Today we offer you some keen insights from our fellow mogul and old buddy Erik Stark – who’s got a thing or three of value to share on the topic of deal-getting.
Know this: Erik and his partner Steve are worth paying attention to. They operate the most successful real estate flipping business just north of Detroit Michigan, the Michigan Property Superstore. They’ve flipped hundreds and hundreds of homes and easily earn in a month more than most do in a year.
Erik is the epitome of a Market expert, so we’d all do well to listen up.
Without further ado, let’s turn to Erik…
Going Deep Instead of Wide, and Why We Do Things Differently
After reviewing the past two years of deal flow we’ve experience in our real estate business, I wanted to share some of what we’ve learned from the successes we’ve enjoyed with our against-the-grain approach to marketing.
Contrary to all the postings, case studies and reports about the incredible successes with mass marketing, we wanted to share a different approach.
Historically bank foreclosures has always been a consistent winner for us – a reliable place for us to mine for profitable deal after profitable deal. But back in 2010, when we first noticed the REO market started tightening up, we were the first investors in our market to “move with the cheese” by turning on the faucets of direct mail to increase our deal flow.
To start with we did exactly what most business owners do: We bought a list, created a mailer, set up a schedule and rifled them out the door. We did this ourselves, though now-a-days, it’s more and more common for people just to hire a company to handle their marketing for them.
To each is own, but as for me, that’s just not going to happen. One of my great mentors as an investor, Preston Ely, once told me very directly that money problems for a business are often really marketing problems, and there’s no way I was leaving our money in the hands of someone who had no idea what was going on in our market.
Let me clarify first: Naturally, we bought the absentee owner lists, mailed the sequence and had some basic results. But we wanted better results. So we started looking at the track record of which types of leads had been bringing us the most and best leads, and we created an “avatar” (descriptive image) of that type of seller/situation. Most of them turned out to be situations of distress – Estates, tired landlords, out of state inherited owners, accidental landlords who don't have the time or resources to handle city issues or deal with tenant problems, etc.
Then we simply began drilling in deeper – systematically focusing on finding and attracting more of those types of leads, in those types of scenarios.
So we decided to go deeper into what was already producing the best results, instead of going wide into every possible channel, type and source of leads. We took a more “rifle” than “shotgun” approach, thinking we’d have better results if we really focused our time, money and effort where the most actions seems to be.
Go Deep, Round One
We started by thinking outside the box a little and calling our city building officials to ask for a list of "nuisance properties", if such a list existed. Things like:
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Landlords who refuse to clean up their properties,
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Repeat code violations,
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Evictions
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Etc.
This worked very well for us. We built personal relationships with these highly focused landlord cities and became the heroes who stepped in to save the day, by contacting and cleaning up these properties.
We bought from churches, Realtors, estates – got calls from neighbors who were tired of dealing with the trash.
Now keep in mind, this “nuisance” list is not (if at all) distributed. There’s also not a ton of houses on it at any given time – there might be 10-20 properties per week that need our attention. But with a list this focused, we’ve been able to make some great money on leads nobody else has on their radar most of the time – and we did it by going deeper and more specific than your typical mass mailing effort that most of the other “cash for houses” guys are using.
And I’m telling you, we’ve enjoyed some thick spreads from that list. Again, not a ton of properties, but each of them had some large profits to be made by simply resolving the problems these people had. And heck, we’re all in essence problem solver, right?
Go Deep, Round Two
Next, we decided to find the area’s largest landlords and begin building actual relationships with them. We did this by making good friends with our local GIS dept, would could easily look up the types of landlords we wanted to target: Individuals who own more than 5 properties, with enough equity to be able to sell at a discount.
Then we reached out to these landlords (first via mail) and made friends with them.
Keep in mind, most of these landlords are old school gentleman who have been out of the game for a while but still keep a rental portfolio. And these guys love to be around young enthused investors like me and my partner Steve. Heck we love it too! They give us wisdom, we give them youth – it’s a beautiful thing and an awesome tradeoff.
