What is Skip Tracing in Real Estate?
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Originally Posted On: https://www.dohardmoney.com/what-is-skip-tracing-in-real-estate/
Experienced real estate investors tend to find the best deals off-market, that is, properties not listed on the Multiple Listing Service (MLS). And, a variety of strategies exist to track down property owners who haven’t listed their properties, with skip tracing being one of them. This leads many new investors to ask me: Ryan, what is skip tracing in real estate?
Skip tracing began as a way for debt collectors to track down people who owe money and have “skipped” town. In real estate, these same location techniques are used. But, the goal in real estate is to identify the contact info for a property owner. Investors then use this info to offer to buy a home.
In the rest of the article, I’ll dive into the details of skip tracing. Specifically, I’ll cover the following topics:
- What is Real Estate Skip Tracing?
- Finding Off-Market Deals: Why Skip Tracing Makes Sense
- How Skip Tracing Works
- Skip Tracing Pros
- Skip Tracing Cons
- The Numbers Game of Skip Tracing
- Using Investor’s Edge to Skip Trace
- Final Thoughts
What is Real Estate Skip Tracing?
The practice of skip tracing began with private investigators (PI). If someone owed a creditor money but skipped town, that creditor would hire a PI. Using access to a variety of public records databases, the PI would then track down the contact information of the debtor who’d left town. In real estate, the context behind tracing has changed. That is, investors don’t use this practice to track down people who owe them money. But, the broader purpose remains the same.
Conceptually, skip tracing in real estate simply refers to a technique for finding the contact information for the owner of a home, frequently an abandoned or vacant one. When investors find a potential property to buy, they first need to find the contact information for that property’s owner. Without that information, you have no way to actually make an offer on a place. As a result, skip tracing serves as a process to find the following information about a property owner:
- Current address (for abandoned properties)
- Phone number
- Email address
Armed with that contact information, real estate investors can begin marketing to property owners. The goal is to find a motivated seller, that is, someone with equity in a property and a driving need to sell the home. And, these homes typically have some major repair – or general distressed nature – that would prevent buyers using traditional financing from making an offer.
Once investors connect with these sorts of owners, they can begin to act as problem solvers, which creates a win-win situation. The homeowners find someone to buy their homes and solve their financial needs, while the investors get good deals on properties.
When you need to track down a single property owner, you can do it on your own. But, it’ll likely be a difficult process. But, as a real estate investor trying to find info for hundreds of homeowners, skip tracing on your own is nearly impossible. It just takes too much time, effort, and understanding of the ins and outs of public records in different municipalities. Instead, most real estate investors pay for a skip tracing service or software. These programs provide the investors “leads,” that is, potential contact information for a property owner. Then, if one of those leads proves accurate, the investor pays for that successful find.
Finding Off-Market Deals: Why Skip Tracing Makes Sense
Now that I’ve provided a broad overview of skip tracing, many new real estate investors are likely asking: Ryan, why do I need to find a homeowner? Won’t that information just be on the “for-sale” listing? Great question! And, this gets to the heart of successful real estate investing: the importance of off-market deals.
Most new real estate investors understand the MLS. That is, if you’re looking to buy an investment property, you’ve probably already purchased a primary home. And, when you bought your home, there’s a good chance you worked with a real estate agent. This agent probably took your general search parameters (e.g. price, area, size, etc.) and gave you tailored access to the MLS where you could scroll through every listed property meeting your search criteria.
While this system works great for finding a primary home, finding investment properties on the MLS rarely works. More precisely, due to the following three reasons, investors will struggle to find good deals on the MLS:
- Competition: In theory, if you work with a real estate agent (or are a real estate agent), you can access MLS data from anywhere in the world. Accordingly, when investors try to find potential deals on the MLS, they’re really competing against three different parties: 1) primary home buyers, 2) other local investors, and 3) out-of-market investors. This situation significantly drives up the competition for MLS properties.
