YFP REI 122: Deep Dive: 4 Tricks for Finding a Deal

David Bright and Nate Hedrick share four creative strategies to consider when looking for investment properties in 2024.

Episode Summary

As the housing market continues to be competitive with low inventory and high home prices, it can be hard to find those good investment deals. Drawing from their own experiences, David Bright and Nate Hedrick share four strategies to consider when looking for investment properties in 2024. 

From looking at properties with problem tenants that landlords are looking to move on from; to properties that have been on the market for several days; to properties that are back on the market after failed inspections to finding properties with hidden potential, David and Nate share creative ways to find deals in this competitive real estate climate.

About Today’s Guests

Nate Hedrick is full-time pharmacist by day, husband and father by evening and weekend, and real estate agent, investor, and blogger by late night and early morning. He has a passion for staying uncomfortable and is always on the lookout for a new challenge or a project. He found real estate investing in 2016 after his $300,000+ student loan debt lead him to read Rich Dad Poor Dad. This book opened his mind to the possibilities of financial freedom and he has been obsessed ever since. After earning his real estate license in 2017, Nate founded Real Estate RPH as a source for real estate education designed with pharmacists in mind. Since then, he has helped dozens of pharmacists around the country realize their dream of owning a home or starting their investing journey. Nate resides in Cleveland, Ohio with his wife, Kristen, his two daughters Molly and Lucy, and his rescue dog Lexi.   

David Bright is a pharmacist with a heart for teaching. He’s been a full-time professor since 2009 with a passion for implementing and improving pharmacy services. Themes of “implementing and improving” in the pharmacy space are quite similar to themes of “building and fixing” in real estate, which has been a growing hobby for David and his wife, Heather, who bought their first house more than ten years ago. That fixer-upper house became a live-in house flip, which they sold a few years later, only to repeat the process with their next house. When David and Heather got sick of perpetually living in a construction zone, they pivoted to fixing up rental properties in West Michigan, where they now live. 

David invests in real estate as a way to bring greater diversity to financial planning and to fund memorable life experiences with family and friends.

Key Points from the Episode

• Real estate market trends and pricing strategies. [0:06]
• Real estate investing strategies in a wild market. [4:01]
• Tenant leases and property ownership transfer. [7:50]
• Challenges of buying distressed rental properties with tenant issues. [10:30]
• Finding undervalued rental properties through MLS remarks and agent tips. [13:47]
• Real estate investing risks and strategies, including low-down payment options and managing days on market. [20:13]
• Factors contributing to property not selling after 30 days on market. [24:26]
• Real estate inspections and contingencies. [28:12]
• Real estate inspections, risks, and potential for negotiation. [32:50]
• Real estate investing strategies in a tight market. [39:24]

Episode Highlights

“We’ve been fortunate to buy several houses so far this year, we’re on track with where we want to be so things are still getting done. It’s just taking some extra work, some extra strategy, some extra just intentionality in the purchase process to make that happen.” – David Bright [4:19]

“Owner occupants are looking for something a little different than investors typically are. As investors, we’re looking for something that’s hopefully right at market value, maybe even a little bit discounted. And so we’re thinking through different strategies to get that done.” – David Bright [5:04]

“There are some bad landlords out there. And sometimes the bad situation that they’re selling is their fault. And if you can come in and have a level head and be a decent human being you might be able to find a good deal and help everybody involved.” – Nate Hedrick [14:42]

Links Mentioned in Today’s Episode

• YFP Real Estate Investing 120: Deep Dive: Converting to Highest and Best Use 
• Subscribe to the YFP Newsletter
• YFP Disclaimer
• Your Financial Pharmacist
• YFP Real Estate Investing Facebook Group
• Nate Hedrick on Instagram
• David Bright on Instagram
• YFP Real Estate Investing Website
• David Bright on LinkedIn
• Nate Hedrick on LinkedIn

Episode Transcript

Nate Hedrick  00:06

Welcome to the YFP Real Estate Investing Podcast. I’m Nate Hedrick.

David Bright  00:09

And I’m David Bright. We’re both pharmacists and real estate investors that believe that real estate investing does not have to distract from a meaningful career in pharmacy.

Nate Hedrick  00:18

Each episode, we share stories that educate and inspire pharmacists to leverage real estate investing as a part of your financial plan.

Nate Hedrick  00:30

Hey, David, how’s it going? 

David Bright  00:32

Good, thanks. How you doing, man? 

Nate Hedrick  00:33

Good. It’s vacation season, also known as summer for us. And it’s just been, it’s been good time. It’s the home buying has been a little crazy. But the vacation part has been it’s been good.

David Bright  00:45

Yeah, the market has been a little odd. And before we hit record, you and I were both venting to each other that, you know, it is just been an odd market, like, at least in my world, and you have better stats, because you’re an actual Realtor, right? Like, you know, the stats better than I do. But from where I’m sitting, there’s just not a lot of houses on the market. And when they hit they are moving so quickly, even if they need a lot of work. 

Nate Hedrick  01:09

We’re seeing similar I mean, my anecdotal evidence is that we’re seeing an uptick in inventory, at least a little bit. But what’s interesting is that it seems like the good houses, right, the ones that are priced well and ready to move into are still fairly low. And those are selling crazy, fast, crazy high, like just always bonkers. But we are getting more of these like outlier homes where maybe it’s these a lot of extra work, or it’s priced really poorly, and just kind of somebody’s asking for the top dollar. So we’re seeing a little more inventory, but it’s not always good inventory, which is kind of a bummer. 

