What is Driving for Dollars?
Driving for Dollars is a strategy of identifying potential investment opportunities by driving around and looking for properties that might be up for sale. The key concept is to look for properties that show a sign of distress. Signs of a possible issue are to be looked for and analysis needs to be done whether or not the owner of the property is looking to sell.
Driving for Dollars is a term used by the real estate investors to describe a method for finding great deals on houses. To accomplish this, an investor drives around until he/she finds a house that appears vacant or distressed and then attempts to buy that home from its owner. Driving around looking for houses is simple, however, the process of buying that home can come across as very complicated. It is tricky to find the owners of a vacant house. If the house is bank-owned it is practically impossible to buy it. Also, many home-owners do not want to be bothered by the passersby.
How does Driving for Dollars Work?
There are quite a few techniques that can be adopted to Drive for Dollars.
The first is to specify a target neighborhood where a house is to be bought. People mostly target neighborhoods where they already own rentals and where there is great rent to value ratio. The trick is not to buy the cheapest houses for rentals; however, the more expensive houses are, the less cash flow they normally have.
Investors also target neighborhoods for fix and flips. The key is to drive down every street in a neighborhood where prices have risen significantly, but there are many older homes. You look for homes that appear deserted and not well maintained. Houses that have maintenance issues indicate that the owner does not care about the house, is financially stressed, or has given up. Indeed, one of the best ways to make easy money by flipping is to add value by renovating a house.
When you Drive for Dollars, you have to keep your eyes open. You need to be always looking at houses, even when you are not working, or while driving to the houses you have already selected. Moreover, also look for vacant houses or homes that need work. You also need to watch out for FSBOs (For Sale by Owner) homes.
Why Driving for Dollars?
People often argue if this is the best way to find investment opportunities. Driving is a way to build a list of potential investment opportunities by researching in person and have first-hand knowledge of the property and its neighborhood. From here on forward, an investor does the research and contacts the owner to find out if the owner is a potential seller.
Driving for Dollars makes sense because it is easier to notice messed up, out of shape homes and make a judgment whether their owners are willing to sell. Driving around neighborhood parking situations, property types, cultural inclinations and degree of infrastructure development are observed and evaluated to identify areas of interest. It is analyzed whether the investors would be willing or interested to own a rental property in that area.
People and realtors in the area can be reached out to, to double-check the rates of the properties in that area. All the knowledge gained through this is more reliable as the investor has observed everything first-hand.
Driving for Dollars Versus Direct Mail & Advertising
Driving for Dollars is an arguably superior strategy of scouting for potential investment opportunities. An investor can see with his/her own eyes the visible signs of distress, the peeling paint, the destroyed roofs, the tall grass and the trash in the lawn. It can be judged from afar that a property is Problematic.
It is indeed a Time-Intensive Strategy as opposed to direct mail. Driving for Dollars lets you hyper-target properties and avail a significant discount on the purchases.
It doesn’t cost too much, juxtaposed to direct mail and advertising, where hundreds of thousands of dollars are spent. The only expense here is the time and gas for driving around. This makes Driving for Dollars fewer Cost-Efficient than the other strategies.
How to Identify a Potential Seller?
Driving around a neighborhood of interest, properties are to be scouted. Properties that are deserted and not in good shape are the first target. Land or building that looks decrepit, dilapidated, or crumbling down to rubble is potential investment opportunities. Houses with tall grass, destroyed roofs, broken windows, peeling paints and other signs of distress might be a good deal. Investing in these is a good idea as it will potentially generate profits with some sort of renovations.
Motivating a Seller for a Buyout
Outward visible signs of distress show that there is a higher chance that the property owner will be willing to sell at a significantly discounted price; this is called a Classic Motivated Seller. The investor just has to show up at a property: which has an issue; offer a solution: which would be to sell for cash. In this scenario, the owners might be willing to undersell when offered cash buyout.
The investors reiterate the property’s issues to the owners and make them want to sell and shift to a better home.
After studying the strategy called Driving for Dollars, it is understood that motivating the seller in person is much easier than over the phone or mail. However, if the seller does not live on the property, you can easily find out the mailing address of the property and contact the owner of the property through an online database.
If the property is deserted you can look up the property online in the databases and find out the contact information of the owner and reach them through phone or mail. The rates of the properties in that area can also be verified in person and a reasonable estimate of the investment can be formulated.
This makes Driving for Dollars a recommendable strategy to figure out if there is a potential investment opportunity in an area.