455: Finding Below Market Deals With Property Radar

SHOW NOTES FOR EPISODE 455: FINDING BELOW MARKET DEALS WITH PROPERTY RADAR

Finding great off-market property deals has become more difficult than ever.  In today’s podcast, software developer and real estate investor Sean O’Toole shares how he was able to use his software expertise to design a platform that makes it easy to hack into public records to find those rare “diamond in the rough” off-market property deals at below market prices.

What You Will Learn

• How you can find quality off-market properties at discount prices in a matter of minutes without leaving your home
• What the two main types of foreclosures are and which is better for your market
• Why off-market commercial properties are so appealing
• How finding great deals sometimes defies logic
• Why some off-market sellers don’t care if they sell their property for less
• Tips for marketing to off-market sellers
• Why it’s better to look for properties that are hyper-local
• How to flip properties without making any improvements

About Our Guest

Sean O’Toole

After a successful technology career in Silicon Valley, Sean purchased and flipped over 150 residential and commercial properties.  He exited the market in 2006, right before the credit bubble burst.  Combining his technology and real estate experience, Sean launched ForeclosureRadar in 2007.  ForeclosureRadar was quickly recognized as a leading foreclosure information source, growing to help tens of thousands of real estate professionals prosper in an otherwise devastated market.  In 2013, Sean launched PropertyRadar, expanding beyond foreclosures to create a property data and owner information platform that powers thousands of investor, real estate professional, home service and other property-centric businesses.

More About Sean

• Started his career working for Silicon Valley tech companies
• Worked for 3 different tech start-up companies
  • First steaming video companies – worked with Mark Cuban before he sold Broadcast.com
  • Early hosting company – hosted Netscape
  • Worked with a PC firm that had a software service company
• When the dot-com crash happened, he had to look elsewhere for employment
• He was introduced to a guy who was flipping foreclosures so he could write software to help him with his business
• The guy showed him how he was getting an 80% return on capital with his flips

Moving into Real Estate

• He jumped in and started flipping houses himself
• In 2001-2002, he was also invested heavily in foreclosure properties
• In 2005, he sold a $450,000 house to a young couple that had a very modest income with one of those crazy loans that way too many people were getting at the time
• He didn’t want to sell more homes under the same circumstances
• He bought a commercial foreclosure property and ended up making $1 million
• He said he was going to continue focusing on commercial foreclosures as a highly “untapped” resource
• He started tracking every commercial foreclosure in California
• He focused on the development of software that could help identify and track foreclosure properties where there were recorded at the county recorder offices
• In March 2007, there were over a $1 billion in foreclosures
• There are two main types of foreclosures:
  • Judicial foreclosures
  • Non-judicial foreclosures
    • This type is the most common in California
    • It starts with a “Notice of Default” (pre-foreclosure) being filed with the county recorder
    • Next, there’s a “Notice of Trustee Sale” which sets the date and time of the auction
    • After the auction, the properties would become “bank owned” or is sold to a third-party
• He would go to the county recorder offices and collect these notices and would combine the notices with deeds and mortgages and the property information from the county assessor’s office
• This helped them to not only know the properties that were going to foreclosure but also all the details about the properties
• The difference with his software is that it would track what happens at the auction, and whether it was bank owned or sold to a third-party
• It was a unique service that mostly the auction people utilized
• Most auctions are not online and they happen mainly on the courthouse steps
• In 2009, as they were expand outside of California and into 5 states, he noticed some changes in the regulatory market and he foresaw that he may be out of the foreclosure business soon
• In 2010, he decided he would start tracking all kinds of properties – not just foreclosures
• His foreclosure property business peaked in 2013 when they had their most foreclosure subscribers

