Why You Need Leads
House-flipping leads are the information and input that enter your real estate investment business to move it forward.
If you think of your business as a factory line, with a series of processing steps leading to the completed house flip, generating leads is the initial input of materials.
You need to continuously generate house-flipping leads so you have a steady stream of new material for your business. You can only flip a house if you have located a house with a good potential return on investment (ROI). You need the initial input.
These strategies can be applied on any scale, whether you are planning your first house flip or are an experienced real estate investor. The scalability of house-flipping leads is important. There is no limit to how big your real estate investment business can become when you effectively generate house-flipping leads.
Lead Generation Strategy 1: Prospecting
Prospecting is the process of searching for houses with flipping potential. Think of prospectors searching for gold during the California gold rush. In prospecting, you are searching for gold within your target neighborhoods.
The main areas to prospect houses are:
1. Foreclosure lists
2. The Multiple Listing Service (MLS)
3. Classified ads
4. In your target neighborhoods
Foreclosures can almost always be obtained under market value, making them ideal for house flipping. An investor-friendly real estate agent can help you to obtain foreclosure lists. These lists are full of real estate investment potential. You want to highlight houses that need improvements but are not in a state of total disrepair.
Of course, you can purchase a house that needs major repairs, but you will need to account for additional operational costs and repair costs for the renovations.
What Is a Foreclosure?
When you purchase a foreclosure property, you are purchasing a home whose owner has failed to pay the mortgage. Homeowners enter the foreclosure process for a variety of difficult personal situations including illness, divorce, job loss, or death. You are dealing with a seller who is often in a state of personal distress and who is also extremely motivated to sell.
It is important to note that pre-foreclosures are governed in different ways in each state in the US. Some states use a judicial process, while others use a nonjudicial process. It is worthwhile to understand your state’s procedure and typical foreclosure timeline.
Foreclosures can be in three stages: pre-foreclosure, public auction, or real estate owned (REO).
You can purchase at each of these three phases.
During this phase, the homeowner has already defaulted on their mortgage. After the initial failure to pay, homeowners are given a grace period, usually a month to a year, to pay off the loan and avoid foreclosure. The level of pressure on the homeowner to sell depends on the lender. Some lenders will issue a foreclosure and eviction notice within months, while others may let the process drag out for years.
Once the lender starts to put pressure on the homeowner, the homeowner has the maximum motivation to sell. Before this point, if you have located a house in pre-foreclosure, you have to clearly state your value proposition so that the homeowner has the motivation to sell quickly.
An ideal purchase deal in pre-foreclosure would allow the homeowner to pay off the debt and walk away with some profit, while you also profit from the deal. You are looking for a win-win situation with the homeowner.
Being in pre-foreclosure is very emotional for homeowners. Compassion and understanding will go a long way here. Explain to the seller that you want to help them out and set them up for other opportunities. You are both on the same side. This is the time to be empathetic and use your business to do good for the seller while also getting an excellent real estate investment for flipping.
A short sale happens when an investor negotiates directly with the lender and the seller for a favorable sale price.
If the amount of debt is close to the value of the home, you can get what is called a short sale. In a short sale, you negotiate directly with the lender. This is your best option when the debt on the house is greater than, or close to, the value of the house. Lenders are often willing to sell the house for less than its value to avoid the time and expense of the foreclosure process.
However, it is worth noting that the homeowner still has control. The homeowner has to agree to the short sale, and the lender has to agree to the price. Because all parties need to agree, the short sale is not usually all that short — it involves more time.
If you want to consider a short sale, it is better to work with someone who has experience with short sales at least for the first few house flips. They will help you navigate the intricacies of the homeowner, the lender, and the legalities. You will go farther with greater success when you partner with someone who has experience.
If a house is not sold in pre-foreclosure, it is listed to be sold at auction. Auctions are often held at the county courthouse which is why you will hear investors saying they bought a property “on the courthouse steps.”
