Monday, July 21, 2008
Monday, July 14, 2008
There is SO MUCH opportunity right now, it's a riot! Auctions and REO purchases are all the rage as I write this. Short sales are happening, too, but the universal theme on those is, "you've got to have a lot of those in the pipeline" to make up for the losers --- and the only "buyers" are end-users.
As for the auctions, the banks are just now (July 2008) loosening up the terms of their reserves (here in So. CAL) to effect actual investment grade deals.
That all said, if one doesn't know their farm, they won't recognize a deal, unless it was SO obvious a blind person would trip over it ---- and then they would be self-doubting and suspicious anyway.
You know, that's the theme of the real estate business.
There's just no short-cuts other than knowing your farm.
That's why 95% of the would-be investors are scared to pull the trigger. They don't know if they're shooting at a good deal, or shooting themselves in the foot.
Nevertheless, sifting through a bunch of crap is still the name of the game. I'll call this "Frog Kissing". It takes time and money to "frog kiss", or wade through a ton of responses from even highly refined and tailored direct mail prospects. It's just the law.
We've got to expect that we'll kiss a bunch of liver-spotted, warty reptilian organisms before we finally discover the prince/princess!
Even then, turning the frog into a prince, isn't just a matter of kissing the thing. No. The devil's in the details.
Meanwhile frog kissing is what we do as investors. That's why RE is so profitable, too. Very few people want to spend the time, energy, and money doing that.
The squeamish, lame, and/or lazy won't do the spade work required to find those green, slippery buggers. What's worse is the newbie frog kissers get things backward. They look for princes/princesses instead of the frogs. We don't really find the princes/princesses by looking for princes or princesses. No. We can only find the "royal gems" by looking first for the frogs, and well, "kissing them" first.
That is, looking first for "problems". Or better; recognizing problem properties or owners with problems. Then analyzing the numbers (comps, repairs, etc.); making offers; waiting for counter offers; being patient; and finally being willing to "unsuccessfully" negotiate a deal --- over and over again. That last part is important. The impatient investor often is unwilling to "lose" a deal, and then puts himself in a weak position, or worse --- "marry" the frog.
Meanwhile, the impatient investor thinks by insisting on bargaining that the frog will by sheer force become that prince of a deal. Wrong!
Frogs don't become princes because we're desperate and settle. Frogs show themselves as princes when we care less than the "frog" sellers do. That means that we search patiently for the frog that will become a prince only by making many, many profitable offers in the first place; by knowing our farms better than anyone else, and being willing to kiss as many frogs as it takes for the princes to appear! That's always just a lot of plain ol' frog lips to wade through, huh?
So be patient, know your farm, make lots of "profitable" offers, care less than the frog sellers when negotiating, and eventually one of the frogs you kiss will turn out to be your Prince.
Saturday, July 12, 2008
Wednesday, July 9, 2008
I suppose it's just the fact that the agent has a different objective than I do. They want a "closing". I want a "deal".
Agents "have" to have a closing to pay their bills and overhead.
I don't "have" to have squat.
Frankly, to put our opposing objectives into relief, if I don't insist on only buying "deals", I'll only have "squat" in the end.
Recently I interviewed a professional (full time) real estate agent that I'll call Pedro, that was listing a short sale property. The acreage had a stick built home on it, and at roughly $80k an acre, it seems like a great price --- not wholesale, but a good price for an end-user.
After talking to Pedro for a bit, I realized that even though this agent was open and frank about his feelings regarding the market, I had to pause and remember I was not only talking to Pedro ---- I was talking to a Pedro. Yes and this Pedro was quite persuasive informing me that I shouldn't wait until the market bottomed out before I bought, but should realize that a bargain now, held on for many years, would prove a decent investment --- especially if I had "staying power".
Well yes, this might be true enough, but my objectives are not to rely on my staying power, just so that I can survive until the next rebound. I want only juicy deals that I can profit from today (regardless of my staying power thank you).
So, what's the Pedro thing anyway, one asks. Here's the story...
Once upon a time there was a feisty US Marshall chasing two stage coach Banditos that had robbed the stage of it's gold.