David Bright  01:46

Yeah, we’re exactly what I’m seeing. There’s houses out there that I’ve reviewed several times, and there’s something I could do there. And they’re just, there just isn’t it’s just priced like wild or something’s terribly wrong with it. Or, or then we offered 20% of over ask the other day, all cash, waived inspections. And this was a hoarder house and we said leave behind anything you want. Just lock the door on your way out, we’ll take care of it. That didn’t even get it 20% over ask, all cash. We couldn’t get that house. So I couldn’t believe just how competitive it’s getting. Even for some like a hoarder house that needed a lot of work.

Nate Hedrick  02:25

Yeah, I again, I think I am surprised. But I also am not surprised. Because those houses that are like that are just there. They’re cutthroat like that when they’re priced right, it’s it’s hard. Yeah. 

David Bright  02:39

I know that the pricing like it’s something we probably should dive into deep one episode of like, how much strategy goes into pricing, because I do see people that will lists a house just a little bit below, maybe where they think it’ll sell, it’ll attract a ton of traffic and a bidding war. And if they’re just a little bit too high, or sometimes even a lot too high, you won’t get any traffic, nobody looks at it, nothing at all, when you’re trying to squeeze top dollar.

Nate Hedrick  03:06

Yeah, I mean, again, not to go off on a tangent because I think it’s a super interesting subject. But I was just talking to this. I’ve got a client that’s listing a house here on Friday. And we were just talking this morning about that. And I said, Look, here, here’s where the market value is. Now here are strategies for how to price that. And what I find is that if if, again, if I can choose a strategy that makes sense for their situation, for example, they want to sell this quickly because they’re buying another home, and they’re already under contract. So our strategy is to list it slightly under market value and try to get those offers to come in quickly. Yeah, I’ve got some sellers who are like, I want as many dollars as you can get for this. I don’t care if it sits for three months, like keep it high and wait for the perfect person to come around. And sometimes that works. Sometimes you get more dollars, but sometimes it doesn’t. And so like you really have to go into it with an idea of what’s market value. And then what’s our strategy because it it can get complicated for sure.

David Bright  04:01

Definitely, definitely. Now, we’ve said often that we’re here for education and inspiration. So I do want to bring us back to know it not just venting and whining about the market, right You know, it’s fairness in In fairness, you were just saying that you’ve closed a lot of transactions this year already in the first half of 2024 as a realtor. We’ve we’ve been fortunate being able to buy several houses so far this year, we’re on track with where we want to be so things are still getting done. It’s just taking some extra work some extra strategy, some extra just intentionality in the purchase process to make that happen. 

Nate Hedrick  04:37

Actually, I’ve been lucky even here in early June. We’ve done we’ve done five transactions for buyers and then several more for sellers and I’ve got a few more in the pipeline that are still cooking so yeah, we’ve been we’ve been busy with that but it they’re not all they’re not all deals, right like a lot of these are good move-in properties. I’ve got buyers that are buying properties that they themselves are living in, but they’re not all all great real estate investing deals, if that makes sense. 

David Bright  05:04

Right, because owner occupants are looking for something a little different than investors typically are, right. As investors, we’re looking for something that’s hopefully, like right at market value, maybe even a little bit discounted. And so we’re thinking through different strategies to get that done. And so, particularly with the market just being really wild right now, we thought this would be a great time to do a mid year market, check in and talk about some of those strategies we picked out ahead of the episode for tangible strategies that we think work in today’s market, because they’re things that you and I are actively doing. 

Nate Hedrick  05:37

And what we try to do is to make this useful, whether you’re buying a single family home, or a small multifamily, whether it’s a house hack, you know, whether you’re buying short term or long term rental, whether you’re buying a house to flip like it should apply to just about any situation to give you a few more arrows in your quiver that investors can use to to make sure they’re not overpaying for an investment, and try to avoid some of those bidding wars, or at least be armed when you go into one of those bidding wars if that’s if that’s the route you’re going. 

David Bright  06:06

Right. And we want to be cautious that we’re not here to say if a specific property is a good deal or a bad deal, because just like you said, that owner occupant that you’re helping to buy a house, they’re super happy that they found their dream home, right, like criteria is different when you’re occupying it, versus when you’re investing when you’re investing for different strategies. So it’s not a good deal, or a bad deal. It’s talking about how to find properties at a discount instead of paying a premium for that property.

Nate Hedrick  06:34

Yeah, I mean, you mentioned that really well, I think it’s worth worth expanding on that even if you know, you might buy a property that doesn’t cash flow, and 80% of people that look at that are gonna say that’s a bad deal, right? You don’t cash flow every single month. But if you know, for whatever reason that this is an appreciation play, and you just needed to break even, or that you see market rents going up, and you’ve got market factors that you think are gonna drive it up. And that’s the reason you’re going into it, it might be a great deal for you. So yeah, assessing whether something is a good or a bad deal is not something we’re gonna be able to do sitting here. But we can do is kind of go and give you a snapshot of just some of those strategies and, and give you an idea of of ways to attack the market that you might not otherwise have thought of. So I’ll hit them really quickly. We’ll dive into each one of these, but just so you have kind of that 10,000 foot view of where we’re going, we’re going to talk about looking for properties that might be tenateded, or especially those that are tenanted with problem tenants will look at paying for houses that are that are higher days on market. And what that means we’ll look at properties that are back on market after failed inspections, this is actually how I bought my first investment property was a back on market home. And then we’ll look at properties with hidden potential and what that means. And that’s something we’ve talked about a little bit in the past. But we’ll kind of reiterate some of those those tricks here as well.

