You're listening to the REI Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of Ad Words Nerds, a high tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.
Dan: Alright. Hello everybody and welcome to this week's REI Marketing Nerds podcast. As always, this is Daniel Barrett, here from AdWordsNerds.com. How are you? I hope you're having an awesome week. I've had a really rough week. I think the last couple of podcasts I've done I've been saying like I'm sick and all this stuff. Then I ended up getting literally the worst case of strep throat I think I've ever had. [0:01:07.9]
I went into the walk-in clinic and the doctor looked at my throat and she said, "Ooph," like that and I was like, oh that can't be good. And she was like, "No, it looks like a war zone in there. So I'm like three days with 103 degree fever, sweating through all my clothes, just awful. But now, I'm on the miracle of antibiotics. I'm back in the office and I had a really fascinating conversation yesterday with a real estate investor. It was part of a mastermind that I'm in and we were talking about a business idea that he had and we were discussing possible marketing tactics for it. He was like hey, I want to go out and I want to get seller leads and here's what he said. I'm going to tell you his pitch to me, his idea for how we could do this, and then what I'm going to do is I'm going to turn that into an explanation of why motivated seller leads right now are very expensive. [0:02:09.8]
Right now we are in a relatively high cost period in our industry, and I want to talk about why that is and I want to talk about some of the reasons why that might change and some of the reasons that that's unlikely to change and I'm also going to tell you what you can do about it now. So it's not going to be entirely theoretical. We are going to get practical. Alright now, this investor's business model is relying on kind of going after a slightly kind of broader audience of motivated sellers, motivated sellers like investors typically do, but kind of enlarging that circle a little bit. And he said why don’t we, because we're going after a slightly broader audience, why don’t we go after some niche keywords, some weirder keywords that a little bit longer tail, little bit odder and there will be less investors competing for those, so the cost for the leads will be lower. [0:03:10.7]
And that was kind of his idea - why don’t we go after these kind of niche keywords. Actually a lot of investors want to do this, they kind of have this strategy in their head. And he said, "What do you think?" And I said, "Well, I think the core idea of the business and everything was great, but the idea of going after niche keywords as a marketing tactic is not going to work and the reason it's not going to work is because there are no niche keywords that no one is going after. The thing you have to understand about the way that this kind of targeting works is that when you talk about the niche keyword or a long tail keyword in a different industry, let's say the shoe industry, right? Their big keyword might be something like Nike shoes and their niche keywords might be Nike Air Jordans, black and red. [0:04:04.4]
Okay. Now the thing is if you are in an industry like shoes that everybody on earth wears, right, you're talking about a really high volume of people searching every month, day, week, whatever and so when you niche down to these really long tail, weird keywords like Nike Air Jordans with a red and white stripes, you still have a significant amount of traffic. In real estate investment, when you start to drift away from your core home selling keywords like sell your house, sell your house fast, that kind of thing - when you start to get into sell my house because I'm in debt or sell my house fast because I'm going into foreclosure, or I need to sell my house because I'm going through a divorce, you drop down essentially to a traffic volume of almost nothing and the reason that this is true is because investors are very rarely investing anywhere. [0:05:07.1]
Investors, by definition are regionally constrained, meaning they are trying to invest in an area where they think home values are high enough and the deals are there. They have a target area. When you add a target area on top of a niche keyword, what you get is almost no traffic. So when an investor says, hey, I want to go after this niche keyword to get low competition leads, what ends up happening is they get no leads at all. So I am not a big fan of this kind of niche keyword thing. In fact, the reason I'm not a fan of it is because we have tested this into the ground a million times. It just doesn’t work the way that our industry is currently set up, the way that the housing market currently is. It is just not, it just doesn’t work. So let's take a step away from that and think about what we can do in order to bring down the cost of our leads. [0:06:05.2]
Okay? What can we actually do - if we can't go after these niche keywords in order to get cheaper motivated seller leads, how do we actually get cheap motivated seller leads online? To get to that, we have got to understand why motivated seller leads are expensive in the first place. Alright? Why are motivated seller leads so expensive? Well, there's a couple of different things happening. Part of that is structural in the terms of like the housing market. Part of it is structural in terms of online marketing right now, and I'm going to talk about both of those factors. So let's think first about the housing market and this is basic economics. If you think about the whole housing market as let's say a dart board, okay? Like the outer ring of a dart board is the biggest one. It's got the biggest radius. Right? Pi squared or whatever it is. [0:07:00.8]
