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.
That seems obvious for seasoned investors who've staked a claim in particular farm. However what about when we don't have a presence in the farm yet? How can we find good deals before we've established a good referral business?
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.