David Bright  07:50

Yeah, so let’s let’s just dive right into the first one that that problem tenants or properties that are already tenanted. And so I know we’ve talked about that a little bit on the podcast so far, but but this has been one that seems pretty effective, particularly as landlords are thinking, you know, the markets coming up, I got in, maybe pre-pandemic, there’s a way to sell and move that equity and do something else. And so if a landlord is just kind of tired and done, particularly if they’re getting headaches from a problem tenant, they may be ready just to let it go a little cheaper. And so we found that to be very effective in competitive market situations, though. So I do want to back up and just share though that in a lot of jurisdictions, a written lease applies to property no matter who owns that property. So Nate, if you have a terrible tenant and a rental, and you sell me that house, the simple act of selling the house and the change of ownership, generally does not break a lease, right? Different jurisdictions, different laws, we’re not attorneys, all that stuff. But generally, I would not assume that just the transaction is going to break the lease. So instead, the lease transfers to the new owner. Sometimes that’s that’s referred to under this umbrella term of tenants rights, because it’s meant to protect the tenant from the surprise need to move out just because the landlord says, well I’m selling on Friday, you gotta go. So Nate, I know that’s how it is in my neck of the woods. Is that how it works in Cleveland? 

Nate Hedrick  09:17

Absolutely. And a really good clarifier that like, you don’t get to just wipe out the lease. I’ve actually seen this posted on places, like bigger pockets and Facebook REI groups that I’m in, where they’re like, hey, just bought a new property,  is this a cool letter to send as like a new lease for the tenant? And it’s like, Oh, you just facepalm like, you don’t, you don’t get it, man. It’s not how it works. So yeah, really important to understand what leases in place today, how that that lease is operating. And this is also why I recommend for my clients to get what’s called an estoppel agreement, which is something that you can put in place to make sure that everyone involved understands the terms of that lease, specifically the tenants. So what you’ll do is everybody sign this agreement that says, hey, all three parties think this is what’s going on. We think this is the security deposit, we think this is the monthly rent, we think this is how long the lease is in place, it just gives you that that extra backing of like, okay, when I buy this, this is all the baggage that’s coming with it. Because if there is a problem, and you think it’s going to go away in a month, because you think the lease is going to end, but it’s actually another 12 months of that lease, that’s a whole different ballgame. So you have to really understand that stuff inside and out. And actually ran into the situation fairly recently, we actually had a property we were looking at, and the tenant had a really long term lease in place. And they were actually getting getting some assistance through through a voucher program here in Cleveland. And basically, through lack of either lack of landlord bothering or lack of communication, I’m not exactly sure, the property failed their inspection for that voucher to kick in. And so the the, the voucher program stopped paying the landlord, the tenant stopped paying the landlord. And so this landlord was sitting there with a valid lease, but not collecting any rent. And the eviction process was going to be months and months and months, because again, they weren’t actually doing the repairs, they needed to qualify as a lead, like a listing. So it’s one of those kind of classic examples of like, everybody’s real frustrated in that situation, you might be able to come in as a new non-frustrated party, understand all the terms of what’s going on, hopefully, and then come in and buy it at a discount, and then take over and start start managing it better, right? So that’s, that happens all the time where these problems come up, and just everybody wants to get up and be done with it. And so it’s a it’s an opportunity for someone new to show up.

David Bright  11:45

Yeah, even as I hear you explain that story. Because I know we talked when that one came up just as an example of like, man, if you believe this, even as you explained how, just poorly that whole thing had unfolded, how it just became a lose, lose lose for everybody involved. Tenants are living in a property that’s in disrepair, the landlord is not taking in any rent, the voucher program, they want this person to be in a good situation…nobody’s winning. Right? Right. So that story was, I mean, it’s pretty intimidating, even to me who’s been a landlord for a while. So I can see why there would be not a lot of demand for something like that, right? It’s not investors lined up to take on a really ugly problem like that. 

Nate Hedrick  12:25

I mean, as soon as I pitch that to a, to an investor or buyer, right, it’s gonna be like, Whoa, that sounds like a whole bunch of headaches. Even if I send that to a really good property manager, right? Like if I, if I picked up that deal and said, Hey, property manager that I’ve worked with for years, can you help me sort this out? They would be like, Oh, Nate, I don’t want to unwind any of this, like, no, I don’t want to do that. And that’s so yeah, there’s a deal there, right for somebody that wants to deal with a headache, but you got to be the right team, the right person, to unwind all that mess.

David Bright  12:56

Yeah, and but that is, then if you’re willing to roll up your sleeves and do that work of fixing the management issue, then you may be able to get that property at a discount, because that landlord may just be so frustrated, and so ready to walk away. Particularly like we’ve, like we’ve said, when real estate values have gone up so much, that landlord probably has a decent amount of equity. And they may just be willing to let it go for below market price just to be done with it, because they probably have enough equity to do that. You know, there was one example of a property with a non paying tenant in place in my area. And I’m sure this scared off a lot of investors, because who wants to buy a property with a non paying tenant and where you know that immediately after purchase, you have to go to court and you have to start the eviction procedure. And that doesn’t sound like a lot of fun. And that’s kind of how it was shared with us right away. But we started looking into the property a little more, we did the showing, we learned that the tenant wasn’t paying because there wasn’t heat at the house. And I’m in Michigan, like you need heat and a house in Michigan in the winter, right. So, you know, we saw an opportunity here with with being able to rectify the situation a little bit. So when we bought the house, we fix the furnace, like immediately, and the tenant was thrilled. And it was it was wild, because it was like a $200 repair or something like it wasn’t even this huge thing. But the tenant started paying right away. So sometimes it is a really ugly situation. There’s kind of gradients of ugly, and we were willing to jump into something that wasn’t quite what you were describing, but it was like the furnace is out. Let’s get the tenant some heat. Let’s make this make this a better situation for everybody. And then maybe we can we can get some goodwill and we can get this working again.