I don't know what it is. I'm not, high school math is not my strongest suit. But the outer ring is the one with the biggest one. Right? All the way down to the bull's eye in the center, which is the small space. Right? That's why it's hard to get a bull's eye in darts on a dart board. It's the smallest space on the dart board. Now you think about housing market is the dart board. In the center there, all the way in the bull's eye, you have the absolute highest motivation level leads. I would say these are the leads that are say, I kissed the mafia dom's daughter at his birthday party and they're coming to kill me tomorrow. I need to sell my house for $0.20 on the dollar. I don’t care who I sell it to, the first person here gets the house. That's boom - dream deal. Too bad for that guy because he's going on the run, but great for you. That's the center of the bull's eye. Alright? And that's really when investors say, "I really want motivated leads," it's like in their head, that's what they're thinking. Right? [0:08:03.3]
Now, the ring around that one is less motivated, but still motivated. So they're like, "Eh, I've got to move soon" or maybe they've got some debt. The ring outside of that one is "I've got a house that maybe I want to sell it and maybe I don’t," right - so even less motivated. The ring outside of that one is "I have a house and I want to sell it, but I'm not motivated enough really to sell to an investor. I'm probably going to sell on the market." The ring outside of that one is "I've got a house, but I don’t want to sell." And on and on and on. The center of the dart board is the highest motivation level and each of the rings as we approach the outside is less and less motivated. Now, because remember, the dart board, the outer rings are the biggest ones, the biggest part of the seller leads market are the parts that are the least motivated. And the highest motivation level leads in the market are the tiniest sliver of that market. [0:09:02.4]
This is something you've always got to remember - the truly motivated sellers, there aren’t a ton of them; compared to the housing market in general, they are a drop in the bucket. Alright? And that's fine. I mean there's enough of them to go around, clearly, we have been supporting real estate investing as an industry for decades and decades and decades but you've got to understand as a portion of the pie, it's very small. Now, in any economy where something is low in supply, alright, and high in demand, because I think we can all agree right now there are probably more real estate investors in the world than there ever have been. They've got seminars going, free seminars going every weekend in every major city. We have got HGTV popularizing real estate investing and flipping to a level that nobody, nobody ever, I think, would have foreseen that what real estate investors do would be so mainstream at this point. [0:10:04.0]
So you've got that going on. You’ve got a bunch of people jumping in because there is just a real estate investing coaching boom and everything. I think there are more real estate investors right now than ever. So we have a tiny sliver of the market with our motivated seller leads. We have got high demand because we have a lot of investors and when you have low supply and high demand, Adam Smith, the father of capitalist economics - what does he say? The invisible hand takes the price for that limited thing and moves it up. High demand, low supply means high cost. So that's structural. That's got to do with our industry. That's one reason that motivated seller leads are expensive. The other thing has to do with online marketing and we are in a period right now in online marketing where the online marketing companies are, for one, consolidated. [0:11:03.4]
So if you go back 10 years, 15 years, there was a lot more competition in the online advertising space. Right now, there really isn't. There is Google and there is Facebook; that is it. Google is the dominant search traffic and profit center. That is where search traffic goes. So you've got Google and for social traffic, for any kind of social advertising, you've got Facebook. Now it doesn’t mean it's going to stay that way. I don’t think it's going to stay that way, but for right now, we're essentially in a duopoly. It really, when you break it down into types of advertising, when you think about social advertising versus search, they're really just two monopolies living side by side. And when you have a monopoly and those monopolies have to make money, what they start to do is they start to manipulate the market in order to attract that money. Alright? So Google - what did Google do? A couple of years ago, got rid of the right side ads. [0:12:02.8]
So if you remember when you used to search in Google, there would be ads on the top, a couple of ads on the top. There would be ads all along the right hand side and then ads on the bottom. They got rid of the right hand side ads entirely and why? Well they did that for a couple of different reasons. One had to do with the rise of mobile devices and stuff, but a big part of this is that they reduced the supply of available advertising. So when you reduce the supply of something, it's just like we were talking about with the motivated seller leads, the cost for that thing goes up. So everybody's got to pay more for the clicks in Google. This has been happening for a really long time, Google has been doing this. Facebook is doing the exact same thing. They realized that they have a limited supply. They can only show so many ads inside of Facebook before people start to leave Facebook and they don’t want that - so they give you different ad formats and they limit the reach of your page so you got to advertise more. They changed things on the backend. They changed the algorithm in order to drive advertisers to spend more money, and we do because we need those clicks. [0:13:08.6]
