How to Win BIG in Changing Markets (Part One)

Housing markets throughout the nation are changing. It’s getting harder to buy right in some areas and tougher to sell quickly in other areas. Many creative real estate investors will leave the business frustrated that what was once working well is not working as well anymore. Attendance at real estate investor club meetings is declining. People are giving up on their dreams.

You don’t have to become a statistic. Don’t let changing markets prevent you from enjoying the rich rewards available to you as a real estate entrepreneur. I believe that the present real estate environment creates new opportunity for investors willing to adjust as markets change. Sellers still need to sell. Buyers still need to buy.

Fine tune your strategies and tactics now, so you can continue to generate profits by helping the growing population of buyers and sellers who need your help.

Here are some new challenges you may be facing now:

  • Finding deals you can buy right and ensure a good profit

  • Collecting enough cash each month to survive and thrive

  • Negotiating with sellers who think the market has not turned yet

  • Selling or occupying houses quickly in slower moving markets

  • Surviving negative cash flow deals long enough to collect a big backend

  • Holding property when values are expected to decline

  • Constructing offers that excite you, protect you, and still get accepted

Find deals you can buy right and ensure a good profit

Effective direct response marketing is the key to finding deals–in any market climate. You want to become a top notch marketer now more than ever. You must become more selective or more targeted getting the right message to the right people at the right time.

First, become a big fish is a small pond. Your “pond” or market can be a part of town or a type of list to target. Specialize and focus on houses that are easier to sell. Buy the types of property that attract the biggest pool of buyers.

This will usually be around the median price range, plus or minus 20%. Condos, town homes and modular homes can suffer first during changing markets. And higher end homes may experience bigger price drops when values turn down.

So why not target the bread and butter neighborhoods? Look at areas where the homes experience fewer “days on the market.” Choose cities, counties, zip codes or parts of town that have a high concentration of these types of homes. Then use cost-effective media to target these “geographic” areas.

My favorite geographic marketing includes:

  • Specially designed Post It? notes distributed door to door

  • Flyers inserted and ads placed in targeted community publications

  • Bandit signs

During tough times, get more targeted

What’s always better but requires more work is “demographic” marketing by sending postcards and letters to more refined lists. You can get mailing lists of homeowners who own the type of property you think will sell faster including lists based on:

  • Property type

  • Size or square footage

  • Year built or age

  • Beds and baths

  • Years owned

  • Type of existing loan

  • Equity

Other proven lists include:

  • Non-owner occupied houses

  • Expired listings

  • Pre-foreclosures

  • Bankruptcy

  • Divorce

  • Probate

The more targeted the list, the smaller the list. That means you can spend some extra time or money making your letters or post cards more personal and creating campaigns that hit the prospective seller a number of times.

Personalized (or at least personal looking) direct mail always gets a better response. Then add to that a plan for mailing five or more times to the same list, and you’ll get the best results.

With that said, a good marketing message delivered via cheap postcards to a semi-targeted list (such as bread and butter homes bought within the last three years) can still work well even on the first hit.

My rule of thumb with the investors I consult with nationwide: Spend up to $1,000 on any marketing campaign to test it. If it don’t generate enough leads to buy one house (with an average profit of $20,000 or more), then you may need to test a different geographic area or demographic list.

Collecting enough each month to survive and thrive

The best way to raise cash each month is to sell or occupy a house. Living and surviving off positive cash flow is a myth with single family houses.

Why? Suppose the positive cash flow on an average house is $200 a month. How many houses do you need to collect $10,000 a month in income? Well, I think that’s fifty houses!

Now, how many houses do you need to flip or cash out of to collect $10,000 a month? For most investors in most markets that could be:

  • One or two wholesale flips, or

  • Collecting less than one backend profit, or

  • Just one “pretty house” flip every two or three months

If you need cash, sell a house. Sell a house you bought last year or last month. Or sell a house you don’t even own yet by assigning your contract or by getting an option to buy it and then quickly selling for all cash using the “round robin” or “9-day sale” method.

If you need cash, buy a house. Locate or target houses with lots of equity. Then use non-bank qualifying “collateral loans” from hard money lenders or private investors to borrow against the equity on the same day you buy it. Use the extra cash you collect at closing for:

  • Giving the seller a cash down payment

  • Making up delinquent payments

  • Fixing up the house

  • Projected holding and closing costs

  • Collecting part of your profit in advance

Good tip: Leave at least 15% equity in the property as a safety cushion.

If the seller has more money coming to them later from a note you created, they could take a second or third lien position, preferably at very good terms to you.

Sellers who think the market hasn’t turned

As real estate professionals, we notice the effects of a changing market before the average homeowner does. Indicators to watch and track include:

  • Increasing number of unsold homes

  • Widening gap between asking prices and actual sales prices

  • Stagnant or declining prices

  • Longer days on the market

These indicators of a changing market are available through the media, Internet, and real estate databases such as your local Multiple Listing Service (MLS). Gather these statistics, charts, and graphs and use them when negotiating with sellers. Project these trends into the near future when planning your exit for making your offers.

Sellers may or may not be aware of these changes. Some still think that the market is strong. Therefore they may think they can do better by not accepting your offer. It helps to have proof and evidence showing them why they should sell now at the price and terms you’re offering.

Too many sellers have become unrealistic in their expectations. You want to get good at helping them get in touch with reality.

One shortcut is to target expired listings in post-hot markets. You’ll have to do less convincing with them. They may have already been beat up by the market and now may have less time to play around.

Check out to get a current snapshot of your local price trends and market climate based on reports from real estate professionals in your area.

In Parts Two and Three, you’ll learn to succeed in changing real estate markets, allowing you to overcome big challenges like:

  • Selling or occupying houses quickly in slower moving markets

  • Surviving negative cash flow deals long enough to collect a big backend

  • Holding property when values are expected to decline

  • Constructing offers that excite you, protect you, and still get accepted

By CREOnline Contributor

A content contributor to the original