Nate Hedrick  14:42

Yeah, it’s good reminder that like there are some bad landlords out there. And sometimes the bad situation that they’re selling is their fault. Like it’s just their fault. And if you can come in and have a level head and be a decent human being like he might be able to find a good deal and help everybody involved. So yeah, it’s a great reminder David, I’m glad you shared that story.

David Bright  15:01

It’s sometimes it’s just the reset button of new people like it could have just gotten like, so ugly between everybody involved like, okay, new person. Let’s try this again. Yeah.

Nate Hedrick  15:11

So I, you think as you’re talking you, obviously were talking to how this works for like a long term rental, but you do also do a fair bit of flips. We’ve done some flips together in the past, like, would this sort of strategy work for flips? Do you think?

David Bright  15:26

So kind of, I would say, it depends on what you mean by house flipping. Because, you know, a lot of people think of like more the true IRS definition of a house flip where you, you buy it with the intention to immediately fix it up and sell it. And so if you’re, if your intention is to do that, well, that’s not going to work, because there’s probably a lease in place, and there’s probably time left on that lease, and that tenant is going to stay there for a while. But if if your goal is to buy the property at a lower price, and then just as time happens to, like, very few tenants will stay in a property for dozens of years, right? Like, oftentimes, someone will move out in two or three or four years. And so at that point at which the tenant moves out, if you are able to get that property at a pretty serious discount originally, and then they move out, you could fix it up and sell it at that point. And so you get the selling for a game piece of a flip, but not necessarily a timeline of a flip.

Nate Hedrick  16:25

That makes sense. Yeah. And typically, we call that like a tired landlord scenario, right? 

David Bright  16:29

Yeah. And I think we’ve probably both slipped and said that term a few times, right? Like, oh, I know, at least I have like the tire landlord scenarios, just as classic situation someone’s had a house for a while, they may not have raised rents in a long time. Now they have a house with a long term lease in place. Nobody’s interested in buying a house with this super low lease that’s got a lot of time left on that lease. And so there may just be really limited demand, and the price may be therefore pretty low also.  So we bought a house like that earlier this year, where the rent is about 60% of what it should be, like pretty seriously discounted on a pretty long term lease. And so we got the property at what I would say is somewhere in the neighborhood of 20% under market value in that case, because the tenant was living there. An owner occupant can’t really jump in and buy it because they would want to move into it and someone with a long lease, they can’t happen and not a lot of investors want something that’s cashflow neutral, and you know, kind of like right before we hit record, I sent you a house like I may be crazy I want to buy this house it doesn’t cash flow like Am I crazy? But sometimes that’s a way to to get a property at a discount to deal with limited cash flow or no cash flow for a season. 

Nate Hedrick  17:46

Is there any, you know thinking about this is there any good ways to find a property like that? Because I can’t just search Zillow for like, bad houses with bad debt. Like there’s no like, I can’t Tinder profile that, right? Like how do I find these houses?

David Bright  18:02

Nobody types like tired landlord in the MLS Ddescription. There’s no keywords for this! Yeah. So what I do and then tell me if you have other strategies when you look for stuff like this, I like to look for houses where there are no interior photos at all. Or photos where the interior photos of the property are where someone has not even remotely cleaned up for the MLS photos. Like there’s dirty dishes in the sink, the beds not made, there’s toys all across the floor, you know, it looks like like probably all of our houses do at some point, but nobody takes MLS pictures like that, unless it’s it’s a tenanted situation. And, and there’s just not a lot of care to make sure that it’s gonna sell for top dollar right. And so in those kinds of situations, photos like that are probably going to turn off a lot of buyers and then I get intrigued that that may be some kind of where the landlord and the tenant don’t have a great working relationship with a landlord as a tenant, could you clean up for the photos and then that’s what it looks like. 

Nate Hedrick  19:05

Buyer insider tip I guess on this is that you should become a real estate agent. No! Because I have because I have access to the MLS I get access to the broker remarks which are like notes from broker to broker. And a lot of times you’ll see stuff in there that isn’t for public comment, but it’s like hey, you know, seller wants out because blah blah blah and like they’ll actually put stuff in there sometimes you’re like, call me to discuss because blah blah blah. And so sometimes you can actually find those notes hidden right in there. And so asking your agent to look for those or being agent yourself is kind of a good trick to tap into some of those.

David Bright  19:39

Yeah, and on the on the I’m not a licensed Realtor side of things like that I will routinely text my realtor and say like, Hey, can you get the scoop on what’s going on with this property to see about like a little bit of detective work. Because even if there’s not a lot of great notes on the agent side of the MLS when a Realtor picks up the phone and calls another Realtor and is like, look, before I waste anyone’s time, just tell me what’s going on. By my understanding is a lot of realtors will kind of tip their hand a little bit because, again, nobody wants to waste their time. They want to find a buyer. They don’t want to just get showings.

Nate Hedrick  20:13

Has this ever I mean, again, I know we’ve done this a couple of times, you and I, you more than than myself, but any any, like, bad stories stick out of when this like doesn’t work out? Because like I get how it could work out. But obviously there’s a problem to begin with. So like, give me a bit give me a bad example how this can go.