Live auctions present the highest risk with the lowest rewards. If you are considering buying a house in a public auction, remember:
- You will need to be prepared to pay in cash.
- Your payment is expected without a formal inspection of the property, meaning you cannot accurately estimate repair costs and level of damage.
- In some cases, homeowners can repurchase the property within a certain period of time. This is called the right of redemption and means you may still lose the house even if you won the auction.
- You are in a live bidding situation where it is tempting to reach beyond your maximum offer.
For all of these reasons, if you plan to buy at an auction, it is worth attending a few live auctions before you are ready to bid. You can get a feeling for the atmosphere and even create a simulation for yourself.
You need to calculate your maximum offer and be ready to walk away if the price exceeds your limits. As with most things in life, practice makes perfect.
Real Estate Owned
If a property doesn’t sell at a public auction, it is returned to the lender. This is called a real estate owned property, abbreviated as REO. The lender will try to then sell the REO property within 90 days.
Lenders are highly motivated sellers. They are not in the business of selling real estate and are willing to sell under property value. Lenders want the properties off their books as quickly as possible, which presents an excellent opportunity for an investor.
Use this to your advantage by contacting local lenders and inquiring about REOs. Ask for the department or person responsible for disposing of REOs. Ask to see their current list of REOs.
Note that they use the term “disposing of.” That gives you a clue at just how much they want to get rid of these properties — and of the opportunities it presents to you.
Regularly checking REO property lists will generate an abundance of house-flipping leads.
Multiple Listing Service
The second way to find house-flipping leads is through the multiple listing service (MLS). You will search the MLS for specific terms that lead to houses being sold under market value in your target neighborhood. This is the most common way real estate investors will look for leads.
You can ask a real estate agent to create custom reports for you with the MLS. Your main target is houses that haven’t sold after being listed for a long time or houses whose listings have expired. You can contact the listing agent directly and propose a deal.
You offer several benefits to the listing agent since they have already paid to market the property and you are making a cash offer. The benefit to you, as the investor, is that by working with the seller’s agent, you only pay the commission once and save on the cost of sale.
In addition, to gain an advantage in using the MLS, think of creative ways to search the data to find houses before your competitors.
Some reports worth generating are:
- Days on the market. A home that has been on the market for a long time is more likely to be sold under market value and is a good investment opportunity.
- Expired or canceled listings. These listings have expired, or the owners took the house off the market before it was sold. Both make good investments. These types of properties are your primary targets.
- Property value report. Here you can locate properties being sold under the average price point in your target neighborhoods.
- Keyword report. Look for keywords that indicate a property that needs work and could be flipped:
- Estate sale
- Motivated seller
- As is
- Handyman special
- Needs work
- In need of TLC
- Repair allowance
The third way to prospect for house-flipping leads is through classified ads. Classified ads have direct seller listings and motivated sellers. You can find classified ads posted online. Look for listings under the category of “houses for sale.”
It is also worth checking the “houses for rent” category, as some landlords may be motivated sellers. This is especially true if they became landlords through inheritance or moved out of state. Sometimes, landlords are simply tired of dealing with renters and welcome your purchase offer.
You should look for the same keywords listed above for the MLS searches, plus:
- Great neighborhood
- Must sell
- Motivated seller
Make a habit of scanning classified ads daily or weekly to generate house-flipping leads.
The final prospecting strategy is to drive through your target neighborhoods. You are looking for homes that show obvious signs of disrepair. This can be as simple as a lack of landscaping, neglected lawn care, broken windows, or missing shingles on the roof.
What to look for:
- Flyers on the door
- Piled up newspapers
- Uncut grass
- Boarded up windows
- No lights seen on after several visits
- No containers on the curb on garbage collection day
- Mail overflowing from the mailbox
- Clutter near the entryway
- No obvious signs anyone is home
When a house shows obvious signs of disrepair or vacancy, the seller is usually motivated.
