Tuesday, June 30, 2009

The Right Tool...

Of course this post will make any guy cringe. However, the point of this post is to illustrate how important it is to use the right tool for the right job (or...really not try the job at all!).

In fear of devolving this post into a vulgar double entendre, the real story of using the "wrong tool" in question was used by a young man to perform what would expectantly result in an unsuccessful effort to give his "own tool" a circumcision.

Ouch!!! No really!

After the aborted surgery, the young man was rushed to a hospital at Stevenage, Hertfordshire (England). The wound was disinfected and cleansed before he was given a bed in an observation ward.

"This is something we would advise men never to attempt," a medic said, "The results can be quite horrific and long-lasting and have quite an affect on a man's sexual performance."

Oh, really...? "advise never to attempt!" Such words of wisdom.

So, how does this apply to real estate investing? Well, for one, I've seen enough newbie investors try to create/use "one-size-fits-all" negotiations and presentations that sent them out the door in a bloody mess of rejected offers.

That's why having/using the right tools to qualify/disqualify prospects as soon as possible in order to produce successful outcomes is vital. Otherwise, we get promises of the moon by passive-aggressive, codependent sellers that want to please us more than they want to sell, or.... we get a punch in the nose. Whichever, we lose the deal.

Meanwhile, we can burn out real fast knocking our heads against unmotivated seller's skulls! So why pitch those who don't initiate a sign of motivation in the first place?

The answer is we don't want to. However, in order to avoid this we need to use another "special" tool. This is a tool that eliminates most of the Sellers that ask retail prices, have options, can afford real estate agents, are maintaining their homes, and then look forward to rejecting our profitable offers (otherwise known as "low-ball" offers).

BTW, unmotivated Sellers just LOVE to turn down our profitable offers. These are a DIFFERENT species of sellers.

So what is this "special" tool? The tool is the thing that not only helps us uncover the motivated sellers, but gets them to call us first, before they think to call anybody else.

Okay the tool is...(drum roll, please)

The U.S. Postal Service!

Yes, using the mail system to market ourselves to the most likely prospects is the BEST tool we have available. It's private, confidential and "below the radar" of nearly all of our competitors. Mailing to the most likely prospects is likely to keep us from getting bloody noses, and/or empty promises.

The challenge then is creating the best mailing list. Not just a mailing list, but the BEST one. One that has the most likely prospects. Ones that don't need extra "warming up". One's that just need to believe that we're not showing up to scalp them. Remember we can sheer and sheer, but only skin...once. So, we only do a nice, comfortable, enjoyable, satisfying coat sheering. This way the sheered will recommend us to others.

The next question revolves around the definitions of what the most likely prospect are that we put on the mailing list. That is the subject of a chapter in my new investing course coming out soon.


Thomas Paine Has It Right!

Tuesday, June 2, 2009

How To Turn A Lemon Into Lemonade!

I just came away from an appointment that I would not normally have made. The seller showed me all the "wanter-itis" "sores" I could stand to look at.

However, ever a masochist and always curious, I wanted to see the cute 1 acre property anyway, and keep my sub2 pitching arm toned up, so I played the interested "wanter" role anyway and asked to see the property today at 9 a.m.

I brought in my credential book ready to "yellow pad" the crap out of the victims, er the sellers, again just to keep my pitching arm toned up.

First I knew they wanted $25,000 up front. Deal killer. They owed $19,000 more on the property than it was worth. They were asking $100,000 more than what is was worth. Really a deal killer. They told me, point blank, they weren't desperate to sell the house. Really, really, really a deal killer. And finally, if this wasn't the straw that broke the camel's back, they wanted their Realtor buddy to be present at my presentation. OK, no really?

Well, upon arrival I discovered that the agent was one I made a verbal offer through two years ago on a pre-foreclosure. I know he was desperate to sell something, but I wasn't seriously interested in that deal either. I let the agent beat the seller up with my low-ball opinion. I know how the game works. I was helping him get a closing. He sold that house for 80k less partly because I gave him ammunition to discourage the seller with. he he.

Wow so now I've got an ally, I hoped. I introduced myself again and then pitched down the center. I showed everyone the examples of houses we buy and sell, and the referral and reference letters, that we support little league and the better business bureau, and offered the "bad news" RE articles, etc.

