Friday, May 4, 2012

My Sub2 Deal Won't Sell...!

A newbie flipper couldn't find a buyer for his "rent to own" deal despite following "all the advice" he'd received on marketing with "Bandit Signs." 

I asked him what his ad copy said.  I discovered he wasn't focusing on the "benefits" and wasn't focusing on the right buyers.  Here's what I advised:

"Oh, blezz gawd, that's too much information for any kind of bandit sign...!!!!!!!  Of course, I know you're not putting all that on a yard sign, right?  I do know that, right?  Shocked

Let's trim this baby down to something effective...

1.  You own/control a house.
2.  You're offering "seller financing" via a lease/option/rent-to-own.

Backing up the trail a few feet...we need to analyze the amenities of property to determine the exact buyer that will most want this house.

Every house was designed to appeal to a certain buyer.  Custom built homes are especially designed to appeal to one buyer.  So what buyer is your house going to appeal to most?  To answer that, let's review the features and amenities the house offers.

List of features and amenities:

3 beds, 2 baths
Corner lot on culdesac
x streets of Crest###, Mountain #### and East#### Villages
Close to all the shopping and restaurants
Mature landscaping line these streets
Child safe
Detached storage
Large trees
Excellent shade
Azaleas Nobody
Japanese Maples
Holly Trees/Bushes
Detached storage
1-car garage
Low down
Under-retail price
Call Bob at  205.602.#### 
Price $172,500 Comps $205 to $250k
Rent $1295.00 

OK, this house is going to appeal to a family with pre-teens that are moving up from a 3/1 or 2/2, or moving in from another area.

It's not going to appeal to:

1. Empty nesters, because there's too many bedrooms, too many noisy, bratty kids and teenagers, and it's a corner lot with "lots" of maintenance issues, and only a 1-car garage. 
2. Large families, because there's only three bedrooms, not four or five bedrooms and only a 1-car garage. 
3. Single persons, because there's too many bedrooms, too many noisy, bratty kids and teenagers, it's a corner lot with "lots" of  maintenance issues.
4. Newly marrieds,because there's too many bedrooms, too many noisy, bratty kids and teenagers, it's a corner lot with "lots" of  maintenance issues and only a 1-car garage. 
5.  Retirees, because there's too many bedrooms, too many noisy, bratty kids and teenagers, and it's a corner lot with "lots" of maintenance issues. 
6.  Families with small children, because neither the front or backyard is fenced (despite the neighborhood being "safe for kids."  There's no such thing as "safe neighborhoods" today; only safe, fenced backyards.  Then there's the mention of poisonous plants. The mere mention of Holly trees conjures up a dead five-year old on the front lawn, frozen, reaching for Holly Berries, with his now-rigormortised arm.  And (drum roll please) there's only a 1-car garage.   

Conclusion on Analysis:

We want to appeal to the family with two kids between 9 and 12 years old that won't "need" a fenced yard, and won't eat Holly Berries.

The one-car garage situation is "fine," because mom and dad both work, and they're always using the car, so a garage is only critical for storing crap, not parking cars.

The fact that the streets are lined with mature trees, and there are colorful flowers and the rest is just "extra" but not deal makers.  Those are things we reserve for our long form advertisements.

The actual deal makers here (after the amenities have been sifted through) are: 

1. Seller financing offer to a credit challenged buyer...
2. The payment...
3. The down payment...

I could go through all the elements of a bandit sign, but I'll just cut to the chase and offer what I know works, based on my analysis of what you've outlined.

Rent To Own!  No Qualifying!
3/2, 1,309 sqft. $1295/mo.
$8k Option Fee, Great area for kids. 
Mature landscaping. Roomy Family Room
Call Jason Today at 205.602.####

Notice I didn't mention the sales price?   I don't want "bargain hunters" calling me. In fact, I'm setting the price to today's retail value of $250,000.  Otherwise why give a bargain price, to someone needing help financing? 

The ones with fewer options, are the ones that only pay attention to the payment and the down payment.  If these are workable, they'll give us the rest of what we want.  Buyer's that fit our profile, don't care about the price (at least the ones we want to attract and pitch). So, the price is "retail."

I want people who...

1. Want to own a 3/2 home
2. Want room to live
3. Want a place for their kids to spread out
4. Can afford $1295/mo
5. Have $8K in Option Money
6. Needs temporary seller financing
7. Appreciate bargain terms (for a credit challenged buyer)

I don't want...

1. Tire kickers with only $1000 for Option Money...
2. Folks who can't afford more than a $1000/mo.
3. Credit dead beats...

Now the question comes up, "Why advertise "no qualifying" if you're going to "force" the tenant/buyer to get his own financing in just a few months.  What happens if he can't qualify for a loan?

Few buyers are going to give us $8K unless they're fairly confident that they will get financing.  Once the prospect knows that we are offering this deal for only 24 months, he'll have to determine if this is worth the risk. 

That said, if our option price is not over-retail (in this case it should be "retail," and not a discount) then any tenant/buyer with OK credit should be able to qualify for his own financing and exercise his option. 

Of course, the types of financing he's going after is a clue to his success.  FHA, or conventional have different qualifying requirements.  So this has to be accounted for in both the terms and advertising ad copy, if not the overall expectations.

We think it's wrong to knowingly put a tenant/buyer into a house, that  he'll never qualify for.  Failed buyers spread the word about our businesses, and then it just pours sand in our gears long term.  So, even though we don't do a credit check, we do ask some questions, and then move the deal to where it will work for everyone. 

That all said, we should be sending our buyers to our mortgage broker for an evaluation, to make sure our buyers can perform in a timely manner, and give us an idea of what to expect.  It's all about negotiations in this business."

If you would like to know the system I use to find, finance, and sell houses, within days, and pocket more than a few thousand in cash, subscribe to this, and watch this presentation...

"How To Flip Pretty Houses For Fast Cash With No Job, Credit, or Down Payments"