Last week I had the opportnuinty to interview Dave Anderson, a former Home Vestors franchise owner and full time real estate investor. A few years ago Dave walked away from his job as a software executive to pursue a career in real estate investing. He has now purchased over 100 single family residences and multiple apartment buildings in the Houston area. I wanted to find out what an experienced investor would say to a person who was considering selling their home to someone like him.
The first thing I asked was what drew him to the job in the first place. Surely an executive at a major software company could expect little initial financial gain from single family investing- his answer was flexibility. “I want to be available to pick my kids up from school. I like that I no longer have a corporation telling me what I’m going to earn. If stuffs going to get done, I know that I’m the one that’s going to do it. I’m in control of my income.” He also referenced his love for rehab saying, “I love taking something that’s beat up and turning it into quality housing. I believe everyone deserves a well run, quality place to live.”
Dave says he’s always upfront with people when he approaches them about purchasing their house. “They know I’m an investor and they know they’re going to be selling at a discount. What I offer is speed, convenience, and a cash offer. Sometimes I have to be completely honest with people who aren’t willing to accept a small discount in exchange for these variables, and tell them I’m not their buyer.”
Dave’s found that in his career he’s come into contact with two types of sellers- ones that are financially motivated, and ones that come to him for convenience. “A lot of people think investors are down at the court house buying foreclosures, but that’s really not a large source of my leads. One typical scenario I’ve encountered is someone who’s inherited a property. Usually it’s been vacant and has about 10 years of deferred maintenance. There’s really nothing worse than a vacant house. Empty houses attract rodents, vandals, and crime. They better hope they have insurance.” He goes on to say that most of the people that come to him simply don’t have the cash to make the house market ready, and must attempt to sell it as is. “A house like that is not in a condition to sell because your average retail buyer, or one searching on har, doesn’t want to work to repair it and doesn’t have imagination. Most people won’t buy a house with dirty carpet, much less one with foundation problems or one that’s been through a fire.”
The investor goes on to describe what he calls a lead funnel. “At the top of the lead funnel is a perfect house- there are lots of buyers. But as you get to the bottom of the funnel, say from mold to foundational problems to burn damages, there are less and less buyers, even within the investment community.”
Assuming a median income of $50,000 for a family of four, most people don’t have the cash reserves to make the kind of repairs needed to make their home ready for a retail buyer. Their only option is to sell to an investor. One of the things people don’t think about that makes rehab so much easier for an investor is their access to reliable contractors. Most investors always work with the same people or have a crew that works for them exclusively. The idea of having to do repairs, and finding a trustworthy contractor is more than most people are willing to take on.