- Property Condition: While you can buy investment properties on the MLS, you’re unlikely to find a distressed property that will qualify for a fix & flip deal. People primarily list properties on the MLS for primary home buyers, meaning that these homes need to qualify for traditional financing. In other words, they are not distressed properties in need of repair. Instead, most MLS properties are in good enough condition to meet standards required by traditional lenders.
- Price: Related directly to property condition, MLS properties generally have prices that don’t support a fix & flip budget. Rather, these homes list at retail price. This means that, even if an investor does find a property to rehab, there’s a good chance that its price will not support a deal budget.
The Benefits of Off-Market Deals
Instead of dealing with the challenges associated with MLS properties, successful investors understand the value in finding off-market deals. In other words, they look for properties that A) fit their investment criteria, but B) haven’t been listed for sale.
Searching for deals in off-market properties presents two primary advantages. First, as these properties aren’t listed on the MLS, they inherently have less competition. In most situations, when you approach a potential seller, you’ll be the only investor making an offer. This lack of competition leads directly to the second major advantage: price. Off-market properties fitting an investor’s criteria will typically have major repair needs. Between these needed repairs and the lack of competition, sellers do not have the leverage to command retail prices.
Bottom line, successful investors understand the importance of crafting a strategy to find off-market homes. But, finding these homes is only one part of the problem. Additionally, you need to find the actual owners. Enter skip tracing, which I’ll discuss in the next section.
How Skip Tracing Works
I’ve already explained that real estate investors use skip tracing to find the contact information for property owners. Now, I want to talk through more of the details of the process, that is, how skip tracing works. Once you understand these steps, you’ll be better prepared to make a decision about how you want to personally use skip tracing as an investor.
Step 1: Access Public Records
When it comes to real estate, there’s a ton of information available in public records. But, scrolling through individual records can be extremely time-consuming. PIs and skip tracing companies have paid to access organized databases containing these public records. As such, rather than dig through individual records, these services collect skip tracing leads en masse for a given market.
Step 2: Collect Leads
With this access to public records, skip tracers collect hundreds or thousands of leads for investors. Most investors’ marketing strategies entail multiple offers for off-market homes. You don’t want to get a single lead – you want hundreds, recognizing that a few of them will likely convert to solid deals. As a result, skip tracing companies provide leads (i.e. phone numbers, emails, and current addresses) for tons of different properties. And, due to the variety of public records available, you’ll likely get a few different phone numbers and emails for each property.
Step 3: Test and Confirm Leads
Now, it’s important to note that these leads won’t necessarily be accurate. Rather, skip tracing services will provide you the most recent publicly-available contact information for a property owner. But, people move, they change phone numbers, etc. This reality means that, after you receive these leads, you need to test them, that is, confirm that a given number or email actually corresponds to the target property owner. You can do this with test text messages, emails, and phone calls.
This leads into a great thing about skip tracing services. With most companies, you only pay for a result, or “hit.” In other words, if a skip tracer sends you 1,000 contact leads, but only 10 of them include accurate contact information that translates into finding an owner, you only pay for those 10. (NOTE: Some skip tracing services charge a flat fee, regardless of result. While this flat-fee option may be less expensive, you’ll likely get better results paying a high-quality service per accurate lead. As with all services, you get what you pay for with skip tracing!).
Step 4: Market to Potential Sellers
This is where the “rubber meets the road” with skip tracing! Once you’ve tested your leads and confirmed which ones are accurate, you begin marketing to those homeowners. In other words, property owner contact information on its own doesn’t do you any good. What matters is what you do with that information. That is, you need to go out and start making offers on properties. Eventually, some of those offers will translate into deals.
Skip Tracing Pros
Allows for Automated Marketing
When it comes to real estate investing, you’ll quickly realize that there never seems to be enough time in the day to do everything you want to do. Fortunately, accurate skip tracing results – combined with some solid software – let you automate your marketing process.
Once you have the contact information for multiple properties, you can begin an automated marketing campaign to reach out to those homeowners. Depending on your preferences, you can automate text messages, emails, ringless voicemails, or voice broadcasts – or any combination of those. Automating this outreach lets you focus your attention and efforts elsewhere – like on closing deals!
