was really like you could throw a dart and you could find a great deal. The second deal that I found was actually a for sale by owner deal. So that would be kind of like a like an originating process. I ultimately went through my agent but my then girlfriend now wife were walking down the street and we saw a For Sale sign in a house and we called up the number and it turned out that they were didn't have an agent at the time but were wanted to sell it. And so I went to my realtor and said hey can we set this up and I think she ultimately probably made some nice commissions from that but I did a few more deals in the MLS as well just because again it was so easy to find stuff. The numbers made so much sense and then you know I too as Ryan alluded to before I've I've bought things from sheriff's sales which are foreclosure auctions. I we both have tried this originating tactic which is talked about extensively in places like BiggerPockets which is direct mail and cold calling and you know door to door sale I've never actually done door to door or cold calling but I've certainly tried we both have tried and have had varying success with direct mail and direct mail is essentially going to a company that will print letters for you based on your search criteria and there are a bunch of them companies that provide you with data and then we'll actually do the printing on the mailing. But it's literally finding people that meet some criteria maybe they're older maybe they don't have a mortgage or have a big balance on a mortgage or live in a different state and saying hey I want to buy your house. I'm an investor. Anyone who owns a house is probably seen these. They're also the same type of people that do bandit signs which are signs that say you know I buy your house for money or for cash and a condition called this number. So I've tried that a little bit I've actually never purchased a property from I don't know if you have room I actually bought a property from that.... From your own direct mail?

 

Ryan Goldfarb: [00:11:49] Yeah we have actually bought, I think, it has been just one. And we were close on a second one that deal fell apart but actually our first rental property that we still have to this day that was purchased by direct mail.

 

Ben Shelley: [00:12:02] Well I think it's interesting too because what you realize I think a lot of people they almost think cold calling direct mail those kinds of methods are almost old news. They think oh you know maybe it worked in a bygone age but it can't possibly work for me now and you realize when you actually do it you pick up the phone and you make those calls and you send out direct mail, yeah, may be out of a thousand calls nine hundred ninety seven people tell you to go you know what yourself but that three that one two or three deals you could get out of it could be quite substantial so Ryan I'd love to hear from you sort of your origin story how you sort of went through the deal sourcing process.

 

Ryan Goldfarb: [00:12:35] So similar to John I bought my first two deals off the MLS and again similar to John it was mostly because I just didn't know any better. And it was the path of least resistance. Since then I have experimented with direct mail. I've cultivated relationships with wholesalers. I've attended sheriff auctions but have not purchased through their sheriff auctions. I have received referrals through my network for people who know of potential deals that have ultimately panned out. I have chased plenty of leads that did not work out. I bought a portfolio of tax liens and a number of the liens ended up being ripe for foreclosure and there didn't seem to be a redemption coming anytime soon and that seemed like the most logical course of action to protect our own interests. So we ended up I think at this point we've gotten eight properties back through tax lien foreclosure. And the online route I've now purchased a few properties through either pay-per-click or SEO marketing. And all of these, all of these have been validated enough in my own mind that I see them as a viable path towards sourcing deals in the future. But each of them come with certain drawbacks. Each of them have certain benefits one of which I one of which Ben alluded to earlier when you're sending out direct mail or your cold calling you get plenty of rejection and you get plenty of plenty of angry rejection from people who feel like you are overstepping boundaries by reaching out to them in somewhat of an unsolicited fashion. Conversely one of the things I like about marketing online is most people are seeking you out as opposed to you seeking them out. So there tends to be a little bit better of a tone to the conversation and people tend to be a little bit more amiable towards working something out because they're a little bit more motivated and if they've gotten to you they've gotten to you on their own accord and they're a little bit more cordial.

 

Ben Shelley: [00:14:44] So now getting a better sense of both of your individual organic paths through various deals sourcing methods what would you guys say is the best path forward for both a beginning investor, a mid-level investor, a high end investor and do you see a difference between these different methods that you guys have talked about?

 

Ryan Goldfarb: [00:15:05] Well I've definitely noticed a difference in the various channels towards deal sourcing. Having said that I don't think there is a way to break it down that works best for a beginning investor, a mid-level investor, and a more sophisticated investor. I think the goal of every investor should be to source deals off market and to source the best kind of deals you can find whether that's online whether its share of auction whether it's through your network. I think that should be every investor's goal and the reason for that is not that you can't find good deals on the MLS but what I've found and maybe John feels differently about this is that the good deals on the MLS are in front of so many investors that whatever margin there was or whatever price it was listed at that made it a good deal in the first place is quickly quickly vanishes because it gets bid up by the plethora of investors whose plate it comes across. So, there's an element of time associated with all of this. If if I have to look at 10 or 20 quote unquote good deals on the MLS to actually land one then that's not the best use of my time and that's not the ideal deal sourcing channel for me. So I prefer these other methods specifically online, direct mail, networking with wholesalers who I have established a relationship with and who don't function in a manner akin to the MLS with thousands of eyes on every one of their deals. And the main reason for this is I like control and I like knowing that I'm in the driver's seat. I prefer the channels where I'm not competing with investor A, investor B, and investor C where I'm not wasting my time kicking spinning the wheels and trying to find trying to make a deal work that I may not ultimately land at the end of the day anyway.

 

Ben Shelley: [00:17:06] And just as an example of the way they know that you leverage your people network through the increased level of deal sourcing that you've maintained over the course of your career I know you have a wholesale broker who you work with for example who himself John alluded to this as well who himself uses SEO systems to bring in deals and oftentimes funnels that to you because he knows you're an active qualified buyer and it's just an example I think of how all this can maybe be tied together as well. John your closing thoughts.

 

John Errico: [00:17:32] I think Ryan brings up a great point and a major observation that I have had is when I first started with real estate investing I think I felt maybe that I was almost too good to do some of the things that are involved in finding deals. So I thought of myself as well. Once I find the deal I can do all the stuff related to the deal but I want to be the guy sending out you know emails or cold calls or direct mail whatever or I don't want to deal with wholesalers because generally the class of wholesalers frankly is humungous. It is a huge variation so there are some wholesalers that are great and there a lot of wholesalers that have no idea where they're doing that will just literally find deals on the MLS and say I'm wholesaling to you for five thousand dollars more than what you could just find on the MLS. So if you're going to be a serious real estate investor particularly in the residential sector which is what we invest in it is really important to take the time to learn how to source and find deals whether it be you go to a broker class like an agent or a wholesaler or you yourself find the sorts of deals that that class identifies like Ryan said direct mail, SEO, sheriff's sales, relationships, for sale by owner whatever it is it's very important to learn those skills because those as I said I think when the very first things we were talking about is that finding deals is the lifeblood of your investment and if you want to really succeed it's important to either control that or know how it's done.

 

Ben Shelley: [00:19:00] Guys I know I appreciate this. I know our listeners appreciate this and thank you for your time and your expertise as always.

 

Ben Shelley: [00:19:16] And thank you for listening to the Brick x Brick Podcast where we take you from the ground up on all things real estate. We will continue to bring you the best and brightest the real estate world has to offer as we leave no stone unturned in helping you the everyday investor. Thanks for listening.