What about the Competition?

Some bargain hunters are overwhelmed by the thought of competition. “There must be dozens, hundreds, thousands of other bargain hunters out there. They may be more experienced than I am. They may be brokers and attorneys. What chance do I have?”

Well, “Damn the competition- full speed ahead”! In real estate I’ve found that the best way to handle the competition is to ignore it. This is particularly effective because in most cases the competition is mainly in our minds.

Yes, other brokers and investors will indeed be in competition with you. but not all of them at the same time. Once you limit your location and discover the type of property you want (your style), you’ll find that you’ve eliminated 90 percent of your competition. As for the 10 percent that remains, not all of them will be actively looking on the same day you are. Some will already have found bargains and will be out of the market. Some won’t have the cash or financial resources available when the bargain appears. And others won’t be looking at the same spot you happen to be when you discover your bargain.

Don’t Underestimate Inertia

Never underestimate the power of inertia. Few of us really put forth the energy to get us off dead center. While you’re out there actually looking, chances are that 99 percent of your remaining competition is sitting home thinking about looking.

When you find your bargains, you will often discover that you’re all alone, with nobody else around at the moment competing with you. I’ve often found that to be the case.

You don’t want to hesitate because bargains are like honey. Just as honey attracts bees and flies, bargains will eventually attract other investors and treasure hunters. You have to be ready to act immediately.
 
Get a Game Plan

Finally, you need a plan. In many respects this is the single most important asset a bargain hunter can have.
Do you need a game plan to win at real estate bargains? Think of it this way. The Patriots or the Rams or some other top pro football team comes to the stadium for the Super Bowl. Before the game they huddle around the coach, who says to them, “Let’s get out there and win!” The players give a cheer. Then, as they run out onto the field, one of the tight ends asks the quarterback, “What are we going to do? What’s our game plan?” The quarterback shrugs his shoulders and says, “I don’t know. We’ll just pass the ball around a bit and see what happens.” Sure they will, and at the end of the game, they’ll be down by 40 points. In order to win, football teams have a strategy that they follow. Usually, the team with the best plan wins.

Bargain Game Plans

It’s the same in business and particularly in real estate. It’s not enough just to look for and find bargains. You must have a plan for what to do once you’ve found the bargain.

A very successful bargain hunter I know never buys a piece of real estate, no matter how much of a bargain it seems to be, until he has a firm “escape plan” in mind. This is a plan for getting rid of the property and collecting his profits. Here are some typical game plans, or escape plans, for real estate bargains:

Immediately resell (flip) the property for a profit.
Hold it long term and rent it out for cashflow and/or tax benefits.
Refinance it to get your cash out; then hold or dump it.
Trade it for other property.

The game plan should be thought out well in advance of a purchase. For example, if your plan for a particular property is to resell it quickly, you should see to it that when you make your purchase the financing is easily assumed by the next buyer so that you will be able to get out quickly.

Or if your game plan is to hold it long term, you should see to it that the payments are sufficiently low that you won’t have a negative cashflow. (As investors know, a negative cashflow means that your expenses exceed your income.)

The investor friend I mentioned advocates having at least two escape plans —one long term and one short term. Your short-term plan may be to resell quickly. But if for some reason that proves impossible, your long-term plan may involve holding and renting the property until you can sell it.

Find a Mentor

Many of the hidden bargains include foreclosed or seized properties. Although the purchase procedure is usually outlined in detail by the seller, not all of the consequences of the purchase may be obvious. The property could have a redemption period during which the former owner has the right to take the property back even after you’ve bought it. Perhaps there are hidden mortgages or other liens against the property. Or the condition may be much worse than you think.

All of this goes with the territory, and as you become an experienced bargain hunter, you’ll know how to deal with it. Initially, however, it can be confusing and tricky. Therefore, my suggestion is that if you’re just starting out, try to find a mentor, someone who’s been through it before and can pave the way for you.
Mentors include other investors, real estate agents, attorneys who specialize in bargain properties, and even people who work for the various sellers. It could be almost anyone who is knowledgeable about the workings of the market in your area and is willing to take you under his or her wing. Look for such a person.
 
TIP
 
Attend foreclosure seminars. These are held across the country by various lenders and public agencies. Their purpose is to help people who are threatened by foreclosure understand the process and their rights. You can sometimes meet people in foreclosure who want to sell their properties, so this is a potential source of business for you. However, you can also meet others like yourself who are investors and who can potentially become mentors.