What is driving for dollars?
Driving for dollars is a real estate investing strategy that involves driving through neighborhoods, identifying potentially vacant or distressed properties, then making an offer to the homeowners.
Driving for dollars can sometimes be time-consuming, but can also yield great deals. Most of these properties are off-market, so you’re not competing with other investors or retail buyers, which drives up prices.
Driving for dollars isn’t always a silver bullet: It works best in certain types of neighborhoods, and even then it can be difficult to scale, and take time and effort to produce results. It often works best as one component of a multi-pronged strategy (working with local realtors, paying for distressed leads, bandit signs, online marketing, etc.) to maximize your shots on goal.
But in hot markets, driving for dollars can definitely produce amazing deals that other deal sourcing tactics would’ve never brought to the surface. In this guide, I’ll break down driving for dollars and teach you how to spot crazy good deals from the seat of your car.
How does driving for dollars work?
Driving for dollars pretty much always involves the same 6 steps:
- Target a neighborhood.
- Plan a driving route.
- Drive and look for distressed properties.
- Make a list of properties.
- Investigate each property later and find out who owns it.
- Contact homeowners and pitch your offer.
This works for two reasons:
- No competition. Because the property is unlisted, you might be the only investor interested in buying. That gives you a lot of leverage, especially if the seller needs to get out of a bad situation.
- Motivated sellers. Even if the property isn’t listed on an MLS or other public sites, the owners might be highly motivated to sell. When you can solve a pressing problem (underwater on a loan, can’t afford the upkeep, etc.) owners might be willing to sell the property at a discounted price.
- How many unlisted prospective deals you’re able to identify.
- How many of the property owners you’re able to successfully contact.
- How many of the owners actually get back to you.
- How many of the owners that get back to you ultimately accept your offer.
Interestingly, you’ll typically have the most trouble with variable three: Getting homeowners to respond to your inquiry.
In general, if you can get a response from about 1-in-100 homeowners you contact — a conversion rate of at least 1% — you’re running a very successful driving for dollars campaign.
- Find the neighborhood where you’d like to search for property.
- Click “street view” (the yellow figure icon).
- Once the streets turn dark-blue, click one to start driving.
- You can then virtually navigate through neighborhoods, sometimes even zooming-in to see houses up close (works even better with virtual reality).
Don’t let Google Maps substitute in-person driving. The maps aren’t always updated, and you could miss great deals simply because Google hasn’t captured them yet. Even if you do find distressed properties, you should visit them in-person, just to be sure it’s still there (and still distressed).
How to do drive for dollars: Step-by-step guide
Before you start…
Step 1: Pull together your driving for dollars supplies
Stock your (ideally fuel-efficient) car with the following supplies:
- Food and water: I’m putting this high on the list, because you’re likely going to forget it. Bring your own lunch and plenty of water, and you’ll stop yourself from buying take-out or wasting time in restaurants and gas stations.
- Phone necessities: A charger and a phone holder are a must. I recommend a backup charger, too, just in case something happens to your primary one.
- Driving for dollars app: Not necessary, but highly recommended. Many apps, like DealMachine, help you track your route so you don’t go down the same streets twice. DealMachine also lets you add properties (with photos and property information), find owner information, skip trace, and send postcards to owners from your phone.
- Digital map: CityMaps2Go and Google Maps will let you pre-download maps to your devices. That way, if you lose service, you can always use your phone’s built-in GPS to find your way back (you don’t need service to see your GPS position).
- Atlas: Even if you have a digital map, it’s smart to have a physical map in your glove compartment (with your route highlighted). This is an additional hedge for spotty cell service — and digital maps can sometimes be incorrect.
- Notebook and pen: Use this to write down addresses and take notes on properties. You might also want to maintain a spreadsheet on your phone with property information listed in neat rows or columns.
- Camera: No need to splurge on anything fancy here; the camera on your phone will work just fine.
- Lettering supplies: Brochures, envelopes, letterhead (plain paper works just fine), pens, painter tape to stick letters to doors.
- Safety vest: A reflecting or neon vest will make you look less suspicious, especially if you’re poking around vacant houses.
Step 2: Pick your target neighborhood
Knowing which neighborhoods to target — and which to avoid — can help you find more great property deals with potentially less driving time. Start with working- or middle-class neighborhoods where the median home value is on par with (or slightly below) the larger metropolitan area.
Luxury neighborhoods usually aren’t going to yield great flips: The homes are too expensive and there will be fewer distressed and vacant properties. On the flipside, if you target neighborhoods with too many distressed or abandoned homes, you’re going to have a hard time reselling it for a profit (or at all).
