Browsing real estate over the Internet is a wonderful thing, but nothing compares to driving around neighborhoods and paying close attention to what’s happening. It’s called “farming.” You take note of:

• When houses go up for sale, what they’re asking for, and how quickly they sell
• When houses go up for rent, what they are asking for, and how quickly the vacancy is filled
• Improvements to properties in the area and how it affects sales prices
• The type of people living in or out of an area and how it affects sales prices

Not only do you look at the data, but you talk to people. You call every For Sale or For Rent sign, chat with people walking their dogs, and generally get to know everyone in the area. It gives you a tremendous “feel” for the market. Since you know everyone, you’ll also probably get first dibs on any opportunities.

Let me give you an example.

Finding an Unadvertised Opportunity

A good friend of mine specializes in buying homes in the suburbs north of Charlotte. Once or twice a week, he drives around about 20 different neighborhoods for a couple of hours and notes any changes.

Last month, he invited me to invest with him on a deal he’d found through farming. I ultimately turned him down, but the details of the transaction are a perfect example of how to make money with this technique.

The house in question was occupied by a family that had purchased it from an older gentleman 10 years before with 100% owner financing. My friend had been driving around this neighborhood for about five years, and he knew the couple well. They had two kids and never intended to move, so when a for sale sign popped into the yard, he stopped by to ask about it.

As it turns out, both the husband and wife had lost their jobs and they were several payments behind on their financing. The original owner was threatening foreclosure, and they couldn’t see any way to catch up on the payments. So they put the house up for sale.

The house was worth about $120,000, and they were asking for $110,000. Except, he found out they would actually accept anything above what they owed — $68,000. They were also about $3,000 behind in payments and had promised the realtor at least $4,000 in commission, so that raised the balance to about $75,000.

My friend offered them $80,000, allowing them to walk away with $5,000 to get started again. They accepted, and he picked up a house with $45,000 of equity. Not bad for a couple hours of driving around.

As an Insider, You Get Insider Information

The important point is, he would’ve never gotten all of this information if he’d just called the realtor. By law, they aren’t allowed to disclose those kinds of details without explicit instructions from the seller, and everyone was hoping for a much higher price than they eventually settled for.

Yet, because he knew the seller and their specific situation, he recognized that it was odd. He was also able to go directly to them and discuss the situation, almost entirely bypassing the realtor. Because the sellers knew him, he also had a reasonable amount of trust built-up, allowing him to quickly negotiate a good deal.

It’s almost like having insider information, except it’s completely legal. By farming neighborhoods, you can eventually become a third-party member of the community. As a result, you get information before just about anyone else.

The same applies to larger scale deals. In our development business, my father calls every single listing for land within a 10 mile radius. That’s right, all of them. Because we’ve purchased almost 2000 acres in the county, he’s also somewhat of a local celebrity, and everyone knows him. If you have land for sale, you go to Dale.

Sure, it’s an old-school way of doing business, devoid of spreadsheets and Internet data. But it works. If you’re going to start investing in real estate, I’d recommend you start driving around a few neighborhoods now. It may take a couple months before you notice anything, but when you do, it’ll be worth it.