Finding Fix-and-Flip Deals: Does Driving for Dollars Make Sense?

Finding Fix-and-flip properties: Driving for Dollars

Driving for fix-and-flip dollars is exactly what it sounds like—driving through targeted neighborhoods looking for a property that could be a lucrative fix-and-flip project.  To drive for dollars, the fix-and-flip investor (or their hired scout) visits a specific area of town, driving up one street and down the next, looking for a property that appears to be neglected or abandoned by its owner.  Overgrown or dead lawn and shrubs, chipping or fading paint, broken windows, damaged or missing roof tiles, piled up newspapers, code enforcement notices, and other signs of neglect may mean the owner either doesn’t care to, or can’t afford to take care of the property—and may be willing to sell it to you below retail.

The driving for dollars method has stood the test of time and remains a go-to for fix-and-flip investors and wholesalers looking for off-market deals—but is it a good use of time for the busy entrepreneur whose attention and presence is often demanded in many places at once?

Does driving for dollars really yield lucrative fix-and-flip opportunities?

The short answer is, maybe.

The main strategy behind driving for dollars is to locate a distressed property, track down the property’s owner and attempt to negotiate directly with the owner before the property can be listed for sale on the MLS.  The reasoning behind this strategy is that, hopefully, when you discover a property that looks abandoned or neglected, you will also discover an owner who is ready to be relieved of the burden of owning that property.  Your offer could be just the motivation the owner needs to sell.

Or, it may not.

Of course, not every owner of a distressed property wishes to sell it, and even if they are open to selling, they may not be willing to agree on a price that will leave adequate room for you to make enough profit on the deal. However, if you are operating in a market where MLS-listed properties are selling at a price point too high for a fix-and-flip investor to make enough profit, if you can convince an owner to sell their property to you below retail, finding these off-market gems can significantly raise your fix-and-flip ROI.

What are the drawbacks with driving for dollars?

The main drawback with driving for dollars is that once you find a distressed property, it can be time-consuming to locate the property’s owner, let alone get them to execute a purchase contract.

For example, let’s say you spend 6 to 8 hours over the next couple of weeks driving for dollars. During this time, you find a dozen properties that fit the abandoned or neglected criteria. You could easily spend 2 to 6 hours (or more) per property tracking down the owner, then spend another 2 to 6 hours (or more) per property repeatedly communicating with the owner trying to get them to sell the property to you (you may have to mail, call or visit them again and again).  Depending on your sales savvy, your negotiation skills and your patience level, you may end up after several weeks with one or two (or none) of those 12 properties under contract.

Of course, the light at the end of that tunnel is that plenty of fix-and-flip investors and wholesalers DO find distressed properties while driving for dollars, and plenty of them DO locate the owner relatively quickly, and plenty of them DO negotiate and purchase these distressed properties at a price that allows for significant profit. We understand this to be the case because driving for dollars remains a popular way for fix-and-flip investors and wholesalers to buy viable distressed properties directly from owners.

If you haven’t used the driving for dollars method as a part of your property acquisition strategy, it might be well worth it to give it a try.

Driving for dollars takes time: What is your’s worth? 

If you determine driving for dollars makes sense in your market, does it make sense for you, the fix-and-flip business owner, to be spending your time doing it?

Let’s do the math for the driving for dollars example above where we found 12 properties, and we will set an imaginary hourly wage for you as CEO of your company at $50 per hour.

In this example, you found 12 viable prospects after 6 hours of driving:

Hours Spent Cost Total Cost
Driving for dollars 6 hours total $50 $350
Tracking down owner 48
(4 hours per house)
$50 $2400
Convincing owner to sell 72
(6 hours per house)
$50 $3600
Per House Bonus N/A  N/A N/A
 Total hours:  130  cost: $6,350

I

n the end, one owner sells their home to you as-is for $200,000.

You spend $50,000 on improvements

You spend $4,500 on holding and closing costs

You sell the property for $340,000

After you deduct the $6,350 worth of your time you spent driving for dollars, ask yourself if the time spent driving/researching/communicating was worth it.

You earned a net profit of $79,150 on this one deal.

Is driving for dollars worth it? In this example, heck yes! Now, imagine if you had been able to close on 4 or 5 of these properties instead of just one.

What about hiring a scout to do your driving for dollars?

YOUR
TIME
YOUR 
SCOUT
Hours Spent Cost Total Cost Hours Spent Cost Total Cost
Driving for dollars 6 $50 $350 6 $25 $175
Tracking down owner 48 $50 $2400 48 $25 $1200
Convincing owner to sell 72 $50 $3600 72 $25 $1800
Per House Bonus N/A  N/A N/A N/A $2,000 $2,000
 Total hours:  130  cost: $6,350 hours: 130 $5,175 

You will have to decide for yourself what your own time is worth, but you will spend quite a bit of it using the driving for dollars method. What could you be doing to manage and grow your business if you were not driving around looking for, researching ownership, and convincing owners to sell you their distressed properties?

If you are too busy to do this yourself, it may make more sense for you to pay a scout to do this time-consuming work. Or, if you are a great communicator, you could just choose to engage with the homeowner and pay your scout to find properties and track down ownership information (with or without paying them that additional purchase bonus). You could also choose to pay your scout a lower hourly rate, and up the per-property bonus to add extra incentive for them to work on the end goal and not move too slowly through the research.

Some fix-and-flip investors have reached out to Lyft and Uber drivers in their area and offered them a bonus for any property they find that results in a purchase. Whether any or all of these strategies will be fruitful for you depends on your own availability, your communication skills  and your market circumstances.

For more information on creative ways of finding off-market properties, download Anchor’s free booklet “Finding Lucrative Deals in Competitive Markets.