Broadening Out

• As the foreclosure market started to wind down, he thought he would refine the software to track all kinds of off-market properties
• There are lots of other ways to buy off-market properties
• His company was already astute at working with public records so they used that expertise to start tracking all property types
• Public records are a free resource but, with thousands of counties across the U.S., they also vary greatly in format and in the amount of time required to obtain the information
• Tax assessor records are mostly available digitally from other companies
• The county recorder’s office where you’ll find deeds, mortgage info, foreclosure notices, liens, judgements, etc., has very limited digital info.  For the rest of the info, you have to have someone look at the docs and transcribe the info.  You can sometimes buy the data from companies who do the manual work like Sean’s company does

Biggest Mistakes

• His father was a logic professor and Sean is a software engineer – everything about him is logic
• Early on in his real estate career, he had people who wanted to sell their houses to him at prices that didn’t make any sense and he would argue with them about the price
• Other people would end up buying the property for less than he was offering
• A mentor he had at the time told hi, “You need to stop applying your logic to the situation.  Listen to the seller’s logic and what they want and need and give them what they need, even if it doesn’t make sense.” (he wanted to pay more than they were asking)
• He struggled with what his mentor said and had trouble getting good deals early on because they just didn’t make sense to him and he figured something had to be wrong
  • He met this one woman who had a house on 3 acres of land in a good area
  • The land was covered with farm equipment and other stuff
  • He estimated the value of the property at $500,000
  • She had a $220,000 loan
  • She told Sean, “If you write me a check for $20,000 today, I will sign the house over to you.”
  • He had to assume the loan as well
  • Sean couldn’t believe the deal — it was too good
  • Sean said he would find her a realtor that would help her get a better deal
  • The lady told him, “You don’t understand. My husband’s kids are not my kids.  They’re crack addicts.  I can’t get them out of the house.  I have restraining orders.  I don’t feel safe.  I need $20,000 to move and restart my life.  You can get a home equity line to clean the property up and take care of it.  You’ll make over $200,000 if you sell it. I just need $20,000 TODAY!”
  • He finally got it and bought the land

Biggest Success

• He found this Taco Bell that ran up the middle of this shopping center – it cut the shopping center in half
• The Taco Bell, itself, was small but it’s parking area almost went through the middle of the shopping center
• A big REIT (real estate investment trust) had bought the shopping center
• The guy who owned the Taco Bell was a pretty interesting guy
  • Borrowed a lot of money from people in the town
• The REIT bought the mortgage on the property and could take control of the property, foreclose on it and finish up
• Sean went to the auction and, the morning of the auction, Sean wasn’t really paying attention to the property, and they dropped the bid to a very low amount, like $600,000, and it got Sean’s attention
  • Fortunately, Sean had a friend who was a major commercial developer who was met him at the property at 10am
  • Sean’s assistant did the title research
  • Sean estimated that, if this property was fixed up (if he put $1 million into it), it would be worth $4.5 million
• Sean scrambled and started bidding on the property
• The REIT started bidding against him
• They didn’t think anyone would be bidding against them
• What a lot of people don’t realize (but what Sean knew) was that the bank could not bid any more than the amount that was owed on the property.  The bank was owed $1.1 million.
• The bidding surpassed the $1.1 million
• If they go over that amount, they have to pay cash and now the REIT was scrambling for the cash
• Sean won the bid!
• 15 minutes later, Sean got a call from the head of economic development from the city saying, “Hey, I don’t know what you think you’re doing but the property entitlements are only under the other guys’ names.”
• Sean asked, “How did they get the entitlements under their name if they didn’t own the property?”
• The head of economic development said, “Well, you just don’t understand. I think you should just sign the property over to them  They’ll be happy to give you a check. You’ll have no chance for developing this property.”
• Sean called his attorney who, in turn, called the city attorney
• The head of economic development ended up calling Sean back saying, “Hey, you must of heard me wrong because you told your attorney a bunch of crazy things.  Of course, you have the entitlements.”
• The REIT ended up suing Sean
• Sean ending up settling with the REIT and made $1.25 million in 60 days

