Deal finding can be challenging, especially if you’re beginning your career in real estate. There are many places to look at, a lot of information to take in, and a significant number of strategies to pick from. So it’s perfectly normal if you feel a little overwhelmed. If this rings any bells, then keep reading because you’re in for a treat!
The MLS is one of the most popular places to look for properties. Short for Multiple Listing Service, it’s a place where brokers share information on properties they have listed and invite other brokers to cooperate in their sale in exchange for compensation, according to the National Association of Realtors. In other words, it’s a database that compiles information on the properties that are in the market.
This is a highly competitive place to be. So you need to be sure about what you’re looking for, and you need to be fast. The fastest, if possible. But don’t hesitate: Becky Kromminga – real estate investor and Head of Growth at Real Estate IQ – shared three steps to become a master in deal finding through the MLS.
“First, we need to know what we’re looking for on the MLS: homes that are priced under market value, discounted homes, and equity. These are three different ways to say the same thing. Bottom line, you want to get properties for less than what they’re worth,” began Kromminga at her webinar “Deal Finding 101: MLS deal finding training for successful investing”.
So, this raises another question: why would people want to sell their house for less than what it’s worth? The answer is motive. You want homeowners in distress that wish to sell their place quickly because they have financial issues, because they can’t afford repairs, or maybe because they need to get out of a bad situation.
Whatever the reason, they are willing to reach an agreement for a portion of the property’s value. And that’s good news for you: this kind of deal is good for wholesaling, fixing and flipping, and buying and holding. But we’re getting ahead of ourselves because to win the deal and dominate MLS listings, you need to stick to the following steps.
Step 1: gather the right team to work with
You must surround yourself with an experienced group of people that understands the business of real estate investing. Otherwise, they can become obstacles in your way. The most important players in this team are:
- An investor-friendly agent, someone that understands investments and knows how to help investors find and win deals. He or she should be an expert in valuations and in transactions, as well.
- An investor-friendly title company to do the paperwork.
- A contractor who can do the work for you right and fast.
- A lender that facilitates the money to invest; can be a hard money lender or a private one.
Step 2: find deals
Easy to say but not so easy to do, deal finding is kind of an art. There are many strategies to do it, but today we’re focusing on the MLS. Therefore, one smart thing to do is to create hot sheets. Anyone with access to the listing can set it up for you to receive notifications by a price trigger.
The usual procedure is to calculate the average price per square foot in the neighbor you’re interested in and then decide what discount you’re comfortable with (typically, it’s 70% minus repairs). Once set up, you’ll get an alert every time a house with these specifications hits the MLS.
Remember that this requires maintenance to fix the triggers according to the market rates. The other important detail is that you don’t know the equity for these properties, so you’ll need to run a CMA on each address. It will help you assess the house’s ARV (after repair value) and get an estimate of your profit. Running comps takes from 15 to 60 minutes, depending on how deep you’re going to go and your expertise and experience. That means that you can spend a whole day doing this.
Gladly, there are systems to automate all these and get comps in seconds, like Real Estate IQ’s FastCMA (you can learn more about running automated comps here).
Step 3: make offers
The final step to becoming a master in deal finding through de MLS and winning great deals is making the right offer. If you’re planning on flipping the house, you can stick with the 70% rule. It means that you should offer 70% of the property’s market value (ARV) minus the repair costs (and the wholesaling costs, if necessary). The other 30% is divided in half between your profit and the costs incurred until the sale (closing costs, taxes, maintenance, and financing). On the other hand, if you’re planning on renting it, then the 1% rule comes in handy. To buy and hold, you should get 1% of the purchase price in your monthly rent.
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.