In order to invest in real estate, you have to have real estate investments to buy. That's why the primary focus of most real estate investors' businesses is sourcing motivated sellers or property owners who have a strong need or desire to sell their property.
Motivated sellers are not the only way to buy real estate investments, but they are one of the best ways to buy distressed properties or snag a great deal. Below you'll learn what motivated sellers are, common reasons a seller may be motivated, where to find motivated sellers, and how to work with them.
What is a motivated seller?
In real estate, a motivated seller is a property owner who has a strong need, not simply a desire, to sell their property. Their need to sell often motivates them to agree to a low offer price, large discount, or flexible financing terms.
They may have a strict timeline to meet, such as selling the property and getting paid in 30 days or less, and some may have specific financing terms, like getting some money now and the remaining payments in an installment plan.
Why might a property owner be motivated to sell?
Motivated sellers can be driven to sell for a variety of reasons, but in almost all circumstances there is an element of distress motivating them to want to get rid of the property more than achieving a specific price or terms.
Some common reasons a seller is motivated are:
- The homeowner is in pre-foreclosure or foreclosure and is at risk of losing the home.
- Property taxes are delinquent, and they are unable to pay the taxes to keep the home from tax sale.
- The property is in poor condition, needs repairs, or has environmental factors that are affecting the safety or livability of the home (such as a sinkhole, fire damage, storm damage, or a foundation issue).
- The property was inherited after probate by an heir (especially if the heir is out of state) who has no time or desire to clean out, repair, or list the property for sale.
- The property is losing them money each month they hold it.
- It's a problem property, where a tenant or circumstances are causing more of a headache than the property is worth the owner. This is especially common with absentee owners.
Another type of motivated seller is an experienced investor who wants to retire. It's quite common for retiring investors to prefer installment sales, or seller financing terms, when selling a property because of the preferential tax treatment.
What are the benefits of working with motivated sellers?
Buying an investment property from a motivated seller can equate to a significant discount for real estate investors, often 35% to 50% off of the current market value or future after repair value. Finding a qualified motivated seller can lead to buying a great deal or being able to purchase an investment property without the hassle of getting a mortgage or paying for a high-cost loan like a hard money loan.
Where can you find motivated sellers?
There are several avenues available for real estate investors to find motivated sellers including:
- Public or courthouse records searches.
- Direct mail marketing.
- County foreclosure sales.
- Local tax sales.
- "Driving for dollars," looking for vacant homes in your neighborhood or area.
- Putting out signs like the "We buy houses for cash" signs.
- Paid or free ads such as Craigslist posts or Facebook (NASDAQ: FB) ads.
- Attending open houses.
- Attending estate sales.
- Responding to "For Sale By Owner" signs.
- Working with real estate agents.
- Word of mouth.
Many investors choose to purchase seller leads, which are lists of possible motivated sellers. For example, you can purchase a list of heirs who recently inherited a property after probate, pulled from the courthouse records, or you could purchase a list of homeowners in pre-foreclosure and likely to go to a foreclosure sale in the next 60 to 120 days.
This information is available for free in public records or at the county courthouse; however, sifting through this data can be very time-consuming. For this reason, purchase this data from large data companies like DataTree, Melissa Data, or ListSource.
If an investor chooses to purchase seller leads, it's important to confirm the data being purchased is accurate and up to date. Some companies can have data that is several months old, making any marketing efforts a waste of time.
Attending open houses, estate sales, or working with a local real estate agent can also be a viable source for finding motivated sellers. If a property has been on the market for a long period of time, or clearly is in distress, they may be more motivated to sell at a discount.
With any of these methods of finding motivated sellers, the key is to consistently market and contact them by direct mail, online marketing such as free or targeted ads, or cold calling.
How can you work with motivated sellers?
It's extremely important for real estate investors to understand that each motivated seller is unique. Shooting a lowball offer can work, but it's better to discover what their problem is and present a solution to that problem in your offer.
A cash offer and fast closing may be what they are looking for, but it's not always what the seller needs. Maybe they want cash, but need to wait until after the fiscal year for tax purposes. Or maybe they only need a specific amount and are fine accepting the remaining payments over time or letting you take over their current mortgage payments. You have to be creative in your solution and offer.
There will surely be a number of sellers who are motivated to sell but don't have enough of a need to sell to warrant a steep discount or flexible terms. Be persistent. If they say no the first time, continue to follow up and remarket to them. Their motivation to sell could greatly increase after 30, 60, or 90 days of the property sitting on the market, as fines or fees accrue because of the property condition, or as they get closer to a potential foreclosure or tax sale date.
Finding and reaching motivated seller leads is not always easy, but it can be a lucrative endeavor. It's important to keep in mind that almost all sellers are motivated, or they wouldn't be listing their property for sale. The key difference is distinguishing who simply wants to sell from who needs to sell. Identifying who is truly motivated can equate to a great payday.