While capturing and handcuffing the robbers, the Marshal realized the thieves spoke no English. The Marshall was helpless to find out where they hid the gold without a translator. So he dragged the scoundrels into town and found a man called Pedro to translate. When Pedro found out why the Marshall needed his help, Pedro smiled and happily obliged.
Meanwhile, the Marshall was waving his six-shooter at the thieves heads demanding to know where they hid the gold, and threatening to blow their heads off if they didn't tell him what he wanted to know.
Pedro translated exactly what the Marshall requested to the two thieves saying, "If you don't tell the Marshall where you hid the gold, the Marshall says he'll shoot both of you in the head!" They looked at the Marshal waving the pistol back and forth just waiting to shoot them. Fearful the Marshal had a trigger-finger they gave in and explained to Pedro that they had buried the chest of gold under the Oak tree at the Three Forks river bend.
Desperate, the Marshall demanded to know what the bandits said. Pedro turned to the Marshall and replied, "They said, 'Go ahead and shoot!'"
This article was forwarded to me and I think it's a good reminder and warning to avoid following the lead of impatient amateurs, and specu-tards in this current market. The definition between that of a "specu-vestor" and a "specu-tard" is market timing!
Also, I want to provide a link here to the real estate timing expert of all time, Robert Campbell ("Timing the Real Estate Market"), who has a popular web site (I get nothing financially out of this referral, expect a warm and confident feeling that you'll benefit as much as I have from his book) that you might consider.
What's more Robert's book and information will help more of us avoid making the mistake of interpreting a "dead cat bounce" as a full-on RE rebound.
Robert Campbell's Webpage
What do you think?
Monday, July 7, 2008
FYI: John T. Reed sells RE guru material! Commercial Review of J.T. Reed
He also spends a considerable amount of time in self-serving criticism of a majority of other RE gurus and their courses. I consider Reed, at best, classless in this regard, and at worst unethical and unprofessional, if not unsuccessful in real estate.
Why do I care? And why would I critique Reed?
Well first, quality operators don't make personally directed comparisons in order to sell their own products by putting down, impugning, or indulging in efforts and activities that otherwise diminish the reputations of their competitors.
Secondly, as a professional investor with several years of RE ownership under my belt, I've received a lot of insight from many of the gurus Reed bashes. In fact, I'll go as far to say that, I probably wouldn't have had the guts to do 30% of what I've done since 1981, had it not been for one of Bob Allen's No Down Payment workshops I attended, specifically.
Robert "Bob" Allen has certainly taken a fall, or two, over the years, as Reed is all-too-happy to inform you. But it's not the fact that one got knocked down a couple of times that counts. No. It's where one is headed! And it's about not giving in, or giving up! Allen got back up!
Notwithstanding, Reed takes specious quotes of Allen and blends them into a nefarious, evil, advantage-taking context. I had to laugh at one alleged quote of Allen that goes, "We're not in the RE information business. We're in show business". Well, of course Allen is in show business!
That's a lot of what marketing is. Duh?
But this is an anathema, if not a surprise for Reed.
Meanwhile, I have much respect for Robert Allen, if only that he's been willing to risk everything, several times over, in order to both become prosperous himself and help others do the same. Reed would not agree. Meantime, I don't mind one wit that Allen used "show business" to sell me on a "Possible Dream" many years ago.
This is the thing that John T. Reed doesn't understand. He doesn't understand that part of selling is creating a romantic image, even a dream in the buyer's mind of what could be possible. Yes, what's being sold can be mostly a romantic dream or image, but it's the romance that spurs imaginations and creates momentum in our hearts and minds to achieve something bigger than ourselves.
Look at John F. Kennedy. He made a romantic speech once about "...going to the moon, in this decade!"
If that's not a romantic picture --- that he motivated a nation to "waste" 30 billion on --- money that could have been spent on the homeless and hungry, I don't know what is.
No, Reed's all too mechanical and logical. He really doesn't understand people, or marketing. He prefers that RE guru materials must somehow equate to some MBA program with Harvard-like certificates (in what...Lease / Option Finance?).
