Secrets of Selling Houses Fast in a Slow Market!

Transcription

Secrets of Selling
Houses Fast in a Slow
Market!
Here’s How to Quickly,
Easily and Massively
Increase Your Cash
Flow and Boost Profits
Produced by: InvestorWealth.com™
©2004-2007 HomeFriend Properties, Inc. All Rights Reserved Worldwide
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Ebook Version 2.0
Ebook Version 2............................................................................................. 1
Chapter 1: Overview ...................................................................................... 5
Who is this Book for? .................................................................................. 5
Slow Markets – The Short and Long View ....................................................... 5
How to Tell a Slow Market Before you Buy .................................................. 6
Buying Right .............................................................................................. 6
Get Lots of Qualified Buyers ...................................................................... 6
Sell What Your Buyer Wants: Price............................................................. 7
Other Incentives...................................................................................... 9
Sell What Your Buyer Wants: Desirability .................................................... 9
Bringing the Buyer to the Closing Table.........................................................10
Finding the Buyer ...................................................................................10
Prescreening the Buyer ...........................................................................11
Negotiating a Sale ..................................................................................12
Funding the Buyer ..................................................................................12
Cash Closing..........................................................................................12
Cashflow Closing ....................................................................................13
Creating Equity .........................................................................................13
Re-investing Your Profit ..............................................................................13
Pay off Bills, or Your Mortgage..................................................................13
Reward Yourself .....................................................................................14
Active Investments .................................................................................14
Passive Investments ...............................................................................14
Resources.................................................................................................16
Chapter 2: How to get massive numbers of buyers contacting you .......................16
USP’s .......................................................................................................17
Signs .......................................................................................................17
Newspaper & Community papers..................................................................19
Large Newspapers .....................................................................................19
Generic Newspaper Ads for Building a Buyers List...........................................19
Referrals ..................................................................................................20
Flyers – Tips and Tricks ..............................................................................20
Postcard tips and tricks...............................................................................21
Voice Broadcast & fax blast .........................................................................22
Marketing houses needing TLC.....................................................................22
Using a Real Estate Agent ...........................................................................22
The Bottom Line – Essential Marketing NOW ..................................................23
Resources.................................................................................................24
Resources....................................................... Error! Bookmark not defined.
Chapter 3: Selling houses online .....................................................................26
The Inside Scoop On Profiting With Online Marketing ......................................26
Why do I need a website? ...........................................................................26
How Do I get Set up on Line? ......................................................................28
How Do I get people to visit my site .............................................................29
Are ‘Hits’ to my website important? ..............................................................30
Choosing A Domain Name ...........................................................................30
What Your Home Page Should Look Like .......................................................32
How To Lay Out And Market Your Homes Online .............................................35
How To Get All The Information You Need To Decide Whether They Are Prospects
...............................................................................................................36
Building A Buyers List That Will Tremendously Reduce Your Advertising Costs ....37
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How can I get a site like you describe? .........................................................37
A Ready-made site for the Real Estate Investor..............................................38
Do I have to design the web site myself? ......................................................38
The Bottom Line: A Website Now .................................................................38
Resources.................................................................................................39
Chapter 4: Pre-screen Buyers before you talk to them........................................41
Don’t answer the telephone.........................................................................41
A website as the ultimate tool......................................................................41
Use Pre-recorded messages ........................................................................41
Use of a Live Operator ................................................................................42
Resources.................................................................................................44
Chapter 5: Preparing House to Sell ..................................................................46
Staging the house......................................................................................46
Curb Appeal...........................................................................................46
Visual Appearance ..................................................................................46
Olfactory Impression...............................................................................47
Power Open Houses - 1 ..............................................................................47
The Key: Have a Crowd in the Room .........................................................47
How to build a crowd ..............................................................................47
Sell your house in 9 days system .................................................................48
The 9 Day Plan.......................................................................................48
Preparation and Planning. ........................................................................49
Write your ads & do your marketing ..........................................................52
Get your house in perfect condition ...........................................................53
Handle the responses..............................................................................53
Conduct your open house ........................................................................54
Place Your Signs.....................................................................................54
At the house ..........................................................................................55
Accept bids............................................................................................55
Conclude the bidding process ...................................................................56
What about your other bidders .................................................................57
Use this technique for Lease Options and Owner Financing ...........................57
Collect your check! .................................................................................57
The One Weekend Sale...............................................................................57
The Bottom Line: Selling Fast with an Open House .........................................58
Resources.................................................................................................58
Chapter 6: Negotiating with the Buyer .............................................................60
The Price ..................................................................................................60
The Terms ................................................................................................61
Give Aways...............................................................................................61
Resources.................................................................................................62
Chapter 7: Closing for Cash ............................................................................63
Mortgage Brokers and Institutional Lenders ...................................................63
What factors affect whether or not a buyer can obtain a mortgage loan? ...........63
Looking at recent trends, what is the single greatest factor that has enabled first
time homebuyers to get into homes? ............................................................63
80/20 Loans..............................................................................................64
Stated Income Loans..................................................................................64
Adjustable Rate Loans (ARM’s) ....................................................................64
What are the options for buyers with less than perfect credit? ..........................64
How bad can a buyers credit be and still get some kind of loan? .......................65
What are the 3 most important things a buyer can do to improve his chances of
getting a loan? ..........................................................................................65
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What about “credit restoration”? ..................................................................65
What should an investor who needs to sell fast, look for when choosing a lender?
...............................................................................................................66
How can the investor and lender work together to get the loan approved and the
home sold? ...............................................................................................67
Grants .....................................................................................................68
Cash out Owner Financing (Simultaneous Closing)..........................................68
How to Cash Out Owner Finance ..................................................................70
Options ....................................................................................................71
Converting Equity to Cash...........................................................................71
HELOC ..................................................................................................71
Home Equity Conversion Mortgage............................................................72
Building up Your Equity ..............................................................................72
The Bottom Line: Cash from Creative Financing and Home Equity .....................73
Resources.................................................................................................74
Chapter 8: Closing with Cashflow ....................................................................76
Profit Centers ............................................................................................76
Rentals ....................................................................................................76
When to Rent.........................................................................................76
Maximizing Your Cashflow........................................................................78
Lease Options ...........................................................................................79
Maximizing your Cashflow and Profit with Lease Options ..............................80
Minimizing Expenses ..................................... Error! Bookmark not defined.
