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Where do I find those "Deals" when looking for investment properties?

Photo courtesy of atroszkoAs a Realtor we have clients come to us usually after ordering a 2am special investment CD collection saying "I want you to find me a home at 50% of the retail value" Do those programs work? In some cases they do, but it takes a lot more work than they make it seem on the CD's and DVD's you get in the mail. If it was truly as easy as they say it is, wouldn't everyone do it?. I usually sit down with my clients and teach them a better way of finding the deals and making extra money by just doing things a little bit different.

Did you know that you can find fixer properties on the market every single day and at very discounted sales prices? If you take a property like this and buy it for 70% of ARV and fix it up for 15% you can make a 15% profit by just putting it back on the market the traditional way. But, what if I could show you how to buy a $200,000 fixer property put $40,000 of repairs into it and making it worth $300,000. Now you have $60,000 of potential profit if you put it on the market today.

What I have my clients do is put the fixed up property on the market as a lease option with me and I lease option it with one of my many buyers. Then new buyers write a contract for 2 years and at the end of the contract the buyer can get a traditional loan and purchase the property. Then my investors can take the proceeds from their investment property and do a 1031 exchange to buy another fixer or two without having any tax implications. During the 2 years of the lease option the investor is collecting $2000+ a month and at the end of the two years they can still sell the property for the full market value. That is $48,000 in lease payments + the Full $300,000 at the end of the contract. A home that was worth only $300,000 basically just sold for $348,000. So, instead of a $60,000 profit you now have made a $108,000 profit and no capital gains tax upon the sale.

FSBO homes can be a great source of "Deals", because of websites on the internet that estimate the value of their property and tell them how much their house is worth. The only problem for them is that these sites are very inaccurate and can give these sellers a home selling price that can be more than $100,000 off what should be the actually sales price. But, because these sellers don't have a Realtor in their corner to advise them how much it is really worth and they want to save the commission, they are willing to sell for the loss thinking they are making more, because they are saving the commission. There is a reason according to NAR (National Association of Realtors) in 2005 Realtors sold for 17% more than the average FSBO home.

The next method is a little harder and may take some work on you or your Realtors part. If you have a good Realtor that is willing to do this for you work with them and they will treat you right and get you endless leads. While driving around I look for homes that are boarded up and look very run-down. These properties can be bought at tremendous discounts, because the owners have already given up or may not be able to take care of the properties. They just need to be presented with an offer and sometime will just take it to get out from under the debt.

Call your local municipality and get a list weekly of the homes that are in non-compliance with building code. The home owners in these situations maybe getting notices to vacate, because of the disrepair and other issues with the property and need your help to get out. Usually these owners are ready to sell quickly; because they can't afford to do the repairs that are needed to get the home out of code violation and may soon be evicted if not given an option. This is a great person to approach about owner financing. If they could sell their home and make an additional $40-$50K in interest, it could be the difference in their life that is needed. It can be truly a win-win situation.

This strategy can take an old, run down building and completely renovate it, therefore creating value that previously was overlooked. It can also help out a distressed owner who, for one reason or another, can no longer maintain or care for the property. These properties can increase in value greatly with just a little focus, maintenance, and the implementation of a solid management team.

Distressed properties are identified by some sort of problem. This problem generally resides with two aspects of the property: either the property itself or the owner. The problem can be simple, like a high vacancy rate of an apartment complex, or something much larger like the possibility of a property going into foreclosure because the owner cannot make the mortgage payments on time. This can ultimately ruin a person's credit if a property is to go into foreclosure.

So how do you identify these distressed properties? One way is to drive around your community looking for buildings that look vacant, run down, not fully leased, and those that display for sale by owner (FSBO) signs. If a property looks like a sore thumb in a nice area, then that is a flag that there might be something wrong. You can go to the county, find out who owns these buildings and send out a letter campaign telling them you wish to purchase the property. Many deals can develop this way, and you can get great prices on properties you didn't even know would be for sale.

Another way to find distressed properties is to call brokers on listings you find on the internet and simply ask why the owner is selling. You may have to call on quite a few properties, but eventually you will find that gold mine property being offered way below the market rate. With just a few changes that distressed property may be a money generating machine once more! You can even call on brokers to locate and bring you properties with problems that fit your targeted criteria. This strategy of finding distressed properties is a great one, as you can very quickly cut through the many listings that do not fit your criteria.

Get in touch with a Realtor that has contacts at the probation courts. These lists come out every so often and you can find families that live in other areas of the country that can't come to your city to take care of the property. You may want to offer to help them clean up the property. In return you ask for the right to have first right of refusal to purchase the property from them. This can help lots of families that don't want to go through the hassle to take time off from work and come clean up a property for a couple weeks. Offer then owner financing and show them how this property can make them thousands extra above and beyond what the home is worth can interest a lot of families. Extra monthly guaranteed income can really help and entice someone to sell a home that they wouldn't have considered selling prior to your call.

The biggest secret I use when trying to find my buyers motivated sellers and distressed properties is when we find a property that we think would work, I personally present the offer of owner financing. Most Realtors don't understand owner financing and either won't present the offer or tell their clients to turn it down based on misinformation or lies. When I present these offers myself directly to the sellers with their agent there of course. I explain the truth about owner financing and how it can make them $40-$50K more even after paying their Realtor. No matter what their Realtor says to them at that point, it doesn't matter anymore. I've got them with the greed factor, and greed is a very powerful motivator.

Good luck on your future investing and may you have many profitable deals and an early retirement



Respect Realty LLC (Expect More)


At Respect Realty, LLC our agents believe in 100% dedication to client satisfaction.  We specialize in property and land acquisition around the Portland Metro and Vancouver, WA area. We delight in working with first time home buyers and sellers to guide them from start to finish. Our doors are always open and we are always happy to assist you with your real estate questions.


Reach out today, we look forward to talking with you!


Todd Clark and Seraina Aguayo (Owners of Respect Realty)

Respect Realty LLC (Expect More)



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Comment balloon 2 commentsRespect Realty LLC • March 23 2007 01:06PM


Todd, nice blog and some good points. With today's lending atmosphere investors either need to come in with a large down and be willing to hold it for a while or find creative ways to get around it. You give some good alternatives.

It's amazing how many people buy the CD's and think that they can still get property for no money/no credit/no Title/quick flip... Most of my lenders eventually see through the maze and the deal falls apart.

Posted by Larry H Morris, Larry Morris, NMLS 150073 (Evergreen Home Loans) almost 13 years ago
Todd - you are one in a thousand. Where can I find agents like you in VA?
Posted by Brett Cole (Brett Cole Insurance Agency) almost 13 years ago

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