The sweet spot is a neighborhood where home values have started to rise, but some of the homes might be old or outdated. These areas typically border hotter housing markets, or they might be a colder subdivision within it.
Some good questions to help you hone in on a “farm area”
1. What neighborhoods are near me?
Often your immediate surroundings are the best place to start. You’re likely already familiar with your area, and you might even know a house or two that’s stood derelict for years.
2. Have I seen or heard of distressed property before?
Similar to the first question but this time you’re opening yourself up to any area, not just those near you. You may know of a neighborhood that has tons of old, unmaintained houses or you may catch wind of plans to gentrify a district.
3. What do I want the investment property to do for me?
Your long-term investment goal will often guide you to the right neighborhoods. Are you looking to earn rental income? Then you might want to target areas with lower vacancy rates, high rent-to-value ratios, and high gross rental yields. Do you want to flip houses? Then you might want to target neighborhoods with a burgeoning housing market.
Step 3: Plan your route
The key to a successful driving for dollars campaign is to always drive with purpose. The more strategic you are with your route, the less likely you’ll miss a property deal or get stuck driving down the same streets.
To search your targeted neighborhood exhaustively, break it into micro-routes that will take you no more than 10-15 minutes to complete, such as single streets and subdivisions. Look for natural stops to break up a larger route, like stop signs and rotaries. When you work street-by-street, rather than trying to tackle a massive area in one drive, you’ll feel less overwhelmed.
Your atlas will come in handy here. Use a light highlighter (like bright yellow) to indicate where you’re going to drive. Then, once you’ve completed each smaller route, highlight it with a darker color, like blue or red.
Driving for dollars apps make route planning and tracking even easier. DealMachine, for example, will automatically track your progress and let you add annotated notes as you go.
Now you’re driving…
Step 4: Look for distressed properties
Now comes the fun part: Driving through your targeted neighborhood and looking for signs of distressed property.
The most obvious signs of a potentially distressed property include:
- Broken windows
- Peeling or faded paint
- Missing shutters
- Damaged walls
- Broken fences
- Detached or falling gutters
- Graffiti or other signs of vandalism
- Overgrown lawn
- Trash or toys in driveway or yard
- House is leaning or sagging
- Excessive debris, tree branches, or leaves on roof or driveway
- Mailbox overflowing with mail
- Newspapers, flyers, or phonebooks by the front door
- Windows and doors covered with boards, tarp, or cardboard
- Missing electric or gas meter
- Absence of personal items, such as curtains in the windows, furniture on the porch, or even a garden hose
- Trash cans missing on trash day
Some signs of distressed property are far subtler. Pay close attention to new and updated homes in a neighborhood. If you spot a house whose style or features seem comparatively outdated or stuck in a time period — like old 80’s vinyl siding and aluminum window frames — the owners could be struggling to maintain the house or not actively living there.
Step 5: Log property details
As you find properties you think are distressed, you’ll want to keep an organized log of each one. This includes:
- The property’s full address
- Critical reasons the property appears vacant or distressed (“yard overgrown with weeds,” “birds nests on the porch,” “paint peeling from garage”).
- A photo of the property
Most phones will geotag your photos, which can help you match property addresses with pictures later. If your photo doesn’t have this feature, you’ll have to come up with a system for attaching properties to photos so you don’t get confused later.
If you’re using DealMachine, now would be a great time to pull up information on the property. DealMachine will often tell you if a property is vacant or distressed, and includes real-time skip tracing features that can provide owner contact information. Both of these can come in handy later, and it could even help you skip steps 6-8!
Step 6: Leave a letter
Leaving a letter isn’t strictly necessary, but it could help you close more deals. The most difficult part of driving for dollars isn’t picking the right neighborhood or finding potential deals — it’s getting homeowners to actually contact you back.
One effective method for getting people to respond is taping a handwritten letter to the door. Not only does this separate your letter from the slew of junk mail they’re probably not reading; it almost guarantees the owners will see your note.
Even if the owners no longer live at the property, they probably drive past it (or someone is watching the property for them). At the very least, they know you’re interested in buying, and they have a way to contact you if your offer grabs their interest.
Back at home / the office…
Step 7: Start doing your homework
Once you make a list of distressed properties, it’s time to find out who owns them. Sometimes this can be as easy as Googling the address you’ve written down. But usually you’ll have to do some digging. In general, you’ll have take these two steps to find the info you need:
1. Find out who owns the property
Use a county assessor (or appraiser) website to find the name (or entity) who currently owns the property.
