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Finding great property deals in a competitive market

Thursday, March 23, 2017

Have you ever asked yourself why is it that some investors are actively investing in this market while others have stopped?  When we hear 'the market is just too expensive to invest in' often enough, it is easy to trick our brains into accepting that as an absolute fact.  Don't lose sight of the fact that everyone is in a different situation.  A market that is simply too hot for another investor may be just ripe enough for you to get into.  Dig deep and ask yourself this, are you calling the market too expensive because you know it as a fact?  Or is this something you say to make yourself feel better about not investing?  

In any market, there are plenty of low(er) cost properties that people just don't want to talk about.  While news websites are busy obsessing over Auckland house prices (and really after three years of pretty much the same headline, is it really still news?!) some of the cheapest Auckland properties listed on Trade Me (as of today) are between the 150-200K mark.  Have you bothered to analyse these deals?  What about the opportunities that have not yet been discovered by listing agents?  What about beating the competitive market by doing things differently?  If everyone is logging onto Trade Me every day and camping outside auction rooms, why would you fuel the hype by going along?  Why not go against the grain and do something different?  


At his webinar to APIA members last week, full-time investor Roy Adams talked about investing in Direct Mail campaigns (just a posh name for mail-drops) to help him find deals.  Though unusual, Roy can certainly attest to their effectiveness.  So why is it that there are not more investors out there DM-ing potential vendors?  After all, it is a common strategy for real estate agents to get listings (how often do you get mail drops in your mailbox from your local agent eager to sell your home?).  Why do they still do it in the age of emails and Whatsapp?  Because DM works.  Essentially it is a game of odds.  You send out a message to a list of targeted recipients with the presumption (and eventual understanding) that a small percentage is going to respond to your campaign.  These responses then become your potential leads from which you can transact your business.  

Now, let's extrapolate this marketing strategy and put it into the property investment context.  By DM-ing potential vendors, you are increasing the number of property leads for you to analyse and choose to make offers on.  Say you are new to property investing and haven't built up a network of agents who would call you when a good deal comes to their table.  Your potential lead is currently 0.  So you spend $1,000 on a DM campaign sending out 1,000 letters at $1 each.  Let's say 1% of recipients respond.  All of a sudden, your potential leads have gone up to 10.  Out of those 10 properties, you may find one good solid deal.  What if the response rate is 5%?  How many good deals do you think you can find in 50 leads?  What if you scale up and send out double the number of letters in your second campaign?  Also, bonus points for wrapping up with a private sale to save on agent's fees! 


"But wait a pretty minute!" you may say, "I am a bona fide property investor, not some marketer selling people things they don't need!"  Rubbish!  First of all, you are a property investor.  That means you are running a business.  No business can survive without marketing its goods and service to potential customers.  When you are applying for finance, you are marketing yourself to the lenders as a viable deal.  When you advertise your property, you are marketing an accommodation service to tenants.  Secondly, you have got to get out of the mindset that marketing is about persuasion.  It is not.  Rather, it is a form of matchmaking.  You are not planting an idea in someone's head, you looking for someone who shares with you a common outcome.  Think of it this way, do you think your Trade Me rental ad forcibly persuades your tenant to rent?  No!  Your ad has nothing to do with your tenant's decision to rent.  You just got a call because he wants to rent from you.  In that vein, how would DM-ing private vendors be any different?  If someone already has it in their head that they would like to sell, then getting your letter only serves to prompt an action towards that outcome (which is, hopefully, calling you).  


There is a particular nuance to a DM campaign which we will be spending the next few weeks exploring.  For the time being, here are five home truths about DMs that you need to be prepared for: 

  1. It is not an exact science - While there are certainly ways to improve your conversion rate, you will not know your conversion rate from the outset.  The only way to find out if DM is worthwhile for you is to give it a go; 
  2. Be prepared to be persistent - One letter is never going to do it.  Repeated mailing is an important factor in the success of any DM campaign (across all industries); 
  3. You don't get to cheat the market - Ever heard of the saying pay peanuts and get monkeys?  Don't delude yourself into thinking that DM campaigns and private sales are a surefire way to cheat the vendor.  For sure part of the motivation is to pay at the lower end of the market range, but if you go around town sending out stupid offers then you will only get stupid responses.  Worse still, once you have that reputation, no one will bother responding; 
  4. Have a system - Be prepared to handle responses even before you send out your first campaign.  At the very least, you need to know the market value of the area, housing stock availability, the questions you have for a particular property, and the price range within which you are prepared to buy a property for.  Remember when a vendor calls you, he is already motivated enough.  Don't throw a bucket of cold water on him by being unprepared; 
  5. Keep your eyes wide open - People's initial responses to your offer on the phone is an incredibly powerful way for you to find out first-hand where the market is at.  DM is a gateway that gets you directly in contact with vendors.  Don't squander this great opportunity.  Keep your eyes and ears open and very soon you will be rewarded with real time market trends before the papers can even catch on! 
Pop back over to the APIA blog next week for the first part of our DM your way to a great property deal series!


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