Minimizing Risk ......................................................................................82
Owner Financing........................................................................................82
What is Owner Financing .........................................................................82
Owner financing profit centers..................................................................83
Minimizing Risk with Owner Financing........................................................86
Converting Cashflow Into Cash .................................................................88
Buying Your Next Home—No Money Down .................................................89
Resources.................................................................................................90
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Chapter 1: Overview
Who is this Book for?
Does it take you more than 30 days to find a tenant? Does it take you several
months to find a qualified buyer for your house (not counting the time to close the
financing)? Do you feel like the carrying costs from the time you acquire a property
until the time you start getting cash back is robbing you of your profits?
Then this book will make you money.
It contains, the latest and greatest advice, tricks, tips and information on how to sell
your houses faster—in any market. These are techniques that have been tested by
real life, not some theoretical idea.
And even if you’re in a hot market, these markets don’t stay hot forever. Markets,
even real estate goes in cycles, and if you’re buying at the top of the curve, you are
going to be sorely disappointed when you go to sell.
The advice and information in this book will help you buy right and keep more cash
in your pocket.
Slow Markets – The Short and Long View
Unless you’ve been in the business awhile you may not be aware that the real estate
market goes in cycles of about 8-15 years. This can fool investors into thinking that
good times will last forever, or that a slow market will force them out of business.
The Real Estate Market Cycle has 4 stages:
1. Buyer Stage I – In this stage, prices may be falling or flat. Sellers are having
a hard time renting or selling their property. Property is sitting on the market
a long time—2, 3, 6 months. And as sellers become more desperate, they
offer more incentives, discounts, and rebates to get someone-anyone into the
property.
2. Buyer Stage 2 – Prices are flat or may be rising slightly. The investor world is
feeling beat up, and the press is expressing a pessimistic outlook. However,
some of the locals realize the downturn is ending. Prices are depressed.
3. Seller Stage 1 – Prices are now definitely rising. The “steals” are vanishing,
but there are still some bargains as prices and rents will continue to
appreciate.
4. Seller Stage 2 – The press has caught on to the trend. Articles about the
housing boom, or about big profits being made by homeowners abound.
There may even be a buying frenzy that may go on for years- “the hot
market”. Beware - all good things may end.
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How to Tell a Slow Market Before you Buy
A slow market is one in which supply of homes exceeds their demand. Demand
could be low because the population of the area is static or decreasing. However,
the most probable causes of a slow market are a high supply of living inventory –
apartments and homes. An oversupply is going to cause both prices and rental rates
to fall. And curiously enough, it is not always reflected in the comps.
So, how do you tell whether you’re in a slow market? You have to look at the
market from your prospective buyer (or renter’s) point of view. Are there new or
newer homes in your area selling for a similar price? Are there homes in a nicer area
(or better school district) selling for a similar investment? Can your prospective
buyer get more home, more land or nicer features somewhere else in your area? If
so, your buyer has better choices than the one you’re offering.
Here’s another way to tell if you know a realtor or have access to the MLS. Check
the “DOM” (days on market) for homes in the area of your acquisition. More than 60
days, the market is slowing, more than 90 days—it’s really slow.
What about renters – find out what rents homeowners are offering in the area. Drive
around and call up on “for rent” signs. Or call up rental agencies and ask them what
they could rent your home for and how long it would take.
Buying Right
Here’s a principle Michelle & I live by as real estate investors: You make your money
when you buy. This means that a deal has to make sense in terms of profit,
cashflow and risk, right now under present market conditions. We never bet on
future appreciation—at best it’s an added benefit.
There are 2 keys to selling/renting houses fast.
1. Get lots of people who are looking to buy or rent in your area to hear about
the benefits of owning or renting your property
2. Sell what your prospect buyer/renter wants
Get Lots of Qualified Buyers
This is what most of this book is about—Marketing. How to attract masses of
qualified buyers to consider your property. I will be telling you about a wide range of
marketing techniques: direct mail, advertising, advertorials, flyers, Internet,
auctions, etc. I will tell you what works, how to do it, and how to minimize your
costs and get the most bang (qualified leads) for your buck.
Note that we're talking about qualified buyers. If you’re renting a house for
$1000/mo, and someone who can only pay $800/mo max calls you—they’re not a
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qualified buyer. If someone has a shady financial or integrity history: poor credit,
evictions, foreclosures, repossessions, they’re not a qualified buyer.
Now, I know some of the gurus teach that any warm body with cash upfront is a
“qualified buyer”, but that is a lie. They say, well even if you have to evict them,
you keep their option money or security deposit and do it again.
The truth is that the cost of an eviction is approximately equivalent to about 6
months rent, considering the time to evict them, legal fees, re-renting carrying costs,
tenant damage etc.
And if your selling on owner financing- same story only worse. To foreclose in some
states can take as long as 1-2 years. And if your borrower declares bankruptcy it
could take even longer.
Not if you sell to a person whose getting conventional financing, the lender is going
to qualify them. But that doesn’t relieve you of responsibility. If you don’t check
out your buyer, you could go several months down the road and then find out their
loan fell through.
Sell What Your Buyer Wants: Price
You’re only going to make a sale if you have want your buyer wants. It’s not about
what you want or have; it’s about what they want. In practice this means you
should choose homes to buy that you know your target market would like to buy (or
rent) for themselves (“you make your money when you buy”).
Conversely, your marketing should be designed to attract the people that would want
to buy your property.
Now how do you know what your target market wants? This is not always obvious.
Price is of course a consideration. For selling homes, you can get an idea of what the
price should be by doing comps (comparative market analysis) to determine what
buyers are paying for a home like yours.
Due Diligence – Market Value
One of the first things a new real estate investor learns is how to do comps – short
for comparative market value—that is what other homes, similar to the one you’re
considering buying, have recently sold for. This definition is a bit vague since
“similar” and “recently” are relative terms. So, let’s get a little more precise.
Recently usually means within the last 6 months. Similar, at a minimum means
located within 0.5 miles of the subject property (the one you’re considering buying),
and has the same # of bedrooms. To get more precise, use sales of homes with the
same number of baths, square footage, yard size, +/- basement +/- finished, age of
home, and # of stories/floor plan. And you should have at least 3 comparables to
arrive at a market value.
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The problem arises when you can’t find 3 homes that meet all the criteria, and
sometimes you can find 3 homes sales that meet even the minimum criteria. So
what can you do?