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• Flipping for cash can be very lucrative and good
• It’s hard when you’re going to make $60,000 on a deal to, instead, keep it as a rental property and only make $500 per month
• His advice:
  • Stay local
  • He’s seen a lot of people go half way across the country to get better ROI
  • Living in California, it can be very hard to find a good deal
  • But putting the time and energy into finding a good deal
    • Looking into public records, you can reach out directly to the property owners
    • Talk with them
    • You may have to talk with 50 people to find one deal, but that’s better than having an asset half way across the country you have very little control over or have to put a lot of trust into someone else
  • Sean started off with a 2-hour drive distance purchase rule and has reduced that to 30 minutes – he likes everything he owns to be no more than 30 minutes from where he lives
    • A lot of great deals happen in your area that you don’t even know about
    • You can use his app to find those properties
      • You can search for what properties have flipped around your area to see what kind of money people are making
  • You aren’t going to see good deals on market, but you can find great deals off-market
  • He has customers that are doing hundreds of deals
  • It’s definitely harder than it was in 2009 but the deals are still out there – you just have to dig a little harder
  • Because of the Covid foreclosure moratorium, there are some pretty good deals out there right now
• The trickiest part is finding your niche
  • There are 12 million in California – 140 million nationwide – Which ones should you focus on?
  • You can’t just do the absentee list that everyone else is doing – those owners are getting tons of letters a month
  • You need to differentiate yourself and the types of properties you seek
  • He talks about it in terms of chocolate and peanut butter
    • The data is the peanut butter
    • What you bring to the table is the chocolate
      • Maybe you’re good at talking to people on the phone
      • You have construction experience
      • You have a friend that can do foundation fixes
    • There are over 200 search criteria on PropertyRadar you can look under to find you niche
      • For example:  Search for absentee owners who bought a property free and clear in 2009-2010
        • Those people probably made a killing
        • They probably have a tenant in the house they bought
        • They may want to sell right now due to Covid related issues (eviction moratorium, etc.)
        • Or major they may just want the csah now
        • If you reach out to them with a congratulatory letter
          • “Congratulations!  You timed you purchase perfectly!
          • “But if you want to sell AND keep your current tenant in place, I’d love to talk with you.”

Current Business

• He’s currently focused on going national and having his service cover the entire country
• He continues to bring in more data sets
  • They added a “vacancy” search criteria recently
  • They have other search areas they want to add
• They want to offer special services for key groups like note buyers and others
• They’re also very excited about sharing public data with other local small businesses
  • For example, you own a coffee shop in the area
    • Whenever a new person moves into the area, send a postcard inviting then to come in for a free cup of coffee and say hi

Hot Areas

• Realtors
  • The home market is booming now
  • It’s very competitive
  • Big lack of inventory
  • You have to be reaching out to home owners of off-market properties
• Real Estate Investors
  • Look hyper-locally
  • There’s a lot of people moving right now
• All opportunity comes from change
  • Most people hate change
  • Sean loves change
  • Covid has created many new opportunities – you just need to find those opportunities
    • Office buildings?
    • Retail?
    • Co-working spaces?

Rap-It-Up

• Favorite real estate book: Don’t Get Voted Off of Real Estate Island by Mike Cantu
• Favorite business book: Ogilvy on Advertising by David Ogilvy
• Most valuable web site for success (other than your own): ForeclosureForum.com
• Favorite app: Slack
• Favorite quote: “The mediocre teacher tells.  The good teacher explains.  The superior teacher demonstrates. The great teacher inspires.” – William Arthur Ward
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Find a really good mentor (a great place to find those guys is at the foreclosure steps – they know how to pay all cash without title insurance)  And I would tell him that I would do all the work if he would provide the capital and mentorship.  He would have the knowledge to keep me from making mistakes.

How to Reach Sean

• www.propertyradar.com
• Social Media: Facebook, Twitter, LinkedIn
• Community.propertyradar.com

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com