How to Find Rental Properties
Finding rental properties that cash flow is not easy in today's market. Most likely, if you see a property in the Multiple Listing Service (MLS) or on a service like Zillow it is either priced so high that it won't cash flow or it is priced well but has 27 competing offers in on it already. It's wild out there for sure!
So I guess that's it: just sit things out until the next Great Recession-esque real estate market meltdown happens? Or are there other, more creative ways to find deals in today's market - ways that may require some legwork on the part of the investor?
Based on first-hand experience, I firmly believe in the latter. Of the eight properties we have purchased over the past eight-or-so years (not to mention several others that we had under contract that did not close), only two were officially "listed" when we made our offer, so a full 75% of the deals we have done so far have been off market.
So how did we go about finding them?
In my experience, there are four solid ways to find off market deals: 1) properties for sale by owner (FSBOs) (especially the ones with the handwritten signs), 2) the old classic "driving for dollars," 3) cold-calls to mon-and-pop landlord for-rent listings and 4) your network.
We have purchased two properties FSBO, had another FSBO under contract but backed out and were within $15,000 of putting another under contract. All of them were the classic, maroon yard sign from a hardware store with a hand-written phone number . All but one of them were owned by an older owner who was just looking to be rid of them, and all of them had done zero marketing outside of the afformentioned yard sign.
In today's red-hot market, the opportunity to evaluate and offer on a property with few or no competing offers is invaluable. One, it allows you time to make a non-emotional decision about whether or not the property works for you (and the investment criteria you have set for yourself). And two, if there are no other offers on the table, your offer (even if below asking price) suddenly becomes significantly more valuable - negotiating leverage swings firmly in your favor.
If a property is for sale by owner, and the owner has not marketed the property, how you find them brings me to the next method: driving for dollars. This means driving, biking, walking, rollerblading, or whatever. in a particular area frequently and on a regular basis (I'd say at least weekly) for an extended period of time (months or even years), noting properties that may be shabbier than the ones around them and that potentially meet your investment criteria (single-family vs. multifamily, etc.). This also allows you to get the jump on the unicorn unmarketed FSBO properties.
Keep a notepad with you (or on your phone) to write down addresses of properties that warrant further investigation, and look up owner information on the parish (or county if outside Louisiana) tax assessor's office. If the owner is an LLC or other entity, make a pit stop by the Secretary of State's site to look up the owner of the entity. Then look the owner up using one of the many free public records search and get to cold calling. Yes, it is a grind. And yes, you will need to be prepared to hear the word "no" on the regular.
Another option others have done is to send letters/postcards to the property owners, but I have never tried this method. Truth be told, I have not been dilligent about cold-calling property owners, either, but I have purchased one property through this method and made several contacts over the years through these phone calls and subsequent lunches or property tours.
Cold-calling mom-and-pop landlords is a slight step up in my mind. Similar to driving for dollars, look for handwritten for-rent signs, call them and ask if they are open to selling. Probably about 50% say no (which is a vast improvement over the 95% "no" rate above), with the majority of the remainder saying something to the effect of "what would you offer for it?"
Negotiations are for a future post, so we won't go into details here. Suffice it to say, never, ever reply to a "how much will you give me for it?" response with your highest and best offer.
We purchased the subject of this website, Casablanca, by cold-calling a for-rent sign and negotiating a price. Timing turned out to be ideal becuase the owner (a self-managing individual) was looking to retire and invest the proceeds into a beach condo.
Before moving on, another source of leads for landlords to cold-call is Craigslist. Steer clear of the posts that are obviously a professional manager, though.
Finally, probably the best method of finding deals (at least the one we have had the most success with) is to leverage your network. For example, we purchased one property from an agent friend of mine before it was officially listed, which is sometimes known as a pocket listing. He knew I was interested in the area and (most importantly) that I could close, so he gave me a shot at it before he went through the trouble of photographing it, listing it and fielding calls about it. Win-win.
I know, this isn't something you can just turn on with the flip of a switch. A network takes time and intention to build. I will say, however, that putting yourself out there via the first three methods is an excellent way to meet people, many of which are investors themselves. We purchased one of our properties (so far) through contacts I made through my cold-calling with several others in progress that I hope to purchase in the not too distant future - I plan to continue checking in with them periodically until they are ready to sell.
Other ways to meet like-minded folks include attending real estate meet-ups, talking to neighborning property owners and just being open about the fact that you are interested in real estate with everyone you know. You never know when someone may have a friend or relative that they can put you in touch with that could help you along your journey.
So those are the ways we have successfully found and purchased properties outside the MLS. In future posts, we will discuss other aspects of a real estate transaction like analysis, the contract, due dilligence, financing and closing the deal.
In the meantime, if you need any help finding or selling a home or investment property, reach out to Sally or check our SoldWithSalBR on Facebook. As always, if you have any questions relating to real estate, remodeling, Baton Rouge or life in general, drop us a line at firstname.lastname@example.org.