Meanwhile, John T. Reed won't market himself out of a wet paper bag. He's afraid of the risk. He writes that he doesn't sell his books in stores because he doesn't want to risk printing too many copies at his own expense --- or let bookstores profit from his book (or something along that line). Whah!?
Essentially he won't take the risk that his book won't sell well, and he doesn't want anyone else to profit from his book either. How low-budget and greedy is this, I ask.
Anyway, let me just say that I did buy three copies of John T. Reed's superb book on Property Management. I bought them at Border's Books in Overland Park, KS back in 1991. Evidently someone bought several copies to be resold commercially, because I was shocked to hear him say his books have never been sold in stores. All I can say is, "Well John, yes they have been, and I liked them, too".
Meanwhile, I do not recommend John T. Reeds Guru Review or his BS checklist. The entries are subjective at best, and misleading and irrelevant at worst. Again, for example, who cares if Bob Allen filed BK 14 years ago, or several times since? Doesn't even the Bible authorize bankruptcy as public policy in the Old Testament --- as opposed to holding debtors in prison for the remainder of their lives --- both as a testimony of mercy and grace toward those who've gotten themselves in a financial jam?
We can only hope that John T. Reed never gets himself in a crack, and asks for financial mercy. He'll get none from me, because he gives none to others, and does his best to both embarrass and humiliate those who've once, or twice, been in a ditch.
Wednesday, July 2, 2008
I've been asked many times where to find prospects for a direct mail campaign.
I always suggest subscribing to CoreLogic (Formerly F.A.R.E.S. ["First American Real Estate Solutions"]).
Then there's "Listsource.com", but that's expensive, too. Especially if you are sifting for a lot of variables. AND really especially, if they haven't "abstracted" the data recently...and you mail to a bunch of dead ends.
However, after explaining that it's going to cost them about $1,500 hundred dollars a year for that subscription, or maybe $1,000 for a good list, their eyes glaze over.
Newbies mostly don't realize that this is just the cost of doing business consistently, and routinely.
CORELOGIC is not just for compiling mailing lists however. It's also for searching property and comp information before we commit to buying.
For example, I check out their (the prospect's) property profile (this time thoroughly) to see if that prospect still "qualifies" for my program before I meet with the prospect. If the property fails to qualify anymore, I cancel our appointment. What disqualifies a prospect is usually a recent refinance, a new A.R.M.-bomb loan (negative amortization, adjustable loan that spikes to 12%, etc.)
Fortunately, there are other alternatives for compiling a mailing list that can be just as helpful, and practically free for the newbie (or the cheap!).
Here's a step-by-step method I used to jump start a shoe string direct mail campaign several years ago.
I'll be writing editorially hereafter.
We went to the local title company and asked for their sales rep. We explained that we needed assistance from them in assembling a "farm package". These folks knew exactly what that meant. Title companies routinely assist agents and mortgage brokers in putting together "farm packages".
So what is a farm package? This is a specific mailing list that only includes prospects with a certain profile. For instance, mortgage brokers want lists of prospects that are due for a refi, or would likely want to create an equity line of credit. Agents want lists of those who've owned their homes for a period of years, that would allow them to list their homes for sale when the time comes.
Our farm packages usually included all those with purchase money mortgages that were less than two years old and showed at least 10% of equity, or more, at the time of refinance, or purchase. These folks are the most likely to get in trouble with their debt load, as discussed in a previous post.
So the title company culls out our custom farm package (prospect list) that includes only certain LTV's at purchase, a certain length of loan (by date of Record of Transfer), by zip code, house size, lot size, etc. We wanted a very precise profile that was nearly identical from prospect to prospect. That way we knew exactly what every prospect that called us was likely to own, and it made determining values extremely easy.
BTW, the title company doesn't offer us farm packages for free just because they can't think of anything else to give away. This information actually COSTS them money to provide. Remember the $1,500 or so, we're saving by not subscribing to FARES? Well, somebody paid for this information, because there's no free lunch in this world.
