Finding and training the right agent can take your house flipping business to an entire new level! And today we’re going to teach you how its done!
As I mentioned in my first post, there are many ways to go about purchasing a potential flip property.
In this post I’m going to teach you how you can start working with Real Estate Agents so that you will have access to, and be able to buy, more houses to eventually flip. (And if you end up buying more houses than you can handle, you know who to call. 😉 ).
The reason I wanted to start by teaching you how you can work with Real Estate Agents to buy houses, is because I think it will be the quickest way for you to get your feet wet and something you can start taking action on right away. Plus it costs little to no money!
Through this method you can leverage the knowledge and abilities of someone else as you continue to learn how to analyze deals and become familiar with your “farm area”. Then as you begin to integrate direct marketing to sellers, you will have a better idea of what you are doing and you can be more effective with your marketing budget.
Plus, you will then have developed a great relationship with an agent who will be a part of your “power team” (more on this later) and whose opinion you trust. Anytime you have a question about a certain area or property you can contact them.
Without a doubt, this will come in handy when you are contacted about a house and need to make a quick decision. Having that additional guidance to help you come up with your ARV and calculate your offer can be invaluable when you are in a “crunch” situation!
How to find a good Real Estate Agent
I intentionally put “good” instead of “great” because the honest truth is, if you start looking for the top agent in a given market, chances are they are going to be so busy working with other clients, they can’t give you the time and attention you need when first getting started. On the other hand, the last thing you want to do is start out by working with Uncle Phil, who just became a realtor last week and has no idea what he is doing!You will want a good, solid agent who knows your target farm area very well, knows how to use the MLS to “comp” properties, and has some experience working with investors.
Before long your “good” agent will become “great” through the relationship you have developed as you learn and grow together. In fact, with time, you and your agent may become top producers in your given area. It’s happened more than once with our agents and it can happen for you as well.
However, for now it is crucial that you do not rely on your agent 100% for investment advice. They might be able to tell you about a certain area, but don’t buy a property for $X just because they tell you to buy it for that price. You need to know how to analyze these properties yourself!
I can’t tell you how many times an agent has told us we should pay $X for a property. If we had listened to them, we most likely would have lost a lot of money on those deals. If you haven’t read my post about evaluating deals and making offers, then be sure to read and study it carefully. In fact, go ahead and share it with your agent to make sure you are on the same page.
I assure you that, although it might seem otherwise, 99% of agents do not understand how to properly analyze a deal that will ensure a profit (and honestly, they have nothing to lose by you buying a house for the wrong price) so be sure you know your numbers!
Okay. Now that we have this disclaimer out of the way, let’s get back on track!
Where to find an agent?
There are a lot of places you can find a good real estate agent. You can start out by simply Googling “real estate agents” or “Realtor” with the name of your area. If you go to Zillow’s website they always have some on there too.Another way is to drive through your desired farm area and look for “for sale” signs. This is a fine way to at least know that the agent is active and has a good idea of the current market conditions. In fact, a great way to spark up a conversation would be to ask them about the house they have for sale when you call.
If you see a brokerage or real estate office in your farm area there is a good chance the realtors and agents in that office work in that area as well.
When calling a brokerage, be sure to ask to speak to agents who are:
- currently active in listing and selling properties,
- have at least a couple years of experience,
- work in your farm area,
- and can assist you in making offers on investment properties.
One final way to find agents is by attending your local REIA (Real Estate Investment Association) or Real Estate Investment Club. (If you don’t know where your local club meets, check into it. This is one of the very first things you should look into when starting your house flipping journey!)
There are always real estate agents at these meetings that are looking to work with investors. And the great thing about working with these agents is that they usually have a better understanding of investing and may be easier to work with in that regard.
At the end of the day keep in mind that, even if you don’t find your “rock star” agent right off the bat, you can always look for someone else down the road. It isn’t like you are hiring a full-time employee. If they help you make a few offers but don’t really work out you can easily contact someone else. You haven’t lost a lot of time in training or overhead costs. In fact, it will probably help you have a better understanding of what to look for in the future.
Educating your agent
So, now that you have found an agent to work with the next step is to make sure they understand what you are looking for.
Be very careful not to come up with a retail value for your property just by asking your agent what it is worth! If they do not understand real estate investing they will most likely just pull a standard CMA (Comparable Market Analysis) and get an average of all the listed, pending and sold properties in a given area and give that to you as an answer. This will not help you at all!
You need to make sure they understand the difference between “distressed” or wholesale value and “retail” or rehabbed value, also known as ARV (After Repaired Value). Otherwise your formula will not work because you are working with the wrong numbers from the get-go.
Again, point them to the post on this site related to evaluating properties for profit. This will help them understand where you are coming from and what you are looking for.
Making offers with an agent
Now that your agent understands what you’re looking for and can help you find potential investment properties, it is time to start making some offers!
Ask them to send you a handful of distressed properties in need of some work or upgrades. Just get a few to start.
Start with the first property and ask them what they think it will sell for once it has been fully repaired, upgraded and in “turn key” condition. Have them show you the comps they used to come up with that value to ensure they are truly retail comps, comparable to your subject property both in size, age and location.
Then plug in your formula of (ARV x 70%) – Repairs (from this post) to come up with your offer price. Once you’ve done that it’s time to make your first offer!
Your agent will be able to help you with this. They will probably use the standard Realtor contract for your area and will tell you what information they need. Things like the name or entity you will be using for your offer, how you will be financing the property and how many days you intend to take to close.
When you are first getting started I recommend doing a 21 day close. This is a shorter than the standard 30 – 45 days, which will help give you an advantage, but it still gives you plenty of time to get your ducks in a row in case your offer is accepted.