You can take the route appraisers follow, and mathematically correct for square
footage, baths, bedrooms and basements buy adding or subtracting the unit costs to
make the home sales comparable. This can work to some extent, but the reality is
that buyers looking for a 4-bedroom house are not going to pay for a 2-3 bedroom
even at a proportionally lower price. And the “perceived” value of a house with a
finished basement, or an extra bath may be significantly different from the
extrapolated value. This is why appraisals are no better than a realtor’s comps and
may even be more inaccurate.
The 2nd approach is to broaden the search criteria, like looking at home sales within
the last 12 months or homes within 1 mile of the subject property. This approach
also has value, but beware. One mile may put the home in a totally different
neighborhood where homes may be much more valuable or much less so. Also,
depending on the trend of real estate values in the area you’re considering, going
back 12 or 18 months may significantly under or over estimate the value.
Drive the neighborhood--**Recommended. No matter what, you should always do
this. What’s on paper-or in a database is not always accurate. Seeing the house in
person will tell you an awful lot that the stats will never do.
Research the trends of real estate values in the neighborhood you’re considering.
You can do this by mining the same database you’re getting the comps from. You
want to know whether the values are trending up or down over the past 2-3 years,
how fast they’re changing and when the trend shifted. Then you can determine how
far back you can go for your comps.
Ask a person familiar with the area. This can be another investor, an appraiser or a
realtor. Now, the key word here is familiar. Any realtor can run comps, and not
take into account any of the issues we’re discussing.
Market Rents
What if you’re renting. Well, most investors decide the rent based on how much
their mortgage payment is. Bad idea. Find out what the market rents are BEFORE
you buy.
You want to know what slow is – try renting a home for $1,200 in an area where the
market rent in $900!
Sell Fast Below Market
People like a bargain. If you want an advantage over the competition, offer a below
market price or below market rent. It doesn’t have to be very low, just low enough
to make a perceived difference with your prospect. I could be 400 vs. 425, or 1199
vs. 1250.
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Why should you? Well it’s cost vs. benefit. If you can rent your place in 30 days or
less with a below market rent, it means the tenant will be making your first
mortgage payment—not you. On the other hand if it takes you 3 months to rent it
out at the market rate—how will it take you with that extra $25 or $50 a month to
make back your loss. If it’s more than 11 months, it’s not worth it.
You can do the same calculation when selling a house. If all these numbers daunt
you, you can get my Deal Evaluation Tool - http://investorwealth.com/richardodessey/det.htm - that will do all the math for you. Highly recommended.
Other Incentives
Price is always an issue when selling. Are there other ways to induce prospects to
buy that are less expensive than lowering the price? Yes!
For homebuyers you could offer anything from dinner at a fancy restaurant to paying
the homeowner dues for a year, paying closing costs, etc. What you choose depends
on knowing your buyers. If your selling high-end homes, then you have to offer
something desirable for that buyer’s life style—plasma screen TV, a Caribbean cruise.
Sounds like a lot, but if you’re selling a $500,000 house – it’s less than 1% of the
cost, and probably less that 1 month’s mortgage payment.
For renters, 1st month free rent works, although I think it sets a bad precedent.
Sell What Your Buyer Wants: Desirability
People don’t buy based on price alone. In fact, price is not even the first
consideration. What is the most important consideration—Class, altogether now—
Location, Location, Location.
So, if you want to make your money when you buy, choose a house in a desirable
location. What is desirable? Well if you’re looking for families,
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A good school system is a big plus.
Also, convenient to shopping and transportation
Nearby parks
Nice-looking neighborhood-manicured lawns, clean
Safe!
On the high-end, you might look for
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Gated community
Swim-tennis club
Clubhouse
Exercise facility
Business center
Near nature
Nice views, etc
The structure and layout of the house is also a big factor. If your prospect needs a
4-bedroom house, you’re not going to sell them a 3 bedroom. Back porches are
also a plus.
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And what about the house itself? There’s always stuff people want in their house.
Again it depends on the area of the country that you’re living in (e.g., long cold
winters, vs. long hot summers).
The easiest way to find this out is to ask a few realtors. For renters, you’ll probably
have to do your own research by actually calling landlords and making an
appointment to see their homes.
It’s also still true that the kitchen and the bath are the most important rooms. An
outdated kitchen or bathroom is going to be hard to sell. It will even be a negative
to rent. You’ll either have to spend money to upgrade it or take a hit on the price
and time to sell. So, you must take this into account when you’re negotiating with
the seller.
Unfixable stuff like a poor layout, or tiny rooms- just don’t buy it. The headache and
cost will not be worth it, no matter what price you pay.
Bringing the Buyer to the Closing Table
Finding the Buyer
A large part of the book is devoted to this topic. As I mentioned above we will be
analyzing the various marketing methods. Here’s a tip that trumps all of them:
Build a buyers List
Imagine if the day you closed on a new acquisition, you could call a prospect and tell
them you have just the house they are looking for, and they should come down right
now to sign the paperwork, before you call up the next person.
Fantasy? Not necessarily. That’s the possibility that is open to you if you build a
buyer’s list.
A buyers list is a list of people that have responded to your marketing campaigns for
selling your houses. If you were smart (and now you will be), when you talk to
these people or have them fill out a form, you will find out what they are looking for:
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# beds and baths
Area they want to live in
Price range or max monthly payment
Their other criteria
This information is invaluable, because you can now make this your criteria for
purchasing homes. You already have a list of people who told you they want it.
Well, what if you didn’t collect this information, or haven’t even started selling
houses. Not a problem. In fact, building a buyers list should be an on-going
activity. All you have to do is sell the house before you buy it!
Huh, you might be thinking. Let me explain. Suppose you put a small ad in the
homes for sale section of your newspaper that read: “Home for Sale, 3bed/2bath (or
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4bed/2.5bath), Call xxx-xxx-xxxx or www.yourwebsite.com“ and you kept that ad
running continuously.
When you got a inquiry, tell the buyer your inventory just sold out and get their
contact information, and ask them what they’re looking for and where, and how
much they can afford.
You will have built a buyers list that you can use to target properties you want to
buy, with a much higher likelihood, that someone on your list might buy it without
wasting time and effort advertising any further.
We’ll go into more detail about the hows in Chapter 2.
Prescreening the Buyer
Not everybody can buy your house. They have to be able to afford the price (e.g.,
make their monthly payments without financial stress), and they have to have credit
and other qualities that will allow them to get approved by a lender.