So both Google and Facebook, the biggest online advertising channels, are manipulating their own marketplaces in order to drive up advertising costs. This is not a secret. They talk about this all the time. It's part of the business model. So structurally in the real estate investing industry, motivated seller leads are expensive right now because there's low supply and high demand. And on the online marketing side, we have got various structural changes that have to do with the way that Google and Facebook make money that are driving up costs on the advertising side. So you've got these two factors combining in the middle that makes things very expensive. So now, I don’t want to scare you because people are still making a ton of money doing this and part of the reason there's a lot of competition is because people are making money. If it got too expensive to make money and no one was doing deals, no one would compete and the prices would come back down. [0:14:06.8]
So I'm not saying it's the end of the world, but we are in a period right now where things are expensive, way more expensive than they were, let's say 10 years ago. I think I did a presentation recently over at REI Black Book and I think the stat that I came up with was the cost per click on somebody typing in "sell my house fast" has gone up 28 times in the last six years. So that would be like the price of gas today changing from whatever it is today to $30 a gallon. Right? So, significant - significant price increases and if you're the average investor and you're trying to do deals online, which I highly recommend that you do because I think if you're not doing that, you are setting yourself up for failure in long term. I think you got to get in this game. Again, you probably heard me say this before, I don’t think this is a thing where it's like oh do I do online marketing or not - no, you have to be doing online marketing. If you're an investor, you have to do this in order to be alive 5 or 10 years from now; you've just got to. So, if you're the average investor, what do you do about this whole situation with rising costs for motivated seller leads? [0:15:24.0]
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Dan: : So, a couple of ways you can immediately start cutting your costs for motivated seller leads - one - if you are not actively managing your online marketing, if you kind of just let it run on its own for a while, start actively managing it. You can do this yourself. You can do this by hiring someone, obviously, AdWords Nerds is what we do, but you could do it yourself as well. Pay attention to what is happening in that account, prune your losers, promote your winners, look for waste. This is about being efficient. Right? And efficiency over the long term, even if it looks like a relatively small gain, let's say today, over the course of the next year could add up to thousands of dollars saved. It's a big deal. And the reason that people hire managers, like online marketing managers like us or a variety of other companies - the reason people do that is they just want to do the work but they know that the value produced is significant over time. [0:16:59.6]
So that's certainly the easiest one, or not the easiest one, but the most obvious one - actively manage your stuff, whether it's your or you're hiring someone and you can always, and if you ever want to talk to us about it, you go to AdWordsNerds.com - there's a thing that says get a free strategy session. Just do that and we'll tell you all about how it works. We can talk about your market or whatever. You can just go to AdWordsNerds.com. It's right on the homepage. You'll find it. But having someone do that is pretty critical. The second thing you can do is start to work in more organic sources of leads. So search engine optimization, which is anything that's ranking the website higher in Google is a long term play in the sense that it's nowhere near as fast to turn on the spigot as it is for paid traffic advertising, that kind of thing. But every lead that you get from it is essentially free. So what ends up happening is the ROI from the labor or the time or the money or whatever you put into it is huge because again, the leads that come in are free. [0:18:09.6]
Now even if you're only doing one or two deals a year from free traffic, that is going to bring down your overall cost per deal acquisition very significantly. And that's a huge advantage in this marketplace. So if you're not doing organic marketing, you're not doing any kind of SEO, I'm not really talking about social organic, like posting on your Facebook page - I'm not a huge fan of that for deal acquisition, but for Google SEO, if you're not doing that, working that into your marketing mix is absolutely massive. It will make every difference in the world if you can commit to that channel and invest in it. It's still probably my second favorite marketing channel of all time - really, really effective. We can help you with that too, the same thing, you go to AdWordsNerds.com, get a strategy session, we'll talk to you about SEO. We do that all day. [0:19:06.1]
But it doesn’t have to be us. Just have some kind of organic strategy in place. That's going to be really huge. Now, the third strategy for bringing down your costs is a little more complex and it's a little bit more complicated and no one is really talking about it, but I want to bring it up because increasingly we are experimenting in this direction. I see more and more people doing this and I think there's a lot of room for this to grow in real estate investing, and that is using behavior to target your ads, rather than using demographics or search. What I mean by this is that almost always if you look at the history of real estate investing marketing, real estate investors have followed a very simple formula. They have approached people with a pitch. [0:20:05.5]