Gives You a Leg Up on the Competition
I can’t emphasize the value of skip tracing enough. It’s an absolutely awesome strategy! Despite this, most real estate investors aren’t willing to pay for these services. So, what does that mean for you? If willing to pay for skip tracing information (a relatively small expense), you can potentially find some incredible deals, ones your competitors will struggle to find on their own.
Skip Tracing Cons
Potentially Angry/Confused Reactions
Skip tracing isn’t without its disadvantages, though. When testing leads, you’ll frequently encounter homeowners who are either angry, confused, or both at how you found their contact information. As a real estate investor, dealing with these reactions over and over can wear you down. But, no one said successful investing was easy! You’ll need to have some thick skin to deal with these negative reactions. And, you can mitigate anger and confusion with a good script, something explaining how you found these investors but also that you hope to help them solve a problem.
Done correctly, finding contact information via skip tracing services is not illegal. But, different municipalities have their own laws on how you use that information to reach out to homeowners. Before starting this strategy, you’ll want to confirm your state and local laws to make sure you’re in compliance.
The Numbers Game of Skip Tracing
I’ve hinted at it above, but I’ll reiterate here: with skip tracing, it’s a numbers game. Just because you have a homeowner’s contact information doesn’t mean that he or she will actually sell you a home. One successful skip trace hit likely won’t lead to a deal. But, 100 hits will probably result in a deal (or several).
For investors, this numbers game comes back to the importance of a disciplined routine. Many new investors reach out to a few skip trace hits and get dejected when the homeowners aren’t willing to sell. They then decide that skip tracing doesn’t work.
If you take this approach, you’ll fail. Instead, as an investor, you must assume that most of the offers you make won’t lead to deals. But, due to the law of averages, if you make enough offers, eventually one will result in a deal. Recognizing this, the most successful investors rigorously follow a routine. For example, you may decide to contact 20 property owners every week. Then, once you make this plan, you need to stick with it! While most of these owners won’t sell, if you keep making offers, it just becomes a numbers game: eventually, the deals will happen.
Using Investor’s Edge to Skip Trace
Historically, real estate investors had two options for skip tracing. First, they could hire a skip tracing service, which I’ve discussed in the above sections. Second, they could try to do it on their own, taking a DIY approach to skip tracing. This is extremely time-consuming, and it detracts from your ability to focus on other aspects of real estate investing (e.g. supervising rehabs, placing tenants, actually making offers, etc.). Today, a better option exists: using real estate investing software to skip trace.
At Do Hard Money, we believe firmly in the value of skip tracing, so much so that we’ve even incorporated skip tracing technology into our outstanding software, Investor’s Edge, to help you connect with motivated sellers.
We poured our entire team’s collective real estate experience into creating the best software for investors. This program provides you access to over 90% of the MLS data in the US market, to include tax records, active properties, and sold property information. Simply put, Investor’s Edge provides you the MLS data you need to A) make informed real estate investment decisions, and B) connect with potential sellers.
More precisely, finding potential deals doesn’t equal actually closing those deals. Once again, we’ve poured our combined decades of real estate experience into our software to address this problem. With Investor’s Edge, you can market instantly to homeowners. As you narrow down your list of potential deals, our software lets you print postcards with pre-filled addresses or send a voicemail directly to these homeowners – for your entire property list! While not every homeowner will respond to you, the ones who do are likely truly motivated sellers.
In this fashion, Investor’s Edge and skip tracing go hand-in-hand. Whatever your real estate investment strategy – or combination of strategies – you need to find deals. Our software will help you find these deals, and, more importantly, actually connect with motivated sellers.
Successful real estate investors recognize that the best deals aren’t found on the MLS. But, to develop a strategy for finding off-market deals, investors need to first find the owners of those off-market properties. Skip tracing provides an outstanding option for tracking down these homeowners. And, with the right real estate software, you can get the benefits of skip tracing integrated with a broader database of properties, dramatically improving your ability to land great deals!