As a result, we made sure the sales representative knew that we were committed to them exclusively to handle our closing and insurance needs when we sold our properties; and we ensured that their "small" investment in us would pay off in an "obscene" fashion eventually! Of course we don't come out and say that exactly, obviously!
To sum it up, we established a relationship with a title company. We let them know that we plan to bring all our title insurance work to them in return for help in assembling a custom farm package.
So, title companies can be very helpful in assembling our custom farm packages, and save us a bunch of money up front --- just for bringing them all our business. Not a bad trade off, huh?
Tuesday, July 1, 2008
This is from the active-rain RE broker's website.
RE agent, Aaron Mendez (Corona, CA) explains how he handles low-ball offers in this "buyers market". It's good advice for investors in dealing up front with folks that are emotionally connected to their houses and neighborhoods.
How to low-ball more elegantly and correctly following a professional RE agent's advice
I've been curious and questioned other investors that consistently found juicy deals, how they found a particular deal. The answers have usually been that they learned about the property word-of-mouth from someone who knew the owners, or through some acquaintance. Basically referrals.
I've discovered that direct marketing is THE answer (dream tool) for not only finding juicy prospects, but getting the prospects to call ME directly, and...best of all... getting the prospects to call me without (or before) calling any of my potential competitors.
OK, so direct marketing works. But one asks, how we choose a good farm area. And what criteria do we use to chisel the list of prospects down to the MOST profitable mailing list.
The answer is easy. First make up your mind about what type of financing you are capable of. Are you a cash buyer? Are you a Lease/Optionor type buyer with a some cash? Are you a wholesaler with solid financial backing or personal funds? Or maybe a rehabber with a line of credit? These all make difference on what types of houses, and equity situations you target.
Then make a decision on the price range of houses you want to invest in, the size home, again the equity values, the age of the properties, and finally the length of ownership. Did you know that most owners get in trouble on their home loans within the first 24 months of ownership? These are usually good sub2 type prospects. These are what I target.
Yep. And these types of prospects usually have very little equity. And this makes a big difference for those of us who specialize in taking over loans on houses that I call "equity lite". These are properties bought with 10% down a couple years previous, but don't reflect enough equity now to pay a real estate agent to sell.
Of these prospects that get in trouble --- these are the same prospects that tried to keep up with the Jones after buying their new home. They moved in and immediately loaded their credit cards up with furniture and toy purchases. Dad of course had to match the "Bubba" truck that the neighbor owned, in order to pull the new trailer filled with "desert toys". And then mom soon after refused to drive the kids to school in that old 1995 Aerostar. So she came home in the new Honda SUV to show off to the other mothers.
Well, after all these purchases of cars, furniture and toys, they're now over extended. Whoops! Figuring out how to downsize the bills, they discover the only thing they can sell is the house! Everything else is upside down.
Meanwhile, I'm scouring for upside down moms and dads in new houses. So Mom and Dad Seller get a card from me, informing them about how they can sell their house in 24 hours (or less!). Mom calls to ask how this is possible. I invite myself over to evaluate their situation and explain what (if anything) I can do for them.
So, in comes me! The hero,
- to take over their loan
- protect their credit
- and resell the house for an obscene profit to a credit challenged buyer whom has roughly 10% down.
- This all happens in four weeks flat.
The house was worth about $300,000. I took over a $260,000 loan. I resold the house for $330,000. I asked for $30,000 down. So, $30,000 profit up front in down payment money, and another $40,000 in potential equity profit equals $70,000!
Not bad just for protecting someone's credit, and bailing them out of a loan they could no longer afford.
That's why DM'ing becomes profitable --- sifting out all the prospects except those that are likely to be headed to foreclosure because of pride. And notice, nobody else was competing with me for this juicy deal. I am the only one talking to these sellers. And I didn't have to create a name for myself in the community to get the referral. I just went directly into the pool of "don't-wanters" as Bob Allen used to say.
Next post, I'll explain the cheapest place to get a mailing list.
It linked me to a PDF document that had many links to web-based information and service providers (and some of it was free). There's a free referral list to many hard money lenders. There's really too much to list. Go check it out.
Here's the link: Lots of RE stuff