This was my second time at the property. I already toured the house the day I called, so that part of the presentation was moot. So, we just analyzed the numbers as if, and I outlined all the costs, carrying costs (based on 23 months of inventory! wow), and finally showed them that they would have to cough up $20,000, if they waited for a retail buyer (as if the price weren't $100,000 over retail as it was). Frankly it would take them 10 years to find a buyer for that extra $100,000k in price. Actually, just one day, if they went with me! Who knew?! Lots of laughs.

I informed the sellers that I was there to qualify them for our system of buying and selling (following the "cash now" script/pitch exactly).

During the scripted presentation, I uncovered all sorts of nook and crannies of need. Problematic for me was the wife was a ditz. She couldn't quite comprehend what "take over payments" meant exactly. Argh!

So it was an uphill battle. I digressed from the script in order to come at something the sellers could understand without having to defer to my now agent-buddy.

After explaining that I could make it possible for them to buy a cheaper house in Arizona (and with the agents help in suggesting they could find a "low-down" lender in Arizona), the entire pace of the negotiations picked up speed.

All of the sudden the need for $25,000 as a down payment disappeared, the fear of having to be responsible for repairs disappeared, and the fact that they could get out of the payments on the house, move to a cheaper home with a cheaper mortgage, could enable them to continue paying on their credit cards, and protecting their credit became a genuine solution to them. Who knew?

So again, I suggested two alternatives to the sellers; 1) a lease option (which I only suggested so that I could knock it down), or 2) take over the payments (which I showed all the more benefits of doing as opposed to "renting" their house for 10 years, etc.). It took me a while to explain how this could work as a long term solution to their $100,000 over-pricing.

Here's where you sharpy's might ask, why didn't the "yellow pad" analysis enable me to knock off $100,000? Well, it did. However, I used the analysis to demonstrate that even their over-retail asking price wasn't going to net them anything. And from talking to them, they would rather have an R E O, than let someone equity-strip their perception of equity.

I could see how $400 or $500 extra a month just waiting for a gestation period would be worth my time anyhow, so I met their price, if they were willing to give me my terms. This was the crux of the negotiations.

Well, the couple can't continue paying on $40,000 of credit card debt, AND make their mortgage very much longer (of $287,000) --- and they really want to move to Arizona a.s.a.p., so the hubby can die near relatives.

Meanwhile, they wanted enough out of the deal immediately to pay off the credit cards originally. I said, in not so many words, the best I can do is take over your first mortgage loan, and promise you the extra $100,000 in 120 months. And at this price, I'm not going to put anything down, or pay interest on the extra $100,000, or make credit card payments. And btw, you'll need to leave everything here when you leave so that I can attract a decent buyer willing to pay $100,000 over retail.

They asked the Realtor buddy to confirm what I've said was true, and he backed me up 100%! Who knew?

Bottom line, they want to make sure that if they sell this way, they won't have to come back and fix anything, regardless if they lease option, or sub2, me. I said fine.

And their other concern is that one of them won't live out the 10 years, and will be stuck with the whole credit card bill and have to wait for the remaining $100,000. I said fine. No, just kidding.

I just said I can only one thing here, and give you a silent, no interest 10-year balloon for the extra $100,000.

So, now they're getting back in touch with the mortgage broker in Arizona to see if they can actually buy a "used house" with very little down, and if they can, they said they want to do the deal. That's a far cry from we want $25k, and "What the f--k does 'take over payments' mean!"

What I should have done is had them sign my preliminary Buy Agreement, and then let them do all their due diligence, and then actually force them to cancel our agreement. But, leaving the "printing out a contract" task until eighty thirty this morning, and discovering that my printer server wouldn't recognize the wireless router (which has never happened), I went without being my usually prepared self.

So, after this couple finds out that they can get into a smaller house, with a lower down in Arizona, and still qualify for a loan since they've barely been able to keep their credit card and house payments current --- I believe I can resell this place for a contract price of $390,000 in 10 years, realize a monthly spread on the payments of about $400 a month, with about $15,000 up front.

Just thought I'd share this scheme with you guys. The things that make this work are that the first mortgage has a low fixed interest rate for $1,700 mo. PI which is very marketable; I'm not paying anything on the perceived equity until 2018, and I'm able to get into the deal without any real cash, just notary and recording fees; I'm only paying $1,400 taxes on a 1988 valuation/purchase; and I've got buyers for this thing in the pipeline.

Who knew any of this would be likely had I not made an appointment and made an off-the-cuff offer presentation, on a house I was only curious to use for comparison --- and was otherwise a "loser deal".

Anyone else have a war story they want to share?

I'll let you know what happens when this couple realizes NOBODY else has what I have to offer them.