Owning your own business has two separate parts – doing the “business of the business” and marketing to get more customers or deals. Both parts of the business are equal amounts of work.
The “business of the business” is what the business does – carpenters build things, bakers bake things and real estate investors deal in real estate. The marketing component of the business is how you get something to do – how the carpenter gets a house to build, a baker gets a store to sell his good from and how a real estate investor finds deals. Lets call those activities “getting the business” or “marketing.”
Marketing works in the form of a funnel – lots of leads coming in and a few customers or deals coming out of the bottom. A key understanding is that you must get a lot of leads, put them through your “funnel” to eliminate the deals you will not do and to land the deals you will do. Many real estate investing businesses fail to ever get off the ground because investors don’t source enough leads for properties. So they never fill the top of their funnel, which means few or no deals will come out of the bottom of the funnel.
In your real estate investing business the “marketing” involves locating properties to screen and the identifying a few to make offers on. Assume you need to screen one hundred deals to identify twenty deals you want to make offers and negotiate on. You should then “do” a deal or two.
The efficiency of your funnel – meaning how many prospective deals convert into done deals will depend upon how fertile your source of leads is in terms of seller motivation – meaning the seller wants to get the property sold and is less concerned about price than he is about getting the property sold. Sellers become motivated due to external pressures – foreclosure, need to free up capital, pressures from heirs in an estate, fines from a municipality, governmental pressures to sell (ie REO properties). The more motivated the seller the more efficient your funnel because a higher percentage of sellers will accept your offer if more of them are highly motivated to sell even if they wish the price were higher.
Recognize that your deals done is the result of a funnel. For example when I was sourcing properties from Sheriffs sales my funnel was as follows: I would look at a list of 275 properties; identify 50 – 60 I wanted to screen; perform my screening (electronic due diligence on line and driving by the properties); and then every sixty second or third auction I would have a profitable deal available to buy at a price I wanted to pay. I stopped sourcing deals that way because the funnel was too inefficient – meaning it was too much work to source deals worth doing so I moved on to other leads. But I still have a funnel – many properties sourced and a few deals done.
Many investors fail because they pick a very inefficient lead source (like a retail realtor) and then become discouraged when they make a few offers which are not accepted. Those investors don’t recognize they are in a funnel – which needs a lot of potential deals at the top of the funnel to spit out a few profitable deals from the bottom of the funnel.
If you are not getting the deals you want then identify what your funnel is. Then pick a lead source, look at one hundred potential deals, pick 20 to make serious offers on and follow those offers through to either a successful negotiation or a final rejection from a seller. Measure your success rate from leads at the top of the funnel to deals done and evaluate. If the success and profits were worth the work then continue and if they weren’t then think about how you can get better leads – which means more motivated sellers.
Most important understand that finding deals to feed your real estate investing business is necessary. The prospective deals are the top of a funnel and most potential deals will fall through. You need to push the prospective deals through the funnel to land the few that can be deals for you.