QUESTION: Can you find deals to flip on the Multiple Listing Service (MLS)?
The simple answer to this question, one that I receive all the time, is NO, you can’t find deals to flip on the MLS. Whenever I post something on my website or Facebook about the lack of deals on the MLS, I always get some goober who wants to tell about his massive success story from an MLS property, but the fact is that deals RARELY are found on MLS. Yes, I have also purchased a very profitable deal on the MLS….1 house in 12 years. And so, if I relied on that deal source for my real estate investing, I would have been out of business a LONG time ago.
If your definition of a “deal” is a rental property that has a 10-11% cap rate, then of course, you can pick those up by the handfuls on the MLS. However, you will have a very difficult time finding deals you can rehab or wholesale, like most “active” investors are looking for, on a public website with inordinate amounts of web traffic. New investors always follow the path of least resistance, and so when they want to find houses, they go to the MLS…because that’s where they’ve been told to go find houses for sale. But the deals that fit the standard 65-70% rule that most investors use, must be found OFF the radar, the hidden gems that no one else knows about. And the reasons are simple:
1.) Competition – It only stands to reason that if you have a lot of people (the millions of people with access to the MLS) looking at a few properties (how many houses are priced even close to what an investor would need to buy it at), that the price of those homes will be driven up to the point that MOST investors will be priced out of the market. It’s a basic rule of supply and demand. I just experienced this same phenomenon when I listed an old refrigerator on Craigslist. I listed it LOW ($50) because I just wanted it out of my garage, but I receive SO MANY phone calls, that I ended up selling for $75…and could have gotten more! There was just ONE cheap refrigerator, with a LOT of people interested, and so I had the luxury of raising my price. Had I gone 10 days without a call, and someone called and offered me $25, I would have taken it without a hesitation.
2.) Realtor Pricing Strategies – Realtors are trained to get top dollar for their client’s houses in the shortest amount of time. So, when they do their research to determine the listing price for a home, they are not researching what price will create a stampede of bargain-hunting, bottom-feeding, low-ball-offering investors. It’s their fiduciary responsibility to that seller to price the property at highest price that is realistically attainable in the open market.
3.) Bank Loss Mitigation Strategies – As most of you know from your experience with banks, they are not an investors friend, unless it’s an investor in their company who is looking for a good return on their stock purchase. Real estate investors will always find themselves beating their head against a wall in trying to get a “deal” from a bank-owned REO listing. After eating as much as $25,000-$50,000 in the foreclosure process, the bank is now out to get as much as humanly possible for their new acquisition, and to mitigate their loss as much as possible. They will typically have an AS-IS BPO or appraisal done, list it at the full current market price with a high-octane Realtor, and then WAIT…as long as they have to in order to receive top dollar. They are NOT emotional and they are NOT in a hurry. They are much more likely to make small, systematic price reductions than to consider a low-ball offer by you.
4.) MLS sellers are TYPICALLY not motivated – Of course, that’s not always the case, because on a rare occasion I will make lowball offers on the MLS, and have found some sellers who are extremely motivated and will consider lower offers. However, in general, most motivated (or desperate) sellers will try other ways to sell their home before they have to go through the process of listing with a Realtor. Those who have met with an agent, and signed a contract to list, are usually a little more patient and looking at trying to maximize their profits on what is typically their most valuable asset.
You might be asking yourself, then how in the world do we find these “deals” that you are always talking about flipping? Well, that my friend might be for another blog post. If you are a member of the Professional Investors Guild, go back and watch the “Guerilla Marketing” videos in the archives, as well as the “Treasure Trove of Motivated Seller Leads” bonus video for tips and tricks to generating a deluge of motivated seller leads.