Thomas Paine Has It Right!

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.

How To Steal Houses!

Imagine hypnotizing your juiciest prospects into handing over their deed without so much as asking!

Of course this is ridiculous. However, consider the guy in this video and what he does to the cashier at a supermarket.

The reason I post this is because making an offer using a scripted presentation is the next best thing to putting your prospects into a mental headlock and getting their deed without ever asking for it. This is a chapter in my new course coming out soon.

Guerilla Online Marketing!

Matt Bacak is one of the most successful internet marketers I've come across. Many of the folks that visit my blog are also interested in learning how to market online. So I'm posting this for their benefit.

The Last Man Standing WINS!

Is anyone else tired of the "Instant REO Profits" scams being offered these days?

Let me provide just two examples of what I consider outright fraudulent advertising. One makes the promise that anyone can learn to profitably buy and flip REO's completely sight unseen. Puhleeze.

The other is that "anyone" can learn to flip 10 houses in less than five hours a week. Really again, "Oh Puh-leeze".

As an REO buyer goes, the nuts and bolts for successful prospecting, marketing, and investing haven't changed much, except for the ease of locating REOs' on the net. REO inventory used to be a guarded bank secret. Anyone who bought an REO course in the 1980's read a chapter about the "unknown secrets revealed" of how to get a banker to reveal their REO inventory. Back then lenders with REO's were as nervous as pregnant nuns about word getting around that their banks had become poor risks.

Several years ago I had the worst time getting a bank to tell me what they had on the books. They did offer me "onesy-twosey revelations" of "pretty" houses that they were marketing at full retail. "Next!", I said.

Even as recently as 1995, a bank officer dropped his voice as if sharing a dark "secret" with me about his "one" REO. Of course he had more than these, but he couldn't afford to let somebody spread the word this bank was "loaded with REO's [OREO's for those of you on the East Coast]. Someone's head would roll if this happened!

It was hilarious. I was respectful, but it was somewhat annoying.

Today? No problem. Banks barf up REO listings on the internet. They don't give us details often, but at least we can see how many properties are listed in say, Sacramento, CA (not only the State Capitol of CA, but the REO Capitol of CA, too!)

Now the information I'm going to offer here is not just for the pros, but for those just starting out. Once we've developed a reputation as a solid reliable buyer, things snowball. Agents, bank officers, friends of friends, and referrals will eventually keep you as busy. Meanwhile, I offer these real world tips...

From my experience in no particular order... (A. B. --- this is for YOU!)

The very first shortcut is...(drum roll, please)...

1) Treat your REO investing as a full-on business enterprise. Anything less, and success will be long coming, if not bumpy and inconsistent.

Next...

I'm not describing a part-time effort with a promise that you can do this in your underwear and never have to talk with anyone, or view property. If you want this strategy, I've got a bridge you can buy for cheap!

If you're still reading, here's my take on buying REO's profitably and efficiently (the true short cuts):

• As you immerse yourself in the process, you'll discover which banks are dealing, and at what price point. Right now I know of three banks that are dealing, and at what price point. This is to say I know three lenders that are dumping their inventory at about .60 cents on the dollar (rather, .60 cents of current retail --- there's a distinction).
  
• I always say focus on a farm area. However, with REOs, your farm may necessarily be defined as a certain property profile, not necessarily a certain geographical one. You'll probably discover that the REO's you can buy for a cheap price, are scattered over three counties in a given month.
  
• Be prepared to compete harder in the more densely populated areas. There's a lot of amateur competition that will agree to pay much more than we will if we stay in highly populated areas.
• Be patient. Remain friendly. Until we start getting referrals and inside information, we've got to try to be the last man standing, as it were, until after the bank wades through all the flakes that offer to pay more, but ultimately fail to close for any number of reasons.
• Accept that 1 in 50 offers gets accepted early on. This statistic dramatically improves as our reputation improves --- and after we become more confident in making wholesale offers at the outset.
• It can take two or three months of waiting, being ignored, negotiating, and countering before we close on a profitable deal at the beginning. Again the processes shorten up and become somewhat more efficient once we get a full head of steam.
• Some banks want proof of funds regardless of where you're getting your money. Before we've proven ourselves as buyers, we'll be asked to jump these hoops, meant to filter out the seminar grads.
• We only want to make "profitable offers". That is, if we plan to buy at 65% or less of A.R.V., we've got to initiate an offer that allows you to go up to that limit. If we start at 65%, where can you go, but upside down at that point.
  
• Our opening bids should start at 40 to 50 percent of the retail value, minus repairs (giving the bank a "net offer", or letting them know exactly what they'll receive after all closing fees and sums are paid.
• This practice alone will separate you from the amateurs. Amateurs can't seem to have the heart to actually make offers they can make money with, and will feel "good" making retail offers of 80 to 90% of ARV. That IS Stupid. Especially when the first 20% of the deal, not accounting for repairs, goes to everyone, but US. So, buying at 80% of ARV, minus repairs, means we make NOTHING!

Ok, here's two property inspection/negotiation options for your consideration...

• Option 1) Complete a thorough inspection of the property (which I do love doing), and then make a fully informed offer with tactical wiggle room for negotiations ******OR******
  
• Option 2) Analyze the comps, assume $30k in repairs, subtract the repairs form the ARV, chop that number in half, and submit the offer. If you do Option 2, and get an accepted offer, you'll then inspect the property and 'find' all sorts of things you "didn't expect," and then try to "educate" (beat the crap out of) the bank over a lower price.

[edited] I omitted my suggestion to avoid Option 1, because following option 1 would mean checking out three dozen properties before making an offer. Well, that's fine if you're only making an offer or two, and have lots of time to waste. It's better to look carefully at a property after you've got an accepted bid, especially when you have more than a dozen outstanding offers to make.

Frankly, for those of us who are actually trying to get 50 offers out at a time, physically inspecting that same number of properties before making an offer is a time waster. Option 2 is the more practical approach, because we're only spending time looking at properties the bank has indicated it's willing to counter on.

With irregular, if not "onesey-twosey offers, we can theoretically "afford" to go do pre-inspections of properties, and then make fully informed offers. That's nice when it's practical, but it's a poor expenditure of time when we've got 50 offers cooking at once.

So...if we've got lots of irons in the fire, the only way to be efficient is to make the offers based on Option 2, and then upon a counter offer, go inspect. Lots of lenders won't counter. So, we don't want to have wasted valuable time looking at properties where the bank hasn't indicated an interest in negotiating.

And...

• Be willing to wait patiently for the bank to wade through the amateurs. After the listing is stale and the bank's gone through a couple failed escrows, we start looking like REALLY good alternatives.
• Again, be professional and friendly. Bank employees will find us to be a breath of fresh air, when we relate with them in a friendly fashion (specially when they've rejected our offers). Rejected offers DO NOT MEAN "dead" offers.
  
• Again, we want to be the last man standing. This means that if we're patient even after being ignored for a "better" offer a couple, two, or three times in a row, we'll still be there with an offer in hand...and much more likely to win a closing after the dust settles.

There's more to be said, but that'll have to wait. A mind can only absorb what the butt can stand sitting to read.

Jay