So, before you waste any more of your precious time with them, get straight to the
point and find out if they can afford it. I cover this in detail in Chapter 4. For
homebuyers there are a couple of simple questions you can ask:
1. Have you been pre-qualified for a mortgage (realtors do this with their
prospects as a matter of routine). If so, for how much.
2. The house is priced at x. Depending on the type of loan you get, this would
mean a monthly payment of y. Does that work for your budget
3. How’s your credit: good, fair or ugly? (ugly is the bad one) if ugly find out
why.
4. Have you ever been evicted or foreclosed on? (If yes, my advice is to stop
right there).
5. Are you working right now?
6. When do you plan to move? (If they say they have to sell their house first or
aren’t going to be moving for several months. Get their information, and stay
in touch.
Of course, once they express interest in buying the house send them to your
mortgage broker to get pre-qualified. What? You don’t have a mortgage broker?
Then go a find one. Use the yellow pages or get recommendations from other
investors or your local real estate club.
Interview them. You should have some rapport with them. They should know what
they’re talking about. They should be willing and able to do sub-prime loans (for
people with credit and other challenges). And they should work with a wide range
of lenders.
For more info, see chapter 4.
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Negotiating a Sale
Negotiating is not optional. It is an essential part of the selling process. In part it
involves finding out what the prospect wants, and it part it is convincing them that
they want what you have to sell.
We’ll talk about this in detail in chapter 6. Let me just orient you right now to the
process and psychology.
Everybody loves to get a bargain. They especially love it if they actually ask for it
and get it. When they do this, they psychologically obligate themselves to actually
go through with the sale. They are “invested” in the property.
So, look forward to the process. When you get to that stage, you’ve just about
made the sale.
Funding the Buyer
As I mentioned above, not everybody can afford to buy your house. Prescreening
should eliminate them. The tricky part is that there is a significant group of
prospects that can afford to own your house, but can’t or have trouble getting a
loan.
Chapters 7 & 8 go into great detail about this. Here are the major challenges your
buyer will run into and their solutions
Challenge
Solution
Has some down payment, can’t qualify
for the loan
Owner Financing (Ch 8)
Can qualify, but can’t come up with some
or all of the down payment
Down payment assistance, Grant
programs, 80/20 loans (Ch 7)
Payments are too high
Adjustable Rate Mortgages, Subsidized
loan programs (Ch 7)
There’s a good chance your friendly broker may not know about these solutions. So,
study these chapters carefully. They could make you a lot of money and save you a
lot of headaches.
Cash Closing
When you’re selling a house, Cash in your pocket is what you want. This is what
chapter 7 is all about. Sometimes, if your buyer can find a lender to pay your sales
price, owner financing is an alternative.
Now owner financing does not mean that you have to be your own lender forever,
with the potential risks of non-payment that that entails. I will tell you about little
known, and powerful techniques that can turn that owner-financing situation into
cash—at the closing table or just a year later! (Chapter 8)
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Cashflow Closing
Sometimes, the cashflow is more important than the cash. Having your tenant buyer
make your mortgage payments with some left over for you is a great way to
generate passive income and equity.
Creating Equity
If that payment is in the form of a lease, it is also a great way to take advantage of
appreciation. Unlike what I said at the beginning of this chapter about not counting
on appreciation, this scenario is totally different. As long as you're collecting
monthly payment you're in a winning situation.
Since real estate does appreciate over time (as long as you have enough time), you
can start counting your dollars.
This is an especially good strategy for rapidly appreciating areas. It also includes
development situations (http://investorwealth.com/preconstruction/tour.htm), where
improvements in the surrounding property and area, addition of amenities, etc. are
forcing appreciation of the property values.
Re-investing Your Profit
Well you sold a home – congratulations. Now what are you going to do with the
profits. Let’s examine some of your options:
1) Pay off bills
2) Reward yourself with something nice (stuff, vacation, project, etc.)
3) Give to Charity
4) Invest in Your real estate business
5) Invest the proceeds
Pay off Bills, or Your Mortgage
Great idea—or is it? 2 questions you need to answer
a) What interest are you paying on your bills?
b) Are the payments tax deductible
For each owed amount, could you more profitably make enough money investing
your profit and continuing paying of bills incrementally, than paying off the bill
directly.
For example, suppose you had a $1000 credit card bill that was charging you 19%
interest. Well, the credit card bill is probably not tax deductible, and where would
you passively invest the money and earn 19%. If the answer is nowhere—better to
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pay off the credit card. This will also increase your borrowing power since it will
reduce your debt to income ratio.
On the other hand, suppose you have a home mortgage of $100,000 at an interest
rate of 6%. Mortgage interest payments are tax deductible in most cases. Now, if
you are in a 30% tax bracket plus you pay 6% in state income taxes – that’s 36%
tax that you don’t have to pay. Your net interest rate after taxes is only 3.8%. Can
you invest your money at 3.8% or better - Most definitely.
Conclusion- don’t pay off your mortgages, do payoff your credit cards. Now there is
a way to pay off your mortgage in 5-8 years without putting the extra cash in. We
teach our coaching students how to do this (see below).
And if you still decide to pay off your mortgage—take out an equity line. The great
thing about an equity line is that you have the power to borrow when you need it,
but you don’t have to pay interest until you actually use the funds. Every
Homeowner should have a HELOC—it’s great insurance and security
Reward Yourself
Yes, even if you need the proceeds for other things—take some and reward yourself.
It’s just a psychologically important thing to do. You’ll feel good and it will give you
another mental incentive to do it again!
Active Investments
Active investments mean putting the money back into your real estate business.
Sounds like a good idea—especially if your doing deals with a high return on
investment.
My advice—Don’t Do It! Why? Because I believe you should always run your real
estate business as if you’re dead broke. In other words, the profit from your deals
(and profit is the money left over after all your business expenses related to the deal
is paid off) should be your pay.
Secondly, using your own money will limit the number of deals you do. You think
Donald Trump uses his own money to put up those fancy high rises—Not! And the
way for you to become rapidly wealthy is follow the same strategy.
Need money for another deal? I have 8 creative ways to fund all your deals (and
many variations) without using a dime of your own money. We have a terrific Get
the Money course that will teach you how!
Passive Investments
After the bills are paid, the fun is had, you should have some money left over to
invest. You have a couple of basic options:
1) Stick in a CD or Savings account (safe, but a ridiculously low rate of return)—
you could lose wealth just due to inflation.
