For the last year I've been experiencing a much lower response rate on my direct response marketing. Frankly, it's my fault. I've gotten lazy. And greedy! Yup! Instead of tightly narrowing the niche of prospects that I wanted to call me, I opened up the spigot and included a larger portion of loser prospects. Well, including a larger number of unqualified leads, just sends the response rate, by percentage, into the toilet. Whoops. I hate toilets.
So, what to do?
First, I had to remember that in today's market, the stigma of being in foreclosure is practically non-existent. Without over stating this point, it's almost a badge of honor for someone to be included in the "bubble market" foreclosure club, as I put it. So why does this effect the sub2 game?
Well, in the recent past, our direct response marketing would attract those who wanted to avoid foreclosure like flies on you-know-what. Today, with government interference with the foreclosure process, and buyers waiting for the next "bail-out option", borrowers headed for trouble will think seriously about squatting in their homes until the last minute, expecting the bank to pay them cash to get out, or....offer them a "rent option" in return for the deed. This negatively effects the motivations of our more likely prospects.
So, what to do, again?
We focus the niche more tightly. We limit our profiles (farm prospects) to just those homeowners that are the most likely to want to save their credit, and not take advantage of the bank...get free rent...and/or a cash pay-out to move. Who are these folks?
These are folks in the upper price point neighborhoods. These folks have more to lose. They have assets that a bank will attach in the event they go into default. These are the borrowers that have too much in the bank for the lender to even consider a short sale, or even a loan modification, in most cases. Do these sellers actually get motivated to give us their deeds?
Yes.
Every price bracket has motivated sellers. However, in the upper price ranges, the sellers are more proactive and practical in ridding themselves of a property they must sell. I'll go out on a limb here and say these same owners have more faith in themselves than the cheaper homeowners have in themselves. As a result, they see themselves recovering faster, taking a step to save their credit, and put themselves into a more empowering position by selling their houses to us...even though we represent a non-conventional approach to selling.
Now, you're thinking, "Wait Jay! How do you make money off of high priced homes that are under water. I don't. I focus on the sellers that have little or no equity, not negative equity. That's the all-important distinction. This also narrows the playing field dramatically. Now, our response rate climbs by percentage drastically, since we're dealing with proactive sellers who need to get out, but have something to offer us --- a title and a tiny bit of workable equity.
BTW, how many dollars of equity is there at 10% of a million? $100,000?
How about 10% of $100,000? $10,000?
Would you say that's about a $100,000 difference? That's why spending our time on skinny deals in the upper price points is so much better than the "bread and butter" deals. The actual dollars are huge, despite the percentage of the deal.
So, limiting our focus on the most likely sellers that want to protect their credit, their reputation, and their immediate financial picture, are the same ones we can make between $100,000 on with a sub2 transaction that can be completed from start to finish with just a few days.If you would like to know exactly how to make $100,000 investing in high dollar properties without credit or much cash, click this sentence.
This house is going to cough up $26,000 in rents over the next 18 months.
Meanwhile, we found this house after two hours of driving our farm area and taking down addresses of vacant and abandoned property.
I researched this property and found out the owner lived close by. The property is in default, but not scheduled for a trustee sale.
It's been vacant since last Fall.
Now all this information helped me know how to pitch the seller. The fact that the seller wasn't even trying to rent out the house tells me this seller was tired of dealing with it and out of options.
Well this house is a great candidate for a loan mod and/or a short sale. The property is in terrible shape outside, and needs a cosmetic overhaul inside. Flooring, paint, some hardware replacement, and built-in appliance installation(s). Then there's landscaping overhaul (cleanup, trimming and watering). Total estimate $3,500 (less if we don't replace the flooring).
Market rents are $1.00 per square foot or $1,460 a month with 1,460 square feet of rent-able space, not including the garage.
While we rent the house out, we'll work with the owner to modify the loan, or short it. The 2nd will get about $3,000, and the first will be reduced by $30,000 for a total encumbrance of $90,000. Plenty of room for profit with a sale of $158,000 to a credit challenged buyer.
Meanwhile, our rent of $1,460 over 18 months will net us about $26,000. We'll pass on the cost of back taxes to the end user, if our short sale/loan mod is successful, and include it in the sale price. Meanwhile, we've got insurance costs of about $700, and we're paying the buyer a few hundred for granting us title (held unrecorded in escrow, which is our personal safe deposit box), until we can successfully negotiate either the loan mod or short sale.
All this to say, Sub2 profits come after taking action, not sitting around wishing things were easier!
Normally, I would tell you about just the pretty houses we buy, but this proves that money can be made out of something ugly, too!
If you would like to know how we structure deals just like this one, click the link below.
"How To Make $26,000 in 2 Hours...!"
My partner Jim called me up a day ago and said we need to go 'drive for dollars' tomorrow (or something like that). I said, "Great, let's go!"