So not only did we have these old-timers meeting us at projects to "get them in the game again", we kept them sharp by teaching them to become bird dogs. Remember, these guys belong to the Rotaries, the Optimist Clubs and things like that – they’ve been networked into these cities for decades. So why not have them nudge their friends our way when their friends are ready to sell? Follow that up with a large chunk of cash for each referral and you just built a highly credible referral system from the good ole boys that secretly run part of our investing community.
I promise you these older guys are being largely ignored by all the whippersnapper investors in your town right now, and they’re just itching for someone like you to “take under their wing.”
Side Story: I specifically recall one call from an older lady – she called and screamed at my assistant for about two minutes about removing her from our list, and swearing up and down that she’d never sell to low ball investors like us. “STOP MAILING ME!” she screamed like a banshee.
When I walked into my office, my assistant gave me the message and asked if she should remove her. I remember telling her to “Get this lady on the phone, it sounds like she needs someone to talk to”.
I could tell an awesome story about how all this played out, but the bottom line is:
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The screaming lady and her husband sold us their absolute best properties – one of which is regarded as one of the most desired pieces of real estate in all of Royal Oak.
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They also ended up loaning us over $240,000 at 6% interest
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And they’ve given us over $110,000 in referrals.
On top of all that, the screaming lady’s husband is extremely well connected has also helped me accomplish so much at the city level, stuff we would have never been able to accomplish without him at our side. He truly is an incredible mentor to me to this day. He also sends me every single competitor’s mail piece he ever gets so I know exactly who else is mailing what. This allows us to continue going against the grain and standing out against the landscape of what everyone else is doing.
Morale of the story: We may well have never made contact with these two, had we not taken the “deep not wide” approach.
Go Deep, Round Three
Next, we focus heavily on what we call our Top 100. These are a specific area’s top 100 most desirable properties that an owner could ever want. They are (1) in excellent locations, (2) have great potential to expand, (3) have incredible character and(4) just make an absolute top notch portfolio for anyone to desire.
But here’s a hint on your approach to these little gems: Do you think you could buy the empire state building with a series of postcards?
The letters we send to our top 100 are extremely specific. We get to know the owners background, what they do for primary work, how long they have owned it, what sort of condition it is in, etc. before we ever even mail them anything in the first place. We have done extensive homework and both Steve and I have 100 folders and spreadsheets on each of these properties.
Steve actually has a wall in his office dedicated to all 100 properties with photos of him standing in front of each one. We visualize it that much. Sure, these guys call from time to time and tell us to stop wasting stamps and that they will never sell. But get this – so far, 6 of those top 100s little beauties have become ours. SIX OF THEM. And all because we’ve been focused so hard on them.
As for most of the rest, we’re at least in the door so to speak – we have some element of “mindshare” with the owners. We have their cell phone numbers. We are building excellent relationships with these guys. Most people think these land owners are celebrity status and unapproachable, but when they meet passionate, determined go-getters like us, who share the same passion for their property, they tend to become enchanted. Often times they are much more interested in passing their legacy down to guys like us rather than give it to their kids who don’t even care about the property.
In Summary
This is just the tip of the iceberg really. But in a time when the market is hot and people are frantically competing (or should I say cutting their own throats) to do a deal, our approach has been different than what everyone else is doing – we like to “zig” when others “zag” and it’s been working pretty darn well for us.
We have also noticed many owners call us and challenge us to just “make your best offer!” And if it’s high enough they will consider showing us the house. Then five days later, we see it listed on the MLS for a price that wouldn't appraise except for maybe back in the 2005-2006 market.
Then we simply sit back and wait. When it eventually expires (and it almost always will) we send them another follow up letter. When they call asking for the same offer, we tell them now that since its been exposed to the market, we unfortunately have offer 10-20% less. It’s a fair strategy and had they not been greedy, they would have sold their property for what it’s worth.
OK, that’s all for now folks. Hope you learned something you can take away for yourself!
-Erik Stark
Call – Call your city’s building officials to ask for a list of "nuisance properties".
Find – Find your area’s largest landlords and begin building actual relationships with them.
Focus – Focus heavily on your own Top 100.