David Bright  20:32

Yeah, I know, I know. You’ve got a real bad one too. Painful eviction that you had to deal with that happened. But yeah, I had one where we even did the estoppel agreement where everybody agreed that like, yeah, there is a move out coming, the tenant will move out, the lease is over, this is done. Six months later, the tenant moved out. So they just dragged their feet. And it was during a period of COVID, where evictions were very time consuming. And and so it didn’t happen. And so I had that property for six months with no rent coming in. And then when we went to check out the property after the tenant moved out, we found that they took the furnace with them, which was new to me. I had like, yeah, the tenant took the furnace. Fortunately, like we were going to replace the furnace anyway, it didn’t end up being a terrible thing for us, like we plan to that. But like, it was just one of these like, did that actually happen? So yeah, there can be some, you know, fortunately, that’s not the every time right. But you do need to be prepared that if it is a problem scenario, where there is a problem landlord/tenant relationship there, you do need to understand that things can go wrong, and you should should have some emergency fund ready to go. 

Nate Hedrick  21:55

That’s a really good point. Like I’m, I’m always amazed that people that are like, Oh, buy real estate with low or no money down. It’s like, well, what if all these problems come up, like your tenant steals your furnace? You don’t get to get away with that was low and no money down. I just, I like the idea, again, as a risk averse, boring pharmacist, I like the idea of having that safety net of, you know, if all this breaks bad, I’ve got six months of expenses saved up for just this house, and I can take care of it. Because otherwise, like what what’s the alternative? Do I start just paying out of my HELOC to take care of this investment property? Like you have to have a better plan than that? And I think approaching this any other way is just setting yourself up for a big mistake. 

David Bright  22:38

Yeah. And we’ve had like, I don’t mean to make that sound like the normal story, right? Like, that’s a pretty odd story, right? We’ve had several that have gone much better than that, where we’ve bought the property and the tenants have continued to pay for a long time. And then they eventually move out. And then we fix it up between tenants and the next person moves in, and it’s fine. So like, there are a lot of times when it’s fine. There are definitely times when it’s not fine, though. And that’s part of part of real estate investing.

Nate Hedrick  23:04

Yeah. And hey, if the $5,000 furnace, if you bought the house for $35,000, under market value, like you just made 30 grand, right. So you have to put it into perspective, I guess it sounds all bad. But it doesn’t always have to be.

David Bright  23:16

Exactly. And that’s part of the buffer of buying a property at such a it’s such a low price relative to market value. You can absorb some of those things that could go wrong. So yeah. So then let’s, let’s shift gears to the second strategy, high days on market. And so with your realtor hat on this days on market, or DOM is like a realtor term. Right. So can you walk us through what that means? 

Nate Hedrick  23:44

It means, in its simplest, simplest form, it’s just how many days is it have been available to the public to purchase. So if I listed it on June 1, every day that it’s on the market is one more DOM and it adds up over time. And typically, what realtors will tell you is that the first two to three weeks are the most important time periods – that first 21 days on market are sort of the the time where it’s getting its most exposure. It’s most interesting and it’s new and fresh and everybody’s looking at it. After that as you start to drag on and different markets will have different thresholds, but as time drags on, and those days on market tends to become more numerous. The house becomes kind of sits there, right, it’s less likely to purchase.

David Bright  24:31

Yeah, I know with even before any kind of real estate investing, I know if a house had a for sale sign in front of it for months and months and months, you start to wonder like what’s wrong with that house? Why is nobody buying that house and so is that is that kind of the concept then behind the definition of as it sits there longer and longer, the days on market goes higher and higher, there’s probably something wrong with it?

Nate Hedrick  24:53

I think so. I think that’s part of it. Right? I’ve definitely heard that sentiment from buyers before. I think the other thing is just the way that the algorithms work for things like Zillow, things like even MLS auto emails, right? Like, if you think about it, when I put a property on market, everybody who’s watching that market for that, that type of property gets an email blast in their inbox in that first week, and then if we drop the price in two weeks, maybe three weeks, right, because it’s not selling, they get another email blasts, hey, look at this property you might have missed. And then on Zillow, it’s like, hey, there’s a new property in your neighborhood, check this out. So like, there, it’s getting, they’re getting hit over the head with this property. Once you reach like, three months, you’re no longer seeing it in front of you, all these other properties are hitting you over the head, so you don’t get that kind of feeling anymore. So even if even if it’s not that sentiment of like, maybe there’s something wrong with it, it’s just no longer front of mind. And so it just kind of falls to the back, even if it’s not a bad property begin with.

David Bright  25:49

Yeah, so then if it’s, if it’s sitting there, and it’s not selling, especially in a hot market, like like today, you know, the the problem, problem property kind of thing could be there. But like we’ve mentioned before, too, there could be something about the list price, right? Is it Is that something in that factor?

Nate Hedrick  26:06

Generally speaking, and this is what I’ll advise my clients, especially if they’re selling is that if we sit on market for X amount of time, right, it’s going to be market specific, we’re probably just priced too high, right? I can give you an idea of market value, I can give you an opinion of value. That’s what we’re here to do. But the market itself is going to bear that value. Right? If I think it’s worth $250,000. And we’re getting no showings and no offers, it’s probably not worth $250,000, right? Like, if we’re priced right, they’re gonna buy it. So it typically is that it’s priced too high. Or like you said, there’s something truly wrong with it. Like, I’ve seen properties that are priced fine for the area, but it’s a massive foundation issue or, you know, it needs a new garage, and no one wants to pay for it. And it’s going to be $20 grand in cash to like get it all fixed, right? It just, there’s a problem that’s preventing that house from being actually worth the amount that it’s worth.