2. Skip trace: If you have a property address, you use skip tracing services to find phone numbers and mailing addresses. A free skip tracing site, like Fast People Search, could work just fine. But if you want more accurate information, you might need to pay for a skip tracing service.
During your research, you should also try to dig up critical information on properties, which can help later when you make your offer.
In general, try to track down the following details:
- The year the house was constructed
- The last time the house was sold and the price it sold for
- The current tax value
- Whether or not there’s a lien or other liability
- The legal state (is it in pre-foreclosure, foreclosure?)
You can find most of the above information on Zillow, though you’ll likely have to check court records and tax offices for foreclosures and liens.
If you’ve also partnered with a real estate agent (or several), they can usually pull these details for you — often straight from the MLS. Even if the property isn’t currently listed, they can track down historical sales data and property records.
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Step 8: Contact the owners
Again, I’m still convinced the most effective way to reach homeowners is to leave a handwritten note or letter on the door. But if that doesn’t work, or you’d like to try multiple methods to see which one works best for you, you can try these three:
- Direct mail involves sending a letter or postcard to their primary residence. Though direct mail is the least time-consuming (you just need to mass print a postcard), it can also be the least effective, as many people toss unwanted mail without reading it. Tip: use brightly colored envelopes with handwritten names and addresses to stand out.
- Cold calling is when you dial the owner’s phone number and speak to them directly over the phone. While an elevator pitch might help you get in the right frame of mind, try to keep the conversation light and natural, even discursive. Ask questions about the property, rather than pitch aggressively, and show the owners they can trust you.
- Door knocking can also be effective, if the homeowners still reside there. In this way, you can express your interest in person, leave your contact information, or even start working out a deal on the spot.
Don’t be discouraged if the owners don’t contact you back — or if they tell you they’re not interested in selling. Now they have your contact information and chances are, if they decide they do want to sell down the line, you’ll be the first person they call.
Step 9: Make an offer
If the owners are interested in selling, then congrats — now it’s time to figure out how much the property is worth so you can make an offer.
To calculate your best offer, you want to figure out two key things:
- How much the property will sell for after you’ve rehabbed it – the after-repair value (ARV)
- How much it will actually cost to repair the property.
Let’s look at these both separately.
1. Calculating the after-repair value
The ARV is a property’s estimated value after it’s been rehabbed.
To calculate the ARV, you’ll need to do a comparative market analysis (CMA). In this way, you compare your property to similar properties that have recently sold in the same area (called “comps”).
Finding comps can be difficult, but if you’re already working with a real estate agent, they can pull comps for you from an MLS. Many driving for dollars apps also have “comps” built-in, though they may not be as accurate as an agent’s findings.
I suggest getting three good comps. Once you have three, you can take the average to get a more accurate estimate of how much your property will likely sell for post-rehab.
2. Calculate the repair costs
To calculate repair costs, you’ll likely need to team up with a general contractor. You and the contractor can inspect the property together, then come with a list of necessary repairs, along with their costs.
With both an ARV and repair costs in mind, you can work backwards to figure out how much you can pay for the home in its current state and still turn a profit. You can then present your analysis to the owners — both the damages you’ve spotted and the corresponding repair costs — and give intelligent reasons for why you won’t go any higher than your final offer.
Step 10: Close the deal!
If the owner accepts your offer, then you can wipe the sweat off your brow. You’ve made it to the last step of driving for dollars: Settling final terms and closing the deal.
But don’t let your guard down just yet. Before you officially close, you should carefully inspect the title and see if it has any liens or encumbrances. You might also want to do a final inspection on the house, especially the parts you haven’t seen (the interior, basement, attic), to be sure reality lines up with your initial estimates for the rehab costs and ARV.
If everything checks out, then you can finally celebrate — you’re about to close on a good property deal, all because you got into your car, drove around a neighborhood, and had the right frame of mind to see a hidden deal in plain sight.
Summary: Driving for dollars
- Driving for dollars is a real estate investing strategy where you target up-and-coming neighborhoods, drive around, and look for potentially distressed and/or vacant properties.
- Driving for dollars can be super effective because you’re not facing competition from other buyers and distressed property owners may be highly motivated to sell.
- Before you drive, make sure you’ve targeted the right neighborhood, planned out the most effective driving route, and have the right supplies in your most fuel-efficient car.
- As you’re driving, look for signs of distressed or vacant properties, then take extensive notes and a picture.
- Once you have a list, you’ll need to skip trace owners to find their phone number and mailing address. You can reach out to them through direct mail, a cold call, or leaving a letter on their door.
- Calculate the after repair value, then pitch a fair offer to the owners. Be sure to check the title and possibly inspect the home before you finally close.