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2) Invest in stocks, bonds, futures, etc. My advice—don’t do this yourself—there
is a high likelihood you’ll lose money. A competent financial advisor that
charges you money for the service can probably make you a 5-10% return
based on your level of risk tolerance and market conditions. But remember,
the stock market is inherently risky, and there’s little to nothing you can do to
control the risk.
3) Become a Private Lender
This is my favorite form of investing. With your real estate expertise and due
diligence, you can make double-digit returns at relatively lower risk. Basically, you
become the bank for other real estate investors.
First, the project you’re investing in should be one that has high return and low risk.
You can use my Deal Evaluation Tool to run the numbers to determine this on your
own. Don’t just take the investor’s word for it. You’ll also need to do your own due
diligence relative to costs and selling price and when your loan will be paid off.
Second, your loan must be secured. There’s a note signed by the borrower stating
all the terms of the loan. There also should be a public filing attaching the loan to
the title of the property—a security or trust deed or a UCC filing. And you should be
named as a co-insured on the hazard insurance policy.
Lastly, but definitely not least – you should be able to trust the investor. What is his
or her experience? What is his or her knowledge and experience? And most
importantly, do they have a reputation of integrity, and following through on their
promises.
Satisfy those criteria and you have a deal that’s going to make you money without
you having to lift a finger. If you are interested in being a private investor, you can
contact me below.
Tax-Free Investing
Want to invest your money tax-free or tax-deferred? Use the funds from your IRA.
It is perfectly legal to invest your IRA money in real estate or loans as long as it’s not
a prohibited transaction. Basically, this means you can’t invest the money with
yourself, your descendants (children, grandchildren, etc) or ancestors (parents,
grandparents…) or an entity which they own a part of. Check with your accountant
for how the rules would apply to your specific situation.
To do the investing, your funds need to be in a self-directed IRA. These are specific
institutions that are chartered by the Treasury dept to manage these types of
investments. Your typical broker or investment house can’t do this. The institution
we use, and recommend is:
Equity Trust Corp. at www.TrustETC.com
The way it works is that you send the company a “direction of investment” along
with the loan paperwork. The lender is not you. It’s Equity Trust FBO (your name &
15
account). The money is loaned by the trustee of your account, and paid back with
interest to the trustee of your account. You never touch the funds.
Since the interest goes directly into the IRA it is not taxed as income. If it’s a
traditional type IRA, it will be taxed as income when you start withdrawing it. If the
money goes back into a Roth IRA, it is Never Taxed!
And the more money you make, the more you have to do it again! It is a great way
to build wealth.
Resources
1. Personal Coaching – If you are just getting started in real estate investing,
or feel stuck and would like to take your investing to the next level, we offer
to a select individuals personalized coaching. We cover everything from
setting up your business, creating a successful plan, structuring deals, and
anything else that is needed to make you money. To find out if you qualify
click here (http://www.investorwealth.com/mssn/index.htm)
2. Get the Money for All Your Deals – This is a manual and software with
many creative ways to acquire property without any of your own money,
including seller financing, private lending, lines of credit and much, much
more… It also comes with my acclaimed Deal Evaluation Tool software that
will allow to you calculate the profit, cashflow and risk on every deal. To find
out more, click here (http://investorwealth.com/richard-odessey/get-themoney.htm)
3. Deal Evaluation Tool – My acclaimed software that will allow to you
calculate the profit, cashflow and risk on every deal. You can test out
different exit strategies and negotiating strategies to see which will best fly
with the seller, knowing what your profit will be with each one. And, you can
create professional reports you can provide lenders and investors to get
funding for your deal. To find out more, click here
(http://investorwealth.com/richard-odessey/det.htm).
4. If you are interested in investing your profits or IRA funds as a private lender
email Richard at [email protected] or call me directly at 678-3779357.
5. The InvestorWealth Marketing Kit – These are a set tested signs, ads,
and scripts, marketing flyers, and other material for selling houses fast. They
are word and powerpoint documents that can be modified with the investor’s
contact information, etc. And they are ready to be submitted as proofs to
advertisers. To get it, use this link: http://investorwealth.com/richardodessey/marketing-toolkit-upgrade.htm.
6. Monthly Group Coaching on Foreclosures and Short Sales – A get way
to get started fast in the most lucrative and easy-money field of Real Estate
Investing. Complete A to Z how-to course from finding the best deals,
getting the seller and the bank to accept your offers, and selling fast for big
profits. And you’ll have an experienced coach to give you feedback. A great
deal for you. To find out more, click here
(http://investorwealth.com/mssn/coaching.htm)
16
Chapter 2: How to get massive numbers of
buyers contacting you
There are some very clever and some low budget ideas in this section for how
investors are getting buyers and selling houses with these marketing techniques:
USP’s
A USP (Unique Selling Proposition) is what grabs a buyer’s attention and separates
you from the rest of the crowd.
These are often the Headlines you would use in your marketing. Ones that draw
attention are:
NO MONEY NEEDED or NO MONEY DOWN – This is a great little known technique for
selling fast and getting cashed out. There are several programs out there called
‘Down Payment Assistance Programs’. See Chapter 7.
$10,000 UNDER MARKET – If you bought the house at a steal, you can discount it
and still make a quick profit.
OWNER FINANCING or LEASE PURCHASE – Very few sellers can offer easy qualifying
terms to the 80% of would be buyers out there who can’t qualify for a loan.
YOUR CREDIT IS APPROVED – same as above
NO BANK QUALIFYING – same as above
RENT TO OWN – As Richard Roop points out: A tenant buyer is 100 times better than
a tenant. They care for the house. They don’t call you (most of the time). There’s
no security deposit, no pet deposit—only a non-refundable purchase deposit. They
pay on time or lose their monthly rent credit and rent discount (see Chapter 8).
They fix up the property and enjoy the feeling of ownership because they are
planning to buy.
FIXER UPPPER – You’ll get a ton of bargain hunters and rehabbers
Signs
Every investor we polled recommended using signs. We are going to reveal to you
the secrets that will make your signs maximally effective:
Signs in the Front Yard
Always put 2 or 3 signs in the front yard. The classic black lettering on a yellow
background still works great. We have found dark blue on a white background is
also effective—especially for those higher-class neighborhoods that have some rules
about signs.
The signs should be big—18”x24” to attract attention. Getting people’s eyeballs is
what this game is all about.