David Bright  27:02

Yeah, we saw one recently, where the roof was so bad, someone had just patched it with sheet metal just nailed into the roof. And so it’s like you do not need to be a licensed builder or a roofer to understand that like big sheet metal patches on your roof is probably a bad sign. Right, like things like that may. But you know that that’s something that we’ve started to look for it in my market is once the house has been on market for 30 days or more, which, again, right now, if we were talking like 2009, that’d be normal, right? But that’s still be low days on market. But right now in this season, 30 days on market without it having gone pending is is pretty high. So to me, that’s that sign the price is too high, something’s wrong. So particularly, and I don’t know what you would you advise clients to do as far as when to make a price reduction. But we tend to see, at least in my market price reductions tend to happen about the 30 day mark. So if they haven’t reduced the price, yet, we may make a low offer, figuring that they’re probably thinking about a reduction anyway. And so maybe that’s a good time to jump on, you know, five or 10% below list price. Maybe we could get it at that point.

Nate Hedrick  28:13

Yeah, I think it’s smart. And especially because you know, your market, right? I think for me, it would come down to what the strategy is. So if the strategy is list this at what we think market value isn’t just sit, I might not recommend a price reduction for six weeks or more. If then yeah, if the strategy is like, we want to get this sold, and we want an offer within a month, like those are ones where I’m going to price it competitively and I’m going to drop the price in two weeks if we don’t get an offer, right just to keep it front of mind get it moving try to get someone to pick it up. But again, it depends on the strategy.

David Bright  28:47

Yeah, yeah, we’ve we’ve even done that where we have a little bit of an odd an oddball house for some reason, something’s just a little different about it. We’re really not sure what the value is. We may even go high for a week or two with the plan to drop it right away if we’re just like testing the market like that.

Nate Hedrick  29:02

So you’re you’re kind of like the like Walgreens, right, like originally $24 But now $12.99 You’re like Oh, it’s so good. I can’t possibly pass this up. Right marketing strategy that I like it. And you know, it kind of reminds me of the third strategy we’re gonna talk about too and that’s looking at properties that are back on market specifically those that are back on market after like a failed inspection or for some reason going under contract and then back out of contract. I think you were telling me recently like before we hit record that this this worked out for you recently you you’re able to succeed with this

David Bright  29:36

Yeah, we we did get one just a few weeks ago like this where it went it came back on the market and it came back on the market after you know a week or so. So to me that fit the timeline of someone got a home inspected inspection and someone kind of got scared. But I know we often say like “fails a home inspection” but it’s not really a pass/fail sort of thing like a take a course or an exam, right? Like, it’s not like an inspection isn’t really good or bad. It’s just can you explain a little more from a realtor standpoint of what you’ve seen in buyers?

Nate Hedrick  30:10

Yeah. So the way I explain it, like when I’m working with a buyer, the decision point, the the scary part is when you waive inspections, right. So when I put an offer on a property, and I put a seven day inspection window on it, I’m basically saying I want to buy this property, but I want to think about it for seven days, right? And my thinking about it is getting an inspection and really kind of mulling it over and so on. And so anywhere in that seven days, I can cite the inspection as my reason for walking away and get my earnest money back. And it’s really kind of a no harm, no foul situation, I might pay a little bit in terms of an inspection fee or whatever. But that that decision point, once I waive those, those inspection contingencies, I’m pretty locked into purchasing that property. And so what we often see is that people who get to that point, they may have been enough to get over the hump of putting in an offer, but they may not be at the point where they’re ready to buy that home. And it could be something truly was found on inspection. It’s problematic, and they don’t want to deal with it. Or it could just be that like, once they got into it, they realized this wasn’t their house, and they they’re no longer in love with it. And so that’s that that happens all the time. 

David Bright  31:17

And that’s, I think we should probably mention that that’s an Ohio thing. And a Michigan is pretty similar. Some states that inspection contingency works a little differently. So another reason to work with a realtor that knows your local jurisdiction rules on these kinds of things. But absolutely.

Nate Hedrick  31:34

Doesn’t have to be state specific. It can be MLS specific. I’m really glad you clarified that because I think I put my Realtor hat on and like stuck in Cleveland, Ohio, right. But I’ve worked with buyers all over the country through the concierge service. And we had one where the MLS put in a rule. So their local Board of Realtors put in a rule that if you try to walk away for an inspection, you have to give…well, how did it work? You had to give some sort of..oh, you have to give the report like that. Either you have to give the report or give the exact things you want fixed as like a bulleted list. And the seller gets three days to basically respond to that. And we had a buyer that basically wanted out, did that give them a list of like 40 something items of stuff and like well, they’ll no one’s gonna say yes to this. They give them the full list because they wanted out. And the seller said, Yep, I’ll take care of all those. And they’re like, oh, shoot now. Now what do I do? Like I’m, I’m kind of stuck. Like, unless I burned my earnest money, I’m really stuck. So you got to watch. You’re totally right. You have to watch what your local ordinances are. Ask your agent like, hey, if I put this offer in, what exactly does that mean? How do I walk? And how do I get stuck? Because those are really good questions to ask before you, you are in that position.

David Bright  32:50

Yeah, and there’s probably something there too, about your risk aptitude as a buyer, because I know like, like you mentioned, when we when we flip houses, we’ll run into things where like we had, we had a house we sold recently where the roof was about 10 years old. And if it has a 20 year life expectancy, and it’s 10 years old, to me, that doesn’t rise to the list of like, we need to fix this, like it’s got another 10 years left on it. But if buyer did a home inspection, the home inspector said you’re going to need a roof in the next 10 years. And they said, Okay, we’re calling that a fail, and we’re walking away. And I was really surprised by that. We fortunately had another buyer come along that they also did a home inspection. And they bought the house, like that didn’t fail for them. So just because a house fails an inspection, and somebody backs out leveraging that inspection contingency, it doesn’t necessarily mean there’s something bad for every buyer, maybe just bad for for that buyer.

