What are the 3 Sacred Ds of real estate investing? There are plenty of reasons you might need to sell a property or get rid of real estate. Some get unexpected job changes that require them to transfer to other areas, others might not like the way their neighborhood has expanded.
Did you wake up to find a big-box retail construction project too close to your neighborhood for comfort? When investing in single-family renovation investment opportunities the neighborhood should be at the top of your list of things to investigate. Neighborhoods aren’t the only things that can change unexpectedly–changes in marital status also play a big part in the decision to buy or sell real estate, investment properties, or not.
Sacred D’s of Real Estate Investing
Real estate investors with experience know there are some life-changing events that can lead to investment opportunities for the right kind of investor. These are sometimes referred to as the Sacred D’s of real estate investing–things that lead to people selling property off, and often at deals hard to find otherwise.
What are the three sacred Ds of real estate investing?
Death
There’s an old saying. “Death is a part of life.” This is definitely a truism to remember when looking at an investment opportunity that is created by the death of someone who has surviving family members anxious to dispose of property after the owner has passed away. Some won’t want to live in the home where their loved one died, others can’t afford the upkeep of a property left behind after a family tragedy. Death is, cynical as it may sound, an opportunity for both buyer and seller.
The seller may simply want to be rid of the real estate, or be so eager to move on that the price they set for the property seems a bit like a “steal”. It’s important to strike a balance between the needs of the seller and the needs of the buyer. Some investors may be tempted to give in to their urges to indulge in some profit-taking, but if the seller isn’t happy with the deal this could come back to haunt you before–or after–closing day. It’s best to work up a fair deal in these cases. Keep in mind that the seller won’t always be as distracted by personal issues and may change their mind about selling in cases where it begins to seem like the transaction isn’t doing much for the seller’s bottom line.
Yes, the right buyer can help a seller in a time of grief. But keep in mind the old saying; “Pigs get fat, hogs get slaughtered.” Keep an eye on being fair and equitable in these cases for the best results.
Divorce
Divorce is another of the Sacred D’s of Real Estate Investing. Consider the person who got married, bought a house, but later had trouble and wound up getting a divorce. If one party or the other cannot afford the home on their own, they wind up in a predicament; sell the house for a net loss, or rent it out? One option here is to offer the home to a third party under a “Subject To” agreement. If you don’t know about such arrangements, now is an excellent time to research your options.
Debt
Debt is the third of the sacred D’s of real estate investing. From credit card debt causing a move from ‘homeowner’ to ‘renter’ to being “underwater” on a home mortgage causing the need to short sell or foreclose. Debt is profound, and it is everywhere. The homeowner with too much debt may have to sell short, offer a deed in lieu of foreclosure, or simply allow the property to go into foreclosure in cases where there is too much debt and the borrower can’t save the home.
Some view real estate investors as a sort of problem solver option; a real estate investor could help the homeowner out (depending on circumstances) by arranging a private sale pre-foreclosure which can help the borrower avoid the damage to their credit rating that comes through an actual foreclosure sale. Borrowers who need to sell their home because they can no longer afford the mortgage payments should know one very important thing–the lender’s participation is usually required in these cases so be sure to discuss your private sale and pre-foreclosure sale options before dealing with an investor.
Real estate investors should be prepared to work with the current loan servicer depending on the nature of the transaction. A home owner’s debt may lead to a real estate bargain, but knowing at which stage in the process the homeowner is at (in terms of missed payments, the need to arrange a pre-foreclosure sale, relevant dates, and deadlines, etc.) will be an important determining factor.
Thanks for this post, Jim. My wife and I plan to purchase our first rental property in the next year and those two shows are now in my Podkicker.
Do you have a recommendation for how you can identify when any of the 3 D’s are coming into play, and how you can move on such an opportunity? I can see how they’d be beneficial to a real estate investor but I’m not entirely sure how to learn about these situations, other than word of mouth.
Well, just off the top of my head… You could read the obituaries, find a few to investigate, search the tax records (public information) of some of those deceased, then send them a letter with an offer. I have checked tax records before and sent a letter stating my interest in purchasing a home but I got no response. I bet if you did this 10 times you would get a response. Hope that helps!
Awesome post, Jim – thanks for the shout out! It’s sad that these situations happen to people, but the interesting thing is – investors aren’t there to take advantage – investors are there to help solve a problem. I would never buy a house from someone who wasn’t excited to sell to me – because I was solving their problem!
Thanks for the great post!
Thank you Brandon, agreed, sometimes investors get a bad wrap by being portrayed as ‘money hungry opportunists’, but that is simply not the case. The good deeds done by investors, often go unnoticed!