Old MacDonald Had A Farm, Too!

If you stare at this picture long enough, you'll discover a smile on this couple's face. Look closer! See them smile?

Yes, this couple is out front of their house letting everyone know they're making a killing in real estate. He's got a pitchfork in hand ready to poke any trespassers that try to send any postcards to his farm prospects.

She's ready to back him up with that "ol' school marm warning" expression, which barely hides her exuberance over the $40,000 they pocketed as a down payment yesterday from the house they just seller-financed.

Yup! This couple flips houses bought from desperate, anxious sellers, and then turns around and seller-finances new credit-challenged buyers. More specifically, they take over loans and resell those loan terms to those that couldn't borrow a rake (or a pitch fork) at this point.

Two years ago, this couple found out what kinds of houses were selling the fastest and in what area over the previous 90 days. They discovered that the three and four bedroom houses in the 37237 zip code were the most common, and fastest selling properties. So they staked a claim in that zip code and mailed postcards to all the three and four bedroom home owners letting them know they buy houses. This stake, or claim is referred to as a "farm". Not to be confused with raising crops of course, but cultivating a profit nonetheless.

Farms are important to investors for several reasons. First, they focus the investor on an area that he can become intimately familiar with. This is important, because familiarity with values/comps trumps about anything else, even cash, when it comes to finding, funding, and flipping houses.

Others may have cash, too, but the professional investor that is cultivating a well-defined geographical farm area (defined here as something one can drive to and back from in 45 minutes) can and will beat any potential competitor to the punch because he can first instantly recognize the deal for what it is --- and land the deal like a seasoned airline pilot, before anyone else knows there's a deal.

Meanwhile, the amateurs are still compiling comps, addresses, computer print-outs, and pouring over last-minute CMA's (comparative market analysis), biting their nails, second-guessing themselves, if not simply flying blind. That's no good.

The best way to start and maintain an investing career is to first choose, and cultivate a farm area. It doesn't really make difference where the farm is, as long as the investor has enough prospects to pick over in a given geographical area, and become more intimately familiar with it than practically anyone else is/can/will.

The fastest way to fail in real estate investing then is to fail to have a farm defined. "Southern California" is a "region", and for our purposes of discussion would be considered a lousy farm. Any one zip code in "Southern California" would be superior to the entire region.

I'll just say, nobody can be an expert in a region, but few can be more of an expert than the investor who cultivates a familiarity around a one mile square. Of course the uniqueness of a property may dictate the size of the farm. For instance, say we're looking to buy a slightly used nuclear power plant, we might have to resort to a farm the size of a "region" just to get enough prospects on our mailing list!

Short of this, however, we need to focus on a specific territory, or farm area, so that we can be the fastest, most reliable buyer around.

After all, there's no such thing as "stealing in slow motion".

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Guerilla Creation of Mailing Lists

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?