BY DANIEL HART ON MARCH 9, 2022
Daniel Hart says full-time investors don’t just spend more time investing, they also take a different approach, in that they treat it as a business. Real estate is actually a people business, that happens to involve houses, so full-time investors know they need to be working with people to create deals, not just browsing listings, or looking at wholesaler emails that pass by. Click here to read more.
The most critical part of treating it like a business is one that’s critical to any business; Marketing. Full-time investors spend a great deal of effort (and often money) marketing to motivated sellers. This could be the owner of a property that has code violations, a landlord who recently filed an eviction, or an heir who inherited a property. I have lists a mile long of motivated demographics, but what’s most important is that you’re actively reaching them, and reaching them with a message that resonates with them.
People respond to marketing that invokes emotion. They either react to a message that brings about a feeling of pleasure, or the feeling of avoidance of pain. Our marketing needs to connect with them on that level, and be relevant to their specific motivation, which we are usually aware of before we contact them.
However, marketing isn’t art, and it’s often mistaken for it. Fancy graphics and professional letters are rarely an instant success. It’s the message that matters. Instead, what we need to do is treat marketing as a science, because at it’s core that’s what it is; something reproducible with identical steps. With testing, tracking, and continual modification, we can drill down to a sweet spot where the cost of the marketing is low and the response rates (and hopefully the conversions, which in this case would be closings) are high. But, how high is high enough?
Most investors that start marketing initially see response rates of 1-2%. Now, that could be enough to make the marketing worthwhile, but I’m going to make a bold statement that it’s not good enough. I’m not happy unless my marketing is yielding an 8% response rate, AND is actually producing conversions.
Of course, we don’t even know the response rate unless we are tracking our marketing, and therein lies rule number 1: Never spend money on marketing unless you can track its source. We can track our marketing with a unique name to ask for, a reference code, a unique phone number, email address, etc. What matters is that we know which marketing medium it came through, and which version of our marketing within that medium.
So, if we are sending postcards (one of the more popular methods) that means we need an identifier for each demographic of motivated seller, and each variation of the postcard within that demographic. Both are necessary, because without variations we can’t refine and improve. This means that if we want to market to owners of inherited properties, then we are trying different variations of the postcard on the same pool of people. We can split our list of sellers and try a yellow card for half and a pink card for half. When the calls come in (or other method) we will have data that shows which color performs better. Once we know that, we scrap the lesser performing variation, (let’s say that was pink) and focus on yellow. Now we can try other variations. We aren’t just limited to two at a time, and the more we can test the better we’ll know what format and what ad copy is working.
Color is just an easy example, and we need to be testing much more than that. However, before we start our testing/tracking process, we need to understand the makeup of a marketing piece. There are three core components. 1) An attention-grabbing headline. 2) An emotion-based message, ideally with a USP (Unique selling proposition), and a 3) Call to action. All of these should be continually tested.
In time, we will narrow our marketing down to what works best, and we will see the response rate jump through the roof. However, we must first test small to find that sweet spot, and once we’ve narrowed that down, only then can we go big.
Too many investors make the mistake of going big too soon, and often without any real target. An example of this would be a highway billboard, which would be considered shotgun marketing. It’s expensive, although it reaches almost everyone, but at a great cost, and at a very high cost per lead. It’s much more effective to use a direct response method, because we can tailor our marketing to our demographic and keep costs down.
Here’s what my typical marketing campaign looks like. I send 500 postcards, at a cost of 40 cents apiece ($200), I get about 40 calls. Of those 40 calls, about 5 may sound like they have true potential to become a deal. Rather than negotiate over the phone, I limit my goal to simply assess motivation, and schedule a time to meet in person. Of those 5 sellers, usually 1 or 2 end up becoming a deal. A deal may be a cash flowing rental ($200-$500 a month), a property to rehab and sell retail ($40k-$100k), or a simple contract to wholesale ($5k), all of which are well worth a meager $200.
So often people are surprised at the deals I create, or flat out don’t believe me, but they are accomplished by treating my investments as a business. Marketing is a core part of any business, and if you want to take real estate investing seriously, and move from part-time deal hopeful to full-time deal creator, then marketing simply MUST be a tool in your toolbox.
Daniel Hart, Owner of Hart Homes and author of The Real Estate Roadmap (available on Amazon) has been investing in New Jersey and North Carolina real estate since 2004, and has purchased over 100 properties, almost all using creative financing strategies to create passive income. He is a former board member of the Metrolina REIA in Charlotte, NC.