Nate Hedrick  33:50

Yeah, it’s funny, I am dealing with that actually, right now with a client, we had a radon inspection done. And the level came back below the EPA requirement or the EPA risk level of four, but above the World Health Organization limit of two. And so there’s some gray area there, like there’s no safe radon levels, like when do you mitigate? Like it’s only a $1,500 fix, maybe $1,000 fix. But if the seller is like Well, I wouldn’t mitigate that. And the buyer is like, well, I don’t want to live in that house with that level of radon like, okay, that becomes a point of discussion. And so yeah, it can be something as small as that, that that actually puts the buyer off.

David Bright  34:30

And I like what you mentioned about the report too, because for some of these things, it is really very objective like that. If it’s reading 3.1 then if you disclose that, then someone may not even have to do that inspection again. They could just say like, oh, okay, well, I’m fine with that. Or you know what, I’m not fine with that. I’m not going to write an offer and so it can clarify that kind of thing. But, you know, we did that for the property that we were talking about earlier where it It fell out of contract and went back on the market due to failed inspections. We reached out and said, Hey, what’s going on? Why did it fail? And the agent on that end, and I don’t know if this is all that normal or not, but they just sent the full inspection report, they said, here’s like, all 60 pages of the PDF, read it, if you like it, you know, you can walk it, if you don’t like it, we don’t need to bother each other further, it was it was really kind of win/win in that in that standpoint. So we were able to do that, put some numbers together and write an offer, where the offer took into account, some of these things that were hidden, and that we would need to take care of.

Nate Hedrick  35:34

Yeah, we’re actually I’m doing that on a listing about coming up right now, where we’re getting a pre inspection done with the basically, the sellers want to move this property quickly. And so the hope is, hey, we can throw that report at anybody that wants it like, look, this is everything, like give us your offers, knowing this is what’s going on. Because we don’t want to monkey around like we want to get this under contract, and when we’re gonna move forward. So yeah, you can, you can do it lots of different ways, for sure.

David Bright  35:59

Yeah, and sometimes on the investor side, that can look like a way to, to get a house at a lower price, because you’re walking through that inspection piece. And you’re recognizing, these are the things that need done and just creates a very objective conversation of like, you know, I recognize that you didn’t know that the furnace was bad. But when they put the CO analyzer up to the furnace, it’s got a cracked heat exchanger, like it needs replaced. And I know you may not have known about this, but this also needs replaced. And so as we do that, we can say, well, and this is why our offer is going to be this much less than the list price. But I think we can I think we can do this, if that works for you.

Nate Hedrick  36:40

Yeah. And obviously you don’t want this to come off as like you’re taking advantage of a bad situation. It’s not it’s not what you’re doing. You’re not trying to just leverage why this thing is broken, like, see you later, or I want a bunch of money back, you know, from a seller’s perspective, like they’re, they’re just trying to sell the house. In most cases, sellers are done with the property. They’re not trying to fix a bunch of stuff on the way out the door. And so it’s just, you know, it’s, it’s a piece of the puzzle, you have to put it all together, and try to take everyone’s best interest into account when you’re when you’re looking at these things.

David Bright  37:11

Yeah, kind of like the tired landlord scenario, right? Like if that landlord is just ready to be done. And they don’t want any more headaches. They could walk away from closing when you when you bought it at like a low price, right? They may the seller may walk away from closing, like dancing, how happy they are, as they have sold the house, right? So just just because it’s a bad situation for one person doesn’t mean it’s a bad situation for the next. And that’s where the real estate transaction can can make that work.

Nate Hedrick  37:39

Yeah. All right, we promise the fourth strategy. So let’s finish on that. The hidden potential, could take on a lot of meetings. In one meeting that you and I discussed, or we talked about, and part of the recent episode about use conversions. So where you can find a property and maybe add a bedroom as an example. We talked about that on episode 120. So we won’t repeat ourselves there. But David, what other hidden potential options are? What are their hidden potential things have you seen?

David Bright  38:05

Yeah, I think one one that we haven’t talked about, because I like the adding a bedroom and things that we talked about back in episode 120. If you’re looking for some creative strategies there, that’s that’s one place to go. And one thing we haven’t talked about would be ambiguity, or errors in a listing. Like one thing I often see is like when a house is listed at 1000 square feet on the nose, like I don’t know any house that’s like perfectly exactly 1000 square feet, right. So then you start thinking, and I may see something then like, square footing, square footage is estimated buyer to verify. And then it’s like, well, the listing agent, for whatever reason didn’t have the data, they didn’t have the time they didn’t have the something and so they they just put it out there and to check it out. In my market, it’s pretty easy to go pull the tax history and generally in the tax history, there’s a a sketch online, where the county assessor has identified exactly how many square feet that is. So if the listing says it’s approximately 1000 square feet, and I jump online, and I find that it’s 1350 square feet, well, hey, maybe there’s something there. Maybe they’ve priced this as if it’s a smaller house because it maybe it felt smaller or something like that. But maybe there’s a play there for some of these approximated, the ambiguity of the listing to have something come out there.

Nate Hedrick  39:24

Yeah. And I’ve seen cases where, like you said that bad data, that garbage data, even if it’s input in the MLS can can have pretty impactful results, because what most people are doing is they’re grabbing automatic emails from their agent that are generated using the datasets that you’re asking you to put in. So if I’ve got a buyer who’s looking for a four bedroom house, that is over 2000 square feet under $400,000. Like that’s a very specific subset of data we’re putting in well if you list a property and you don’t put any bedrooms in just because you missed it, or because it’s Well, it’s three, but it’s fine. Like they’ll someone will figure it out, that might not show up on on an auto email and it could get missed. Or better yet, like if you put in 2000 square feet, but you actually put in like, again, this doesn’t happen, but like 200 square feet, because you missed zero, like, there are 1000s of people who are not going to get that listing as a result. And so bad data can actually result in some pretty interesting opportunities, especially if, if you see it when someone else doesn’t.

