(From our June 7, 2021 newsletter.)
If you’re a home owner, you probably get a lot of mail from investors offering to buy your property. Fast, fair, cash, no contingencies, blah, blah, blah. We’ll close whenever you like. We’ll lend you a truck to haul away your stuff; we’ll even clean up whatever you leave behind.
Most people don’t know it, but most of those offers come from wholesalers. They don’t really intend to buy your home. They will secure a signed contract with you, then try to assign or “flip” the contract to a fellow real estate investor. The “B-side” buyer will either hold the property as a rental, or renovate and resell it on the MLS. Typically a wholesaling middleman in Denver will mark up the purchase price by 5 or 10 grand.
The A-side buyers may be posting “bandit signs” on telephone poles. (WE BUY HOUSES!) They’re called bandit signs because usually they violate some local sign-posting ordinance.
Then there is the vast world digital marketing, also determined to separate you from your home. Advertisers on Facebook and Google can track your travels across the web. By installing a snippet of code (a “cookie”) in your digital profile, they can chase you all over the web, retargeting you with “sell your home” ads.
Almost invariably, wholesale offers undercut what you’d get in a conventional MLS-listed sale. Even in the absence of commissions and closing costs, in selling to an investor, your net proceeds will be lower. Lowball investor offers are unacceptable to most homeowners. But to some, the quick cash and non-contingent terms are worth the financial hit.
There is a conceptual split between the world of wholesalers, seeking to buy your home, and retail brokers (called “realtors”) who aim to represent you in a third-party sale. But there is much in common between the two camps’ marketing methods.
Here I must pause and admit, I’ve done all of the above. Direct mail, paid Facebook ads… Back in 2010, I posted signs declaring, “The Sock Puppet Speaks.” They directed people to visit TheSockPuppetSpeaks.com, where a videotaped puppet implored people to call about selling their home.
In many areas, people grew resentful of the signs, and started ripping them down or slashing them with knives. An entrepreneur invented the Sign Stapler—a long-handled tool designed for posting signs 10 feet above the ground, out of reach of the slashers. I still have a Sign Stapler is in my garage.
Around that time, I’d been writing monthly freelance articles about real estate for the Denver Post. The editors knew nothing about my signage exploits, which began right around the end of my four-year gig with the paper.
An editor there once asked: “Those signs on telephone poles—those are a scam, right?”
I had to think hard. I knew several investors who were posting signs. Was it illegal? In a small way, yes. Were they plotting unethical rip-offs of unsuspecting homeowners? Absolutely not. For the most part, they were fair-minded business people; creative marketers just doing what they thought might work.
Return to St. Louis
My first-ever investment property was the result of a bandit-sign posted in 2010. It went up on Alameda Parkway in Aurora. It was not the Sock Puppet variety. The sign simply said WE BUY HOUSES, with a phone number. I got a call from the owner or a nice brick bungalow in the Cole neighborhood. We closed the deal at a fair price. Eleven years later, I still own the home.
Last month I wrote about a recent excursion to St. Louis. My Denver-based clients and I were there for two days hunting for investment properties. Single family homes in the north end of St. Louis County can be bought there for less than $100, 000. Fully rehabbed and ready to rent, they are trading at prices around 20 percent of what you’d pay in most any part of Denver.
Our search continues—some of it on the MLS. The real bargains, we expect, will come from our own marketing aimed at sellers. Our paid Facebook ads have begun. We have spoken to two sellers in the past week, and made offers to both. We’ll be returning to St. Louis for a three-day house hunting trip next week.
Not every property we find will suit our needs. When we run into assets we can’t buy to hold, what will we do with them? You guessed it—wholesaling.
We are assembling our team of contractors, property managers, realtors, and bird dogs. But one character, once prominent in my prospecting activities, will play no role. He will remain retired, dusty and nearly forgotten, in the sock drawer.
Book of the Month
The Anthropocene Reviewed
By John Green
The author strings together reporting and commentary on an untethered array of topics. Including Canada geese, air conditioning, sunsets, the city of Indianapolis, the QWERTY keyboard, the Nathan’s Famous Hot Dog Eating Contest, Halley’s Comet, and Diet Dr. Pepper. It is reminiscent of John McPhee, who is famous for making the most mundane topics interesting.
The Anthropocene, if you’re wondering, is “the current geologic age in which humans have profoundly reshaped the planet and its biodiversity.” So says Amazon.com. Whatever. That’s a bit gimmicky, titling the book with a term nobody knows. Each essay ends with a rating of its subject matter on a five-star scale. The city of Indianapolis, for example gets four stars. The rating system is a gimmick too.
But the essays are superb, full of insight and wit and details and facts you’ll never forget. The book itself gets five stars.