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.
Short Sale Prospect!
MY thanks goes to those 12 virgin "profitable investment strategies" survey responders!
According to our survey, the top two most important issues we face are, 1) "Finding Deals, and 2) "Finding the strategies that work today".
Well, thankfully that is the purpose of this blog; to offer, discuss and brainstorm the best ways to find "deals", and what is working "best" today.
Of course, the "best" strategies for finding deals differ for each particular niche we mine. For now, we'll talk about short sales. For instance, driving neighborhoods, and looking for "short sale" candidates would be really inefficient, and the long route to success.
On the other hand, a more efficient strategy would include focusing on those prospects who've been sent a Notice of Default. That's obvious, except some prospects want to try a short sale, when they can't sell, but their house payments are current.
Meanwhile, even more efficient...is focusing on those in default, who also have more than two mortgages.
Uh, yes! To continue, the even more efficient strategy is to focus on those who have mortgages with two or more lenders --- and those with mortgages older than 18 months old.
Still further...those with mortgages that have been sold more than once. Wow! There's more. The owner is also bankrupt, cannot recover, has a story to tell, has a house that's in terrible shape, and requires more than 10% of the value in repairs.
Do these houses exist? Of course they do. However, the amateurs don't know that they need these criteria to line up before "messing" with them. Short sales are already "hard sells" with lenders, so it's important to focus on the most likely candidates. The fact is finding these gems takes patience and work.
This is a "wholesaling" approach to short sales, not to be confused with the approach a typical real estate agent would use to help a residential buyer negotiate a "mild" discount.
Here's a more comprehensive list of things we look for in a true wholesale transaction:
- all loans in default
- more than 2 loans in default
- each loan with a different lender
- loans are older than 18 months
- loans sold more than once
- 2nd loan exceeds 30% of current LTV
- 3rd exceeds 10% of current LTV
- Combined junior liens exceed 35% of current LTV
- borrower cannot recover financially
- borrower is insolvent
- borrower has a "sad story" (less useful when negotiating with with larger lenders)
- house has more than 10% worth of repairs needed (the worse the "better")
- lender has local loss mitigation dept.
Focusing on homes with these qualifications will put the investor way ahead of the pack, if not massively increase the likelihood of a successful negotiation.
Of course I'll just add here that we're building a case in our short sale package submission for the senior lien holders. In a gross nutshell, the junior lien holders typically discount their face values roughly 90%. That is a $70k 2nd might be sold to us for $7k without much hassle, and sometimes with just a couple phone calls to the lender and very little paperwork. So we'll focus less on these, and more on the mechanics of discounting senior liens.
Meanwhile, we want to make sure we've built a convincing case that can be easily understood by the lender...and make it as easy as possible for the lender to accept our proposal. That doesn't mean they'll just roll over. However this does mean we include pictures, and supporting information that sells our proposal...including making sure the bank receives our photos of the dump which requires both faxed and FED-EX'd, copies of the short sale package.
When/if the bank counters us, we would then supply negative demographic information. On the second counter we would include as much negative market data as available. In the third and final counter, we include criminal data, and anything else that offers a negative picture of the situation.
Why do I say "final". Our experience has been we've got three chances at bat. After this, there is a diminishing return on our investment of time. This doesn't mean we have "no" chance, but at this point, we've pitched the price a half dozen times in conversations with the lender.
With experience, one can read the writing on the wall, and know when to fold.
Care to respond, or add two cents?
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