Posted by Mitchell on March 01, 2002 at 11:36:47:
This is a good question. I think that the number of motivated sellers changes dramatically based on an areas circmstances, for a selected period of time. If an area is in recession, the percentage of motivated sellers will be higher. If the area is in good economic order but a large factory closes, only those laid off workers are motivated. It is not wise to just ask a generalized number of motivated sellers for the US because you are probably not buying all over the US. You should only be concerned with your marketing area.
The Chamber will be able to help with growth projections for the next 5 years to fill out your pro forma.
I would look at FHA forclosure statistics for your marketing area. Typically, about 4% nationally. The banks publish statistics showing numbers of people who are 30, 60 and 90 days behind in mortgage payments. The credit card banks have similar statistics. Look at the number and percentage of bankruptcies in your marketing area and compare it to other areas. I think that you will find that, nationally, 20% of the population is in pretty significant financial trouble at any given time. If 60% of an area are homeowners, then that may be the approximate number of potential motivated sellers.
This MUST be highly targeted. My greater metro area is pretty insolated to recession as we have a very high percentage of jobs in government, colleges and other institutions and services, with just a small percentage in manufacturing.
Yet, certain towns within my greater metro area present profit potentials because of poorer management. The better the area, the more difficult it will be to find a motivated seller, but they make for very easily sold deals because everyone wants to live there.
When searching for a stepup home for myself, I looked for a year for a don’t wanter in a small, good area. I did not find one even though I employed the “tricks of the trade”. Bank REO officers stuck to their high numbers in this desireable area, there were no fixers, etc. In my development of 82 homes, there has been only one foreclosure in 14 years. I had to pay 90% of full retail.
I came to realize that, in good areas, people who live there usually have good family incomes. If they get into trouble, as we all do, they have resources to tap. If they make a good living then probably their parents do well, and probably their siblings do well also. Therefore, family has the resources to help if a member gets into trouble.
In the poorer areas, parents and siblings are as poor and ill managed as the motivated seller. They did not manage their affairs well because there is no family history of good financial management.
The oppurtunities in good areas will be found in divorces, and in chapter 11, business bankruptcies. Even REOs in good areas do not present a good model because of the highly desireable area, UNLESS a factory closed down and all the executives were fired.
In a divorce with a well off couple, one person sometimes will want to hurt the other and will give the house away. In chapter 11 bankruptcies, a business reorganization, the usual minimum bankruptcy is over $200,000. This is where you will find a well heeled individual in financial need and open to a creative offer. The best of course, is where the businessman is in financial trouble, but is determined to hurt his wife who is divorceing him because he is in financial trouble.
Other motivated seller oppurtunities occur when a set of beneficiaries want to sell quickly and if someone has to move and a dealine approaches. Ask successful realtors what percentages would apply to these catagories.