These sellers would rather sell the home under market value than deal with the repairs themselves. They may also live out of state or have moved, leading the house to appear neglected. An out-of-state owner or an owner carrying two mortgages is a particularly motivated seller.
You should note the addresses of homes in disrepair and contact the owners. You can usually find owner information through property tax records or an online search.
If you cannot find the contact information, a business specializing in “skip traces” can help you. A quick internet search for “skip traces” will help you locate contact information and track down homeowners.
For Sale by Owner
While prospecting your target neighborhoods, note any homes with signs saying “for sale by owner.” Make it a habit to call them right away. Owners sell directly to avoid real estate agent fees and are often willing to negotiate the price.
You can also call homes that have “for rent by owner” signs. Remember, owners get tired of renting and may be interested in your offer.
Through the various prospecting strategies, you can have many channels to find house-flipping leads. When you find houses through prospecting, you create a win-win for you and a motivated seller. You get a great price, and they get a quick sale without hassles.
Lead Generation Strategy 2: Advertising
Advertising is publicizing your interest in real estate investment to generate awareness. The more people who are aware of your desire to buy homes to renovate and flip, the more leads are generated.
The purpose of advertising is to attract the attention of motivated sellers to let them know you can fulfill their needs.
The key to successful advertising is to craft your message so it sticks in the minds of sellers. You want to convey your value proposition — how you can benefit sellers and homeowners — clearly and concisely.
Some ways you can help homeowners:
- Close quickly
- Get out of debt
- Stop making payments
- Avoid foreclosure
- Avoid costly repairs
Craft a short, memorable message to stand out from other real estate investors. Once you have your message, you can get the word out in a variety of ways including posters, signs, direct mail, online listings, and even advertising at bus stops.
Advertising channels include the following:
- Print advertising
- Radio and television
- Internet advertising
- Direct mail
- Business cards
Each of these has advantages and disadvantages in terms of cost, time, and return. You will have to evaluate each to decide on your best advertising strategy.
In advertising, consistency is the key. You need to figure out what works best for your area. A combination of online and print ads is typically the most effective. Give yourself a minimum of six months to see the fruits of your advertising in quality leads.
Lead Generation Strategy 3: Networking
Networking creates new and unexpected house-flipping opportunities. This is the least direct method of generating house-flipping leads but also often the most advantageous.
Networking opens doors to experience and understanding that you would not otherwise be able to get from a book or online.
To get started right away in house flipping, the best strategy is often to work with people who are already in the business. You can join them through partnering, or they may be willing to mentor you. Practical, boots-on-the-ground advice will give you the best head start in your house-flipping business.
Your network should include everyone you are in contact with, including:
- Real estate agents
- Other investors
- Your competitors
- Courthouse clerks
- Residents of your target neighborhood
- Local real estate investment clubs
- Title companies
Successful networking involves building mutually beneficial relationships. Done right, you bring value to the business and the lives of everyone in your network. By giving to your network, they will also pass on opportunities to you.
With time, you can cultivate and grow your network to bring you more house-flipping leads. You will learn which contacts can, and do, regularly send you leads as well as those who advocate for you or provide you with useful information and resources.
Your network is ever-evolving. Cultivating relationships is a lifelong activity. You never know what relationship might provide an opportunity in the future. Give your best to everyone you come into contact with, and let them know what you are searching for. By building your network, you are in a great position to receive leads and to ask for help or leads when needed.
Lead generation is like an irrigation system that helps your house flipping business to grow. By applying the three pillars of lead generation: prospecting, advertising, and networking you have fertile ground for successful house flipping.
Whether this is your first house flip or you are aiming to grow your house-flipping business, with the right connections and channels in place you save time, effort, and money. With an abundance of house flipping opportunities, you have your pick of the best houses with the greatest flipping potential.
Consistent cultivation to generate house flipping leads will lead to consistent, long-term success for your real estate investment business.