The pitch is contact me to get a deal and they get the person on the phone. They get into the living room. They either make the deal or they don’t. The sales cycle, if you think about it that way, is very short and that makes a lot of sense because motivated sellers are generally a very short-lived kind of lead. You're only motivated when you're motivated. You're only motivated while you have the house. Right? You're only a seller while you have the house. So you really have this brief window. It's not like someone who is shopping for a bag and they're going to spend a lot of time researching different bags. Motivated sellers want someone in the house to buy the house. Right? And so, the way that REI marketing has been set up for decades makes total sense. Right? But there is a different way to do it and the different way to do it is really only available to us now because of the variety of ways that these advertising channels allow us to target people based on how they behave and interact with the stuff that we put out. [0:21:08.3]
So, for example, what if instead of trying to really target down - when you think about the way direct mail works in real estate investment, where I need a really, I'm going to take three lists, I'm going to stack them all together, people with equity and people with debt issues and people with yada yada yada, and I'm going to stack these things. I'm going to get a really tight list. I'm going to mail that list. I know a lot about that. What if we threw all that out the window? Just throw it all out the window. Now, I'm not saying you got to do this. I'm just saying think about this for a minute. And just target everybody in your zip code. Alright? Let's go on Facebook. Let's target everybody on our zip code. Let's make a video that is about how to sell your house quickly. And what I'm going to do is I'm going to show this video pretty much to everybody for pennies. [0:22:02.5]
I am going to run it as cheaply as humanly possible. I'm not trying to get anybody to click. I'm not even going to give you a link. I'm not going to tell you what my website is. I don’t care. Just want people to watch the video. And I'm just going to run it forever and what I'm going to do is inside Facebook, there's a targeting option where I can say I can show other ads only to people who have watched at least 50% of this video that I showed. Okay? So, I think it's like a 5-minute video about selling your house and I'm going to say, okay, anybody that watches 50% of it, only people that watch 50% of it, they're going to see a different video from me next. If you didn't watch the first video, you don’t see anything else, but if you did watch that first video, you are interested enough to sit through 2-1/2 minutes of a video about selling your house to an investor - then and only then do you see my followup ad, which might be another video with a link or it might be a direct pitch or it might be like hey, I can make an offer on your house, or it might be a message or it might be something that follows you around on the internet - whatever it is. [0:23:19.9]
In this kind of model, we are not going after people based on who they are - I have no idea who these people are in the beginning, other than they are in my target market - and I'm not going after them based on what they're searching for, because they didn't search for anything. I am giving them a behavioral hoop to jump through. In this case, it's watching the video, and then I'm following up with them based on who performed that behavior and who didn't. What I'm doing is I'm letting Facebook sort them out for me. I'm letting the algorithm do the work. Now the disadvantage of this is that these leads tend to be slightly less motivated and they tend to convert less often but the advantage of it is that it is incredibly cheap to do, incredibly cheap. [0:24:12.3]
I mean, if you think about going after someone that types in "sell my house fast" in a hot market, that could cost you anywhere from $10 to $20 a click. Getting someone to watch 2-1/2 minutes of a video might cost you $1. So I'm not saying that you have to use this approach. What I am saying is that as the market shifts and the costs for the leads that we need shift. You can shift your marketing tactics according to what's available to you now. You're not beholden to the same postcard that investors have used for decades just because that's always what's worked. You know, muskets worked really well in the Revolutionary War, but we don’t typically use them now. So I'm not saying look, this is the answer, this is the thing. [0:25:02.5]
And I'm not saying that at all. But what I am saying is when your costs go up, don’t be afraid to investigate what's out there and experiment with something different. We aren't and that's exactly what we're doing - we're experimenting with all kinds of different funnels all the time because we know you can't just run the same stuff all the time. So, that is this episode - Why Motivated Seller Leads are So Expensive. I hope this was helpful to you. I hope you got some value out of it. Look - if you are curious about working with us and you want to know anything about it, you just want to see, go to our website. It's AdWordsNerds.com. We have got all sorts of free stuff, free guides, awesome blog, all the past episodes o f this podcast plus you can jump on a free strategy session with our team if you are curious, learn a little bit about working with us. We'd love to have you and I hope you are having an awesome rest of your day. I hope you have an awesome rest of your week, and I will see you next week back here on The REI Marketing Nerds Podcast. Peace everybody.
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