So we arranged to meet at our regular car pooling place at the bourgeoisie "Le McDonald's" home of "Le Big Mac de Deliciose". After getting on the road, Jim pulled out his folder packed with prospective deals, and gave me directions on where to head.
We drove by some familiar houses that we'd negotiated on, and a few others that had just become obviously vacant and abandoned.
After driving around the farm writing down new addresses for about two hours or so, we came across a house that once had quite lush landscaping. I pulled in the driveway, got out, and walked up to the garage door and found it unlocked and opened it. Thankfully, someone had already bashed in the entry door from the garage to give us access! Jim and I went in and explored. It was beautiful and well laid out. Later, I discovered that the owner lived around the corner.
As we continued driving, we saw a woman out in her front yard appearing to rake the dirt of her rental house. I got out and jokingly asked if she was preparing the house for rent? She laughed, and said, "No, I live here." I laughed, too, and added for giggles if she was interested in selling. Before she could answer, I said, "Come on! Tell me you want to sell this place." She laughed again at my forwardness (I think), and said, "OK, it's for sale, if you say so."
With the conversation set firmly on friendly ground, I was able to discover that she owned a condo nearby that was in foreclosure, but the bank hadn't filed an NOD yet. She had just stopped making payments when the renter bailed. Her interest payment was very low, but the rent didn't quite cover everything.
My mind whirled. If I sub2'd this condo and resold it on a Land Contract for the loan balance, but at market interest rate, I could not only get a $10,000 down payment; make a couple hundred dollars a month on the payment spread, but save this lady's credit, and become a hero. At this point Jim interrupted me and saved me from offering this woman any money! Just kidding. I didn't offer her a dime.
Bottom line: We're taking title, reselling the condo with $10k down; making $200 a month in cash and giving the seller nothing, but a credit boost. Yay. All that just by asking a "landlord" if she wants to the sell the 'hell hole' that she's raking the dirt on.
Back to the other house. We're talking to the seller, offering them a few hundred bucks for the right to control the property, lease it out, and negotiate a loan modification (if that fails, we've collected rent for about 18 months at $1,300 a month) without paying property taxes, but maintaining the seller's fire insurance.
Both these prospects came just from driving around YESTERDAY! Does this happen every time? No. But it happens often enough to keep us jazzed up about doing small sub2 deals.
BTW, how much money does this mean we made with our two hours of driving around? Well, $1,300 x 18 months is $23,400. Then we've got the condo with $10k up front, and $200 for another 18 months. That's another $13,600. So we will have made $34,000 in 18 months for maybe 2 hours worth of prospecting.
Now you might ask, what's it gonna cost to fix the condo and clean up the house? We'll have $3,500 invested total. So, $30,500 isn't too bad. That's still about $15,000 an hour less prep work. Okay, Jim and I are splitting the profit so it's actually $7,500 an hour. That's better than my surgeon makes an hour.
If you'd like to know exactly how Jim and I put these profitable sub2 deals together click the link below.
You'll have an opportunity to provide your name and email address and then be directed to the Screw The Bank information page via email.Screw The Bank! Sub2 Profit System
This is my Terrier/Chihuahua mix Wolfie resting on the way home from a prospecting journey.
We checked out a new farm of multifamily income properties that look like fabulous Sub2 deals in the making.
Nobody knows these properties are for sale! YES! And the sellers are scared spit-less about the vacancy rates in the area, and don't have the courage to weather a storm. YES!
Not to mention that the unit prices are shaping up to be fantastic high cash flowing deals for a knowledgeable investor. Meanwhile, taking over poorly operating buildings and getting them turned around without any financing obstacles is REALLY nice, if not just a giggly thing to ponder.Did you know the most cash flowing properties are the same ones the bank is least desirous to lend on, or likely to finance for a decent rate?
Yes, we can find the baby cash-cow dumps with a potential 25% capitalization rate, but because those properties are located in C-minus or D-plus areas, the bank holds its nose and says, "no thanks" to our requests for loans. How come the most secure deals are the ones banks don't like, I ask?Here's one hypothesis. Banks are like low-return pride of ownership types of buyers. They like to plow money into low-return ["A"] projects that they can point to and say, "We lent on that!"
How nice.
Now if you ask the bank's borrowers what their returns are on those same "A" properties, they might say, "Uh, about 2.5 percent." Uh, huh.Well, I like bigger returns. We prefer meaningful returns, not ones that can't even match the costs of rising energy. We find these juicy returns where the average investor doesn't want to shop, and the average bank doesn't want to lend. Yay!
There are so many opportunities waiting for the courageous and the proactive. Meanwhile Wolfie, the Sub2 Dog, will ride soon again looking for stray cats and bicyclists to bark at while we talk with sellers who don't know how to turn a lemon into lemonade the sub2 way!
If you would like to know how Wolfie buys cash-flow opportunities without a credit check or down payments, click here: "Screw The Bank!"
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