Real Estate 033: What is Driving for Dollars?

For investors who are just starting out, there are many great options to gain experience and get your feet wet with little to no money out of pocket. I recently attended a 3-day real estate investing bootcamp where they introduced various concepts from buy and hold, fix and flip, wholesaling to multifamily. One of the strategies mentioned during the bootcamp was "driving for dollars".

For those who are not familiar with the term, driving for dollars describes a method whereby investors drive around neighborhoods and look for properties that look distressed or vacant and contact the owner of the home to make an offer on the property. You may have seen these types of homes in your very own backyard. They may have broken/boarded up windows, tall grass, and no signs of tenants/homeowners. This is a very manual method of lead generation, and as you may have guessed, not the most scalable and time efficient method either.

Wholesalers typically may use lead generation software to identify non-owner occupied homes that are in foreclosure, financial distress, short sales, FSBO (For Sale By Owner) among others to conduct their direct mail campaign and qualify leads. However, sometimes people hire others to assist in their efforts. A subset of driving for dollars can be referred to as "bird dogging", where these individuals find the distressed properties during their drives, and send it to a wholesaler or investor willing to pay for that lead. 

Note: Please make sure you do your proper due diligence and check with local laws and regulation to ensure that what you are doing is allowable/legal. Varies by State.

Once you have found a lead, you now need to contact the seller to figure out their motivation and "qualify" that lead. Lead qualification can quickly be done with three questions:

  1. Tell me about your property - Let the seller do the talking, and you will realize they may sometimes reveal much more than you sought. I have often encountered sellers disclose the amount of debt (e.g. line of credit, mortgage) remaining on the home, personal distress (e.g. death, divorce, or health issues), and other information that will help you understand the seller's motivation as well as strategies to purchase the property. For example, a seller looking to quickly move to another state may entertain a buyer taking over the property "subject to" the existing financing. On the other hand, a seller needing to pay off an existing debt may consider a full payment of the existing debt, and owner finance the remainder of the equity.

  2. What would you like to be the outcome? - This question will reveal what the seller has thought of in regards to terms and price. If you listen attentively, you may find the seller negotiate against themselves and give you more equity that you thought possible. Remember we are looking for sellers that need to sell, not want to sell. 

  3. If we were to reach an agreement, how fast do you want to close? - This question will separate the tire kickers from the motivated sellers. If a seller response with "less than 30 days", this is a sign that they are willing to hear reasonable offers and proceed with the transaction. The last thing you want to be doing is deal with sellers who simply "want" to sell may throw out unreasonable terms or price that eventually waste your time.

Once you have qualified the lead and negotiated the deal, place it under contract and control the deal. Maintaining control of the deal is the most important part. Once you have a good deal in your hands, now you have the option to use various strategies such as wholesale, fix and flip, or buy and hold. Since you have performed your own lead generation efforts without a middle man, it is more than likely that there is extra equity in the deal. In conclusion, driving for dollars is a great way for people who are starting out to network with other investors by sending them leads, and or acquire their own property with little to no marketing costs upfront.

As always, please make sure you do your due diligence and talk to your CPA/Attorney/Financial Adviser before making any investment decision.

Good luck!