They may also want to know about other contingencies, such as an inspection period. In California (and I believe other states as well) a standard inspection period is 17 days, but you might want to make this 10 days to give you a slight advantage (but still have enough time to do some due diligence on the property).
There will be other contingencies such as financing, appraisals, etc., which you can either waive or keep the standard agreement as is. You may consider removing them down the road as you gain more experience and confidence. Your agent can also give you some advice in this area.
Show me the money?
Two more items you will probably need when making offers on homes listed on the MLS are the EMD (Earnest Money Deposit) and POF (Proof of Funds) or a loan pre-qualification letter.
These two items are probably the main hang-ups for new investors looking to start working with agents and make offers on MLS listed properties.
The first one is an easy fix. An EMD is really just a copy of a check written out to the escrow company. In fact, you don’t even need to give it to anyone when you make your offer. You just need to give them a copy of it!
Now, keep in mind that several things would have to happen for you to lose that deposit.
First, you would actually have to get your offer accepted before they even ask for the money. Lucky you! 😉Then you usually have a day or two before you have to send it over, and you also still have your inspection period. Usually if something doesn’t work out sellers will just release your deposit back so they avoid dealing with any hassles.
Now, I said “usually” (thereby releasing myself from any liability 😉 ) because there is a chance that you may go past your inspection and contingency period and they will keep your deposit. Just be sure to make your final decisions before the inspection period!
Not to go off on a tangent here, but I want to make sure you understand that I’m not telling you to go out and make random offers. Make sure to know your numbers and have a pretty accurate offer from the start.
I know that one of the main reasons people do not take action in this business is FEAR, and I don’t want the fear of losing your deposit to get in your way of making offers, so my hope is that understanding there is still an “out” if you absolutely need it, will help you take action!
Proof of funds
The second, probably “bigger” obstacle for most people is showing proof of funds.
Just to be clear, proof of funds is demonstrating that you have the money available to actually buy the house. And there are several ways you can go about providing this.Now, if you are Daddy Warbucks and happen to have the cash handy, then you simply provide them a copy of your bank statement to show you have the funds.
But if you don’t have that much cash on hand, then there are still some things you can do.
First, if they don’t even ask for it, then don’t worry about it in the beginning. I don’t recommend this as a long term strategy, but my main goal here is to get you to take action and START the process of making offers. The sooner you can take that action to make offers, the more likely you are to achieve success in this business.
Even if they do ask for proof of funds after you submit an offer, and you not are able to get one to them in time, think of how many steps you have already conquered up to this point — property evaluation, determining your offer price, working with an agent, making an offer … these are big steps worth celebrating!
So, what are your options to get a POF if you don’t have the money yourself?
First, ask someone to loan you the money for a couple days so you can get the bank statement you need and then send them the money back. You can even offer to pay them a fee if you get the property.
This same POF can be used for up to 30 days so you can make multiple offers in that time period.
I realize it might be a little uncomfortable asking someone to do this, and there will need to be a high level of trust between you, but I just want you to know this option exists. In fact, this is how I got one of my first POF for one of my first retail flips!
Okay, I said “one of my first”, but what was my first one? I partnered with someone!
I found someone who already had a POF of their own. This is a method I highly recommend when starting out! It might be someone who has capital but no time or know-how to do the leg work, or it might be someone who already knows the business of house flipping. They provide the POF and capital for the offer, you do all the work, and then you split the profit! Or you can wholesale the property to them for a fee and move on to the next one.
Okay … I’m getting a little carried away again. Back on track! 🙂
The last way I would recommend getting a POF is from a hard or private money lender. Just contact someone who you would like to potentially do business with and ask them if they can provide you with a POF. If they are in the industry they will probably be more than happy to do it for the chance to work with you.
I know what you are saying: “Why didn’t you just say that in the first place?!”
Well, technically it is probably best if you are making “cash” offers, so if you have a POF or letter of approval from a Hard Money lender, it shows you are getting a loan. This might not seem like as “strong” of an offer to the seller, but it is still a viable option worth looking into.
So, now you have found your agent and are making offers.
It can be a little discouraging at first since you will definitely have some competition on the MLS listings, but try to think of this as a numbers game, or an educational process. I mean, people pay thousands of dollars and countless hours going to school or attending seminars, and you are getting a hands-on educational experience for next to nothing, and it will take much less time!
I would suggest that, instead of having a goal of getting X number of offers accepted, start out by just trying to make one offer a day for 25 days. I promise that by the end of that 25 day period you will have learned a ton, and will really know the process like the back of your hand.
To be honest, there is only so much I can teach you without you going in and getting some hands-on experience. They say you can tell someone something and they will forget it, if you show them something they will remember it, but if they experience it for themselves then they will understand it. You can never truly understand this business unless you start taking action.
Time to take action!
So, here is my assignment for you to take action on! This is what I want you to do within the next week.
I want you to make contact with at least three real estate agents or brokers in your desired farm area. Of those three pick the one that you think will be a good fit for your needs.
Then, I want you to have them send you some houses with the same parameters I mentioned earlier.
Arrange to look at the houses with them. If you like you can bring a contractor with you to estimate repairs, but it isn’t totally necessary at this stage of the learning process.
After you’ve seen the houses, determine your ARV (check this post on evaluating properties) and make your offers.
When you’ve finished, post up your results in the comments below. Share with us what you learned from the process and what challenges and difficulties you experienced. Was it hard to find the agents? Did you find it a breeze to figure out the ARV and make an offer? Let us know!
And if you have any questions, post those up too. I’m here for you and would love to help you figure out the parts of the process that might cause a hiccup.
But, to be honest, I have complete faith and belief in you. I know you can do this! Take that action and I can’t wait to hear about your amazing experiences!