David Bright  40:27

Yeah, and I’ve seen errors in bedroom count, just like you’ve said, those, those things can really make a difference. And if and if nobody catches it, or if that just creates a smaller buyer pool and less competition, the house may still sell, it may still sell close to value, but it may be an opportunity to get something in a in a tight and competitive market.

Nate Hedrick  40:50

And I think you mentioned this a little bit before, but just to kind of land right on it. Bad pictures or limited pictures can be a really good opportunity too. We bought a property a couple years back and I still to this day, I think the only reason we got it is because it was like everybody was waiting for the pictures to show up. I just went and saw the house within an hour of it being on the market and put in an offer that day. And like it was great inside, but it looked terrible from the outside. And they hadn’t put any pictures up because the agent was either lazy or just hadn’t gotten around to it yet. And so I swooped on it and and got an awesome deal out of it.

David Bright  41:27

Yeah, and it surprises me how many times especially for investment properties where their tenanted access can be difficult things like that, where the listing agent may not have ever been inside the property before it was listed. Like I didn’t realize that was a thing. But apparently that’s a thing. Yeah.

Nate Hedrick  41:44

It shouldn’t be, but it is. Most often it like you said it’s because that limited tenanted access. Or sometimes it’s like these these REO own properties was the bank owns it, for example, and they don’t want anybody going inside. And so they’re like, hey, Agent list this property, it’s a four bedroom, two bath, don’t worry about it. And like take a picture of outside. And if that’s the dataset going in, there’s a lot of limited stuff there. And you can you maybe find some opportunity.

David Bright  42:11

Yeah, piling through the garbage listings, try to find try to find something in a tight market.

Nate Hedrick  42:17

The hidden potential, right.

David Bright  42:18

There you go. Yep. So I like that the four strategies that you and I both been using so far in 2024, to buy houses looking for properties tenanted with problem tenants, looking for high days on market, looking for properties that are back on the market after failed inspections and properties with hidden potential. 

Nate Hedrick  42:37

And of course, David, these aren’t just theoretical, right? Like, we have given a bunch of examples throughout this and how we’re actually using this in our day to day investing, right?

David Bright  42:46

Yeah, yeah. And one thing we should probably clarify before we, before we stop recording today is that you can combine the strategies, right? Like we had a we were able to purchase property earlier this year that had both problem tenants and high days on market. And I don’t know maybe it was high days on market because of the problem tenants. Right? It created a difficult situation. But we came in with a pretty low offer, and weren’t sure if we were gonna get it or not. But they ended up working. Similarly, we had a high days on market and a back on back on market where it took a while to get that first offer. The first offer didn’t result in them closing and they were excited to get rid of it. 

Nate Hedrick  43:30

Yeah. And I think what I really like getting realtor hat for a second, is that you’re not just blindly low balling all these, right? You’re, you’re going in with a rhyme and a reason, it’s a lot less work for us. Because you’re not just like, taking $100,000 on every list price and hoping for some miracle. There’s a strategy behind it. Right? There’s an intentionality behind it. So I think that that’s, that’s good for your realtor partners. And it’s just good for your success rate, too.

David Bright  43:55

Yeah, I’ve heard of people that ask Realtors like, Hey, can you write like 20 offers today and just like go 20% below whatever the listing price was, and just see if anyone will take it? Like that sounds….

Nate Hedrick  44:05

I mean, I get it. Like it’s evolved. It could be a volume game, but like, Does that ever does that work? I mean, I get maybe right, it must or else nobody would do it. Man, I can’t be that agent for you. I’m sorry. I just can’t do it. It’s not gonna work. 

David Bright  44:19

I get it. I like the you know, I think we’re all wired with like strategy and like pharmacology, understanding the why of how the drug works, right? And we want to understand, like, why this might work. And so this gives some hopefully some plausible reasons why some of these strategies might work. So it’s tough market, a lot of competition but hopefully this gives some some hope and some encouragement to write some offers this summer and  see if you can land an investment property. 

Nate Hedrick  44:45

Yeah, get out there and find something that nobody else sees. And if you post successfully pull that off, let us know about it. Head on over to the Facebook group, the YFP REI Facebook group or hit up David and I on on any of the social media platforms. We’d love to hear from you guys learn about what you guys are up to in the REI world because it’s it’s a crazy market right now and so hearing from you guys keeps it keeps it fun. Alright, enjoy the rest of your week and thanks for joining us.

David Bright  45:12

Thanks for listening to the YFP Real Estate Investing Podcast. If you like what you heard in today’s show, please leave us a review and subscribe to the show so you never miss an episode. If you have a question know someone that would make a good guest or want to connect with us head on over to yfprealestate.com and join the growing YFP Real Estate Investing Facebook group.

Nate Hedrick  45:31

As we conclude this week’s episode of the YFP Real Estate Investing Podcast an important reminder that the content of this podcast is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in this podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with their financial advisor with respect to any investment. Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and therefore may not be accurate at the time you listen to it. Opinions and analyses expressed herein are solely those of Your Financial Pharmacist unless otherwise noted and constitute judgments as of the date it is published. Such information may contain forward looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

David Bright  46:24

Thank you for your support of the YFP Real Estate Investing Podcast. Have a great rest of your week.

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