Also, Hand-lettering works better than printed signs. Check yourself when you are
driving around. What catches your eye first—a hand-lettered sign or a printed one.
17
Tip: want to save on work—Make your hand lettering on a template and have the
printer print it just like that on the sign.
What should the signs say
Put your USP on the signs. For example:
•
“Rent to Own”
•
“Owner will Finance” or “Owner Financing”
•
(a sign indicating you buy houses) – “Sell your house on the date of your
choice at a fair price”
Then you should have your phone number (Chapter 4) and your website address
(Chapter 3). (Tip: you don’t need the ‘www.’ for the web address—browser will put
it in).
Street (Pointer) Signs
Street signs are next key element in your marketing campaign. These are the signs
with the arrow on them. Get the arrow printed on both sides so a driver can follow it
when approaching from either direction.
How many signs should you have—As many as you can put out and keep up. A good
rule of thumb is 10-12:
“It was an ad in the paper that brought the guy. I called it a “Foreclosure Steal.”
That was my headline. In addition to that, the home would have sold any way
because I had about 9, 10 or 11 signs pointing to that house.” - Kent
“We also do plenty of directional signs that give the same information which guide
them [to the house, and] into a free 24 hour recorded message.” - Kris
The signs should cover approaching the house from all directions. From your house
all the way out to the main highways if you can do it. Don’t skimp—a lot of your
prospects will come from these signs.
The same rules apply to Pointer Signs:
1.
Hand lettering is better than printing
2.
Black on Yellow captures attention (dark blue on white is more upscale)
3.
Put your USP, phone number and web address (If you have a ‘hollow’
arrow you can put the address of the house on it. But it is a lot of work,
you can’t reuse the sign, and it is questionable whether it helps).
You can get great signs in a large variety from Barry Abraham
(http://investorwealth.com/signs). He offers signs that come with metal stakes that
are easily to assemble and easier to push into hard ground. No more assembling
with roofing nails and suffering wrist strains pounding signs into the ground. (Tip: if
you hire someone to do this, and we suggest you do, it will take them less time to
assemble and put out so you can save some money on the back end).
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Newspaper & Community papers
Every successful investor uses newspaper ads. We and other investors recommend
using community or local papers where you can find them. They are really effective
for generating calls.
There are several reasons:
1.
They are smaller, so a reader is more likely to see your ad.
2.
They cost far less, so you can put in a bigger text ad or a display ad—you
get more bang for your buck.
3.
By advertising in the local paper, you are seen as part of the community.
While it really doesn’t matter where you live, the readers of the paper
tend to choose to patronize businesses in their community, near their
home.
4.
Subscribers of local papers tend to really “read” them. They are also used
to buying things from these advertisers. So there is a greater likelihood
they will read your ad and act on it.
5.
The subscribers and readers of these papers tend to “appreciate” the
advantages of owner financing and lease options – so you have a more
receptive audience.
Large Newspapers
Large newspapers have the advantage that they have a huge readership. There is a
specific section for Real Estate and this section is usually broken down by areas of
the city so that buyers looking in your particular area will be calling your ad.
The downside is that these ads are usually very expensive. There are usually more
rules about what you can and cannot do in the text and formatting.
And you are competing with lots of other sellers. But you are almost guaranteed to
get calls or web contacts (if you have your website in the ad), if you use one of the
USP’s we discussed.
Also, many major papers have an Internet site where they post classified ads. If so,
ask that your ad be “hot-linked” so that clicking on your website address will bring
them instantly to your site.
Mark Polunci has effectively used the major papers in his area.
“We have the Rocky Mountain News [a large paper that] I’m fondest of for the general
advertising. [Now for] sole pitch property is the Colorado Springs Gazette, and the Denver
Post. The reason I like those is because they have a big real estate section that is devoted
just to real estate.” - Polunci
Generic Newspaper Ads for Building a Buyers List
These are low cost ads you can just keep in paper continually to build a buyers list.
It reads:
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NO BANK QUALIFYING: Owner must sell. Two homes available. Call John xxx-xxxxxxx, www.yourwebsite.com
You may have one house or you may have five. You keep running the ad without
changing it. The phone number sends the caller to a pre-recorded message that you
update when you buy or sell another house. The website performs the same
function (see Chapter 3) and also has the advantage that you can show your houses.
“In the Thrifty Nickel I’ll run ads that will basically be things like ‘No Banks Required’ or
‘We’ll help with Financing’ and as I’m doing that I’m being very generic with that. “ - Polunci
Referrals
Do you have any program with your tenant buyers that when they get into your
house that you say to them “If you refer somebody?
Referrals are the best form of advertising there is – for both buyers and sellers. In
addition to putting information on your business cards and flyers that you pay for
referrals, there are some very effective ways to build relationships so that you are
guaranteed referrals.
For instance, “When we do our closings with every new buyer and every new seller
for that fact, we talk to them about our referral fees, we talk to them about helping
them get further if they don’t have their financing initially and we really do talk to
them about the dream” - Kirshner
When we do a closing, we do leave actually a nice flower arrangement in each house
and we actually leave within that flower arrangement a nice card.
Flyers – Tips and Tricks
Flyers at the House
Flyers in front of the house are important. Put up an information box as soon as
you’re ready to market the house. The flyer should have a picture of the house, an
enticing description and ALL your contact information. Paint a picture that appeals to
the emotions like: “enjoy your morning coffee in the eat-in kitchen while looking out
over your private fenced-in backyard). . .” (see Chapter 5). Just listing features like
(e.g. kitchen 15x24, etc) is not enough to gain a buyer’s interest.
On the back of your flyer, you can put a sales message for how you buy houses also.
You can also make a multi-page flyer to advertise other houses you have for sale.
Tip: Tape your Flyer to the inside of the front window of the house. That way even if
the box gets emptied, the visitor can read about the house and your offer.
20
Flyers in your Local Newspaper
Inserting flyers to be distributed with the local newspaper has had mixed results.
Some investors like Kris Kirshner use them regularly:
“We sell our average house in about 45 days. We use three different means and
methods of getting people the information they need to get in to homes. We like to
do flyer inserts in the local newspapers [to advertise the homes we have for sale.
This also gives] us the ability to purchase homes. . .from people that may not be
able to sell through the traditional market. We also advertise in the back of those
flyers, little blurbs like ‘would you like to own a home without having to qualify at a
bank?’” - Kirshner
On the other hand some investors have had little success. Also, it is now getting
fairly expensive to do one of these campaigns. The paper that is distributed to our
county requires a minimum of 5,000 sheets. That adds up to a significant printing
charge plus the cost for inserting.
