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Driving for dollars is a technique used in real estate investing for locating distressed properties or motivated sellers to market to. This method can be a great tool for finding your next real estate investment and can be done with little money and a little effort.
If you're looking for new ways to find your next off-market real estate deal, learn what driving for dollars is, how it works, and the most efficient ways to drive for dollars to see if it's the right technique for you.
What does "driving for dollars" mean in real estate?
Driving for dollars is a term used by real estate investors to describe the act of walking or driving in a specific geographic area, like neighborhoods, searching for likely leads to market to. It's a free way to assemble a list of possible motivated sellers to market to through a direct mail campaign or other marketing efforts, like cold calling.
How driving for dollars works
An investor interested in driving for dollars will drive through a neighborhood writing down or recording at minimum the address of any property that appears distressed. You can write this down on a piece of paper or in a notebook, on your phone or laptop in an Excel (NASDAQ: MSFT) spreadsheet or Google (NASDAQ: GOOGL) Sheet, or with DealMachine, a driving for dollars app. Some investors choose to record additional information beyond the address, including any notes about the condition of the property, and if desired, a photo of the home.
Distressed properties could include a house or property that is clearly vacant or not being maintained. Some indicators of distressed or vacant properties are:
- Overgrown lawn or bushes.
- Boarded up windows.
- Deteriorating exterior of the property from lack of care or maintenance.
- Mail or advertising piled up at the mailbox or near the front door.
- Code enforcement, property preservation, or bank notices on the front door.
Once the information is gathered and organized in a manner that makes sense for the real estate investor, the investor will conduct further research on the property and property owner. This includes searching in public records to determine:
- Who the homeowner is (including whether the property is bank-owned or owned by an absentee owner).
- The mailing address of the property owner.
- The property information (to eliminate properties that do not match your investment criteria).
- Whether the property is set for foreclosure or tax sale.
I like to research when the property was purchased and what it was purchased for. Many homeowners, especially after the 2008 financial crisis, are underwater and would require a short sale in order to sell their property because the value is less than the unpaid balance of their mortgage. Knowing when a property was purchased can also tell you how motivated they might be to sell. Someone who bought a home a year or two ago is a very different property owner than someone who bought the property 45 years ago.
Investors will use this research to create a final list that will be used for marketing, which could be direct mail or other marketing efforts.
Efficiency of driving for dollars
For some, the effort and time expended driving neighborhoods, collecting data, researching, and marketing isn't worth it. However, I feel the success of a marketing campaign from a driving-for-dollars list is directly related to the quality of data gathered and the quality of your marketing campaign.
Using a driving-for-dollars app like DealMachine can improve efficiency because the app tracks where you drive, will automatically search in public records to gather data on the owner, provide you with contact information, and even provide you with a deal-finders website or lead-capture page for the leads you market to.
During your research, you will find properties owned by banks or that are set for a foreclosure or tax sale in the near future. Knowing how the sale process works, whether it's set for a foreclosure sale or already bank-owned, tells you whether attempting to contact the real estate owner is worthwhile. Banks, especially big banks, have certain protocols they must follow when it comes to marketing and selling a property after it becomes bank-owned, and reaching out to them directly is a lost cause.
For this reason, many investors eliminate any bank-owned properties from their marketing list, but personally, I still include them -- I just market to them in a different manner than direct mail.
The last real estate fix-and-flip I purchased was found driving for dollars (actually walking for dollars) in my neighborhood and was a real estate owned (REO) property owned by a smaller regional bank. Rather than writing the property off because it was bank-owned, I found the right contact in charge of selling the property and was able to negotiate a discounted purchase price before it ever hit the market or was listed with a real estate agent. This deal resulted in thousands of dollars in profit, just by conducting quality research and choosing the right method of marketing to the seller.
The best ways to drive for dollars
The best way to drive for dollars is to identify your target areas and develop a system for canvassing the neighborhood and collecting pertinent data. Being organized from the start will reduce time spent driving and will improve efficiency when researching the property at a later time.
Using driving for dollars to find off-market deals in real estate investing can be incredibly profitable, but having a well-oiled marketing machine and strong negotiation skills will tremendously increase your results. It's important to keep in mind that just because a property appears distressed does not mean the owner is a motivated seller or a worthy lead to market to.
Track your results, determining what percent of leads are responding to your marketing efforts, and refine your marketing efforts or list data based on your results.
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