Using a buyer’s list in real estate investments can be complicated or very simple if you approach it correctly. The hard part comes when you don’t understand the focus and the beginning of the list. The simple part is how it collects the names for the list.
A buyers list is used to sell properties to buyers so that the seller does not have to wait for people to come to the property through extensive advertising. Expensive advertising includes realtor® commissions. Even with a 5% commission on one sale, this equates to $25,000 per year in just five sales of $100,000 each. Multiply this by 20, 50 or 100 properties and the numbers are staggering.
In addition, real estate agents generally use the Multiple Listing Service (“MLS”) to advertise for property to be sold by other Realtors®. These other agents bring their own buyers to view the property and are paid half the commission. All this takes time that can extend to months or years depending on the area and the price of the property. Investors have to sell as quickly as possible to reduce their holding costs and make a profit.
Real estate investors have become proficient in developing ways to sell properties very quickly without paying a real estate agents commission. The most notable of these is the use of a list of “hungry” buyers who have previously expressed interest in purchasing wholesale homes, rental units, or even rehabbed properties that are move-in ready for retail buyers.
The buyer’s list is very important to the continued success of all real estate investors. Unfortunately, most do not realize this until they have to sell their properties to a small group of buyers who are not in a competitive bidding situation. This results in the investor not earning as large a profit as they could if the sale were made in a competitive marketing situation.
As the investor builds his buyer list, he must categorize his potential buyers into “subgroups” that are essentially niche buyers. These include, but are not limited to, homeowners, wholesalers, rehabbers, end buyers. Each of these groups of buyers will pay different prices for the same property if it meets their specific needs. For example, wholesalers will pay less because they want to resell the property, so they need to have enough margin to make a profit.
Rehabbers will pay more than wholesalers because they are the wholesalers’ target audience and are looking for After Repair Value (“ARV”) for their larger spreads. Homeowners are focused on return on investment (“ROI”) from rental income and will typically pay more than wholesalers or rehabbers. Ultimately, the final buyers are where the greatest profit exists. Ultimate buyers are homeowners who purchase the property to live in.
Each of the various types of potential buyers can be advertised or found using normal investor strategies. There are more than 25 of these techniques that will find hungry buyers who are just waiting to buy the investor’s property. End-buyers are fickle in the sense that once they want a home to live in, they keep looking until they find it. Owners are picky because they don’t always have the financing to buy more units. Wholesalers and rehabbers are usually always “ready to buy” if the property is a great deal.
The investor who builds his list must be equally conscious of finding properties to offer to his prospective buyers, even when he does not have any of his own. He can work with other wholesalers, rehabbers, and homeowners to sell their properties and share in the profits if a buyer gets off his list. By offering “good deal” properties as often as possible, he is able to make a living without having to search, rehab and resell to the retail market.