If you can test a small amount it may be worth doing.
Tip: Make sure the flyers are actually inserted. Get a couple of copies of the paper
from different locations and make sure your flyers are actually in there as promised.
It’s real expensive to pay for them not to get distributed.
Postcard tips and tricks
Postcards are an effective low-cost way to target the area your house is in.
Especially, if you have a farm area, you can send these out regularly and get a
steady stream of prospects for your houses. And it is an often proven marketing
principle that multiple mailings to the same market will produce a greater response.
(We are currently compiling, the ‘Smart Sellers Marketing Kit’. If you would like to
be notified when it is ready, please click here - http://investorwealth.com/richardodessey/smart-sellers-marketing-toolkit.htm).
Richard Roop notes that you will get a better response if you target tenants rather
than mail out to a general local area. You can purchase a list from several
companies on the Internet (go to Google and type in “mailing lists”). You want to
look for companies that have lists of tenants in your area. You can also target those
living in luxury apartments (if you have a nice house).
Tip: This will save you mountains of time, effort and money. You can get your
postcard printed, addressed and mailed all from sitting at your computer. And who
will do this for you? Hold your hats—the US Postal Service.
Just go to www.usps.com/netpost/ and look at the “send postcards” option. You
have black and white, and color options. Sign in, upload your Postcard message,
your return address and your mailing list.
They do the rest. They will print your postcard, address it and mail it for the cost of
a first class stamp! We don’t think there is anywhere you can print and mail
postcards more cheaply.
If any of our readers knows of one email me at [email protected] to let
us know.
21
Tip: A word about mailing lists—ask the list broker how recent the list is. You want
one less than 90 days old. Ask them how they got the names—you want to make
sure they’re actually tenants.
Expect the list to have 10-20% non-deliverable addresses (5% is a clean list). The
non-deliverables will be returned to you. Clean your list, and resubmit to the site for
subsequent mailings. Once your list is clean, you can schedule all your subsequent
mailings and put it on autopilot!
Voice Broadcast & fax blast
You can use voice broadcast very effectively to remind your buyers list of an open
house or bidding auction or announcing new houses (see Chapter 5). If you use the
Arch Telecon service (see Chapter 4), you can use the voice broadcast feature. You
simply record your message, upload the phone #’s, tell the system when you want
them delivered, and whether to phones that are answered or not answered.
The best way is to program it for no-answer; then you get a chance to leave a
message on their answering machine. Another tip: Record the message as if you
were a friend and you were sorry you missed them, and you wanted to remind them
of the open house on xxx, where they can get owner financing (or some other
benefit).
Marketing houses needing TLC
If you have a house that is livable, but they need a lot of work, and you are planning
to offer them for lease option, so fix up costs may eat into your profit you could try a
strategy suggested by Richard Roop:
Offer the house for its after repair value, and mention that the house needs work.
Put in the ad that you will take the best offer. Explain to the caller that you can fix
up the house to their taste and they can buy at the fix up price, or they can make
you an offer to take the house as is. In every case they sell the house as is.
[We’ve tried just taking a large sounding, but relatively small amount off the price if
the buyer will do the fix-up. For example, on a $175,000 house that needed about
$1500 in repairs we offered to discount the purchase price $3,000. Virtually every
buyer choose the discount]
What Richard has found is that he will often get offers for higher amounts than he
would have asked. Perhaps the buyer was only discounting materials because he is
figuring his labor is free, whereas the investor has to pay a contractor.
You can also trade “sweat” for equity. Meaning the buyer can work on the house in
exchange for some of the down payment. Make sure your paperwork is in order on
this. And don’t let them into the house until the agreed upon repairs are made!
Using a Real Estate Agent
Investors have mixed feelings about using real estate agents—only get involved if
you are selling for cash. In a slow market most agents can’t sell houses any better
than you—in fact often a lot worse. Every so often you’ll meet an agent who says
they have buyers, but they generally don’t pan out.
22
Also, watch out when it comes to the paperwork. An agent will generally insist on
using their standard contract. To protect yourself, you will need some special
stipulations to add (click here for Richard's Special Stipulations http://investorwealth.com/richard-odessey/realtor.htm).
Just for the record some investors do have a system for working with agents.
Here’s how Mark Polunci does it:
“A real estate agent to me is a generic term. If you give me a professional who is a real
estate agent, I’ll make them rich because I will pay them well.
“What I have always believed in is you pay more to encourage a real estate agent act
quicker. That is providing you don’t feel comfortable selling the home yourself. [Offer
incentives and delegate at the same time.] What I also do is I tell real estate agents, very
candidly, that I have a house in their neighborhood I’m looking to sell, I’ll gladly give you
4% ‘if you get it closed within a month’. [When making the purchase] before I buy it, I’ve
already budgeted 4%.”
You do not have to give a real estate agent and exclusive listing to get them to help you
sell a house – just tell them to bring you a buyer – get the house sold and get a pretty
nice commission.
If they want the exclusive right to sell, it is for 24 hours ONLY!
“The only way I’ll do a contract is if [the real estate agent brings me a contract with] a 24
hour limit – with no contingencies. What’s really nice is you can [make them the] offer of
doing an open house for you [for that exclusivity].
Get them to conduct the open house for you – for only one day. “That way there is
somebody sitting at the house taking care of the sales end of it for a nice 4% - for one day
and you can bet they are combing everyone in their office to try to find leads to get people
out there. My philosophy is absolute control. ” - Polunci
The Bottom Line – Essential Marketing NOW
OK, Let’s cut to the chase. What should you be doing to sell your houses faster.
Here are the essentials:
1.
2.
3.
4.
5.
Signs in front of the house- 2 or 3 large ones, Hand-lettered is best
Arrow (Pointer) Signs leading to the house – At least 10-12 of them – put
them all the way out to all major thoroughfares.
Flyers at the house – emphasize the benefits of the house and the flexible
terms
Ad in a local/community newspaper – cheaper, more responsive audience
than major newspapers
Post-card mailing to tenants (optional) – if you use the usps website and
save money
23
Resources
1. The InvestorWealth Marketing Kit – These are a set tested signs, ads,
and scripts, marketing flyers, and other material for selling houses fast. They
are word and powerpoint documents that can be modified with the investor’s
(http://investorwealth.com/richard-odessey/det.htm)
use this link (http://investorwealth.com/privatelender/) or call me directly at
678-377-9357.
5. Monthly Group Coaching on Foreclosures and Short Sales – A get way
to a select individuals personalized coaching. To find out if you qualify click
here (http://investorwealth.com/mssn/application.htm)
7. Investor Contract Addendum Tool – Closing with a buyer that comes with
a realtor. You’re going to have to use the realtor’s contract, but with this
addendum you can still control the transaction, and possibly make some
additional money on the deal. It’s part of your marketing kit (If you don’t
have the marketing kit yet, click here - http://investorwealth.com/richardodessey/marketing-toolkit-upgrade.htm. If you don’t have it and want to get
this form alone click here: http://investorwealth.com/richardodessey/realtor.htm.
24
8. Motivated Sellers Marketing Kit – This product is currently under
development. For more information, and to be notified as soon as this product
becomes available – and before the general public! - click here http://investorwealth.com/richard-odessey/motivated-sellers-marketingtoolkit.htm.
9. Signs - You can get great signs in a large variety from Barry Abraham
(http://investorwealth.com/signs). He offers signs that come with metal
stakes that are easily to assemble and easier to push into hard ground. No
more assembling with roofing nails and suffering wrist strains pounding signs
into the ground.
25
Chapter 3: Selling houses online
The Inside Scoop On Profiting With Online Marketing
Up until very recently all real estate business was restricted the printed word and
voice communication. Many investors still feel that all that is needed in terms of
equipment is a telephone, a car and a pen to fill out forms and get signatures. Many
gurus still teach and think this way. Few investors have realized the power of the
Internet to save them time and increase their profit. And unfortunately most of the
Internet enlightened have lacked the knowledge to set up a successful website, and
have not seen the results that are possible.
Why do I need a website?
The reality is that we are in the Information Age. And the Internet as you probably
already know is the ‘information superhighway’. Are your buyers online? You better
believe it. Want some numbers?
Over Half of America is Online
Well, over 10 million people are on AOL. Over 140 million people in the US are now
online—that’s 55% of all households in America! And there’s plenty more who can
access the Internet from work. In fact, there is a strong trend for many people to
look first online for a solution to their buying and selling challenges.
Think about it. We live in a convenience oriented society. Where do you think more
people go to buy a book? The Borders store in the mall or Amazon.com? Even the
brick and mortar stores now have websites. People love convenience. Many of your
buyers will go first to a search engine to look for anything they need whether its
medical advice or where to buy books. Why not a house?
In fact, take a look at this press release from California Association of REALTORS(R)
(C.A.R.):
Study finds homebuyers using Internet also save time and are more in
control of home buying process
LOS ANGELES (Feb. 7) – Homebuyers who use the Internet as an integral part of the
home buying process tend to be younger, wealthier and more ethnically diverse than
traditional buyers, according to a new study released today by the California
Association of REALTORS(R) (C.A.R.).
According to the "2002 Internet versus Traditional Buyer Study," Internet buyers
also spent significantly less time looking at homes for sale prior to making a
purchase and looked at far fewer homes prior to making a purchase than did
traditional buyers.
Internet buyers also felt that they were more in control of the home buying process
than were traditional buyers, according to the C.A.R. study.
It’s Convenient to Browse Online
They can browse in the convenience of their own home, or break up the boredom of
their workday. And you can probably guess that in couples it is usually the woman
26
who does the looking and then has to drag her spouse after work over to look. And
after making excuses about coming home too late or watching the game on the
weekend, maybe he finally goes.
Meanwhile, you wait, making payments. What if your couple could just browse
online? Take a virtual tour, see the outside and the inside, and read about all the
features and the benefits of doing business with you. The husband can take a quick
look during the commercial, grunt “if you like it honey, let’s do it” and go back to
watching the tube. Then she calls you up and you have to do is work out the
numbers.
Your site can do most of the selling for you
And that’s not all. It is a powerful permanent free ad! For a negligible monthly
hosting fee you a have permanent web presence. Many of our buyers actually
bookmark our site and go back to it regularly to see what new houses we have
available.
That brings up another advantage. You should have a page that allows the visitor to
register with you so you can stay in contact. This is how you can start building a
buyers list. Imagine if you had a good sized list of people and knew what they could
afford to invest in a house.
The next time you get a house, no advertising expense may be needed. Just call or
email your prospects and let them know the house is available. It is a warm
market—they’ve visited you before, they want what you have to offer. It can’t get
any easier.
“The cost of advertising in the main newspaper, the Orlando Sentinel, is horrendous
when you are a business… I owed them $1,500 at the end of the year that we had
not even utilized. Now, the website is up, it’s running, it doesn’t need me to stay on
top of it and it [doesn’t carry] that tremendous cost each month. “ - Butler
A Website Gives You Instant Credibility
How about credibility? It is a basic truth of marketing that people who know you and
trust you are most likely to buy from you. Especially with the public getting pelted
with stories and news articles about unscrupulous investors screwing buyers and
tenants, there is a wall of suspicion out there.
Every investor needs a credibility kit. A website is a great way to establish that. It
says you are not fly-by-night, but a permanent fixture—when they look, you are
there. It is also important to create a professional look and feel. On the site you
have the opportunity to explain in a friendly way who you are and how you can
benefit them.
Putting your website on your marketing materials, sets you apart from other
investors. It puts you ahead of your competition. It generates a level of trust to
start.
Many buyers and sellers have told us that seeing our professional looking website,
was one of the reasons they decided to deal with us.
27
Many buyers and sellers have told us that seeing our professional looking website,
was one of the reasons they decided to deal with us.
An Opportunity to Explain How You Can Help Them
A website also gives you the opportunity to explain why the buyer should buy from
you. Offering owner financing or lease options for your homes is a great benefit in
the minds of your buyers. Did you know that 80% of the home buyers cannot, or
think they can’t qualify for a loan.
They desperately want to own a house, but can’t find anyone who can work with
them, until they encounter you. And as you’ll see below this also means more profit.
How Do I get Set up on Line?
Do it Yourself
There is an art and a science to setting up an effective website. If your budget is
tight, then building your web site yourself might appear to be the most cost-effective
solution. Unfortunately, the savings may only be an illusion.
Unless you have previous web design experience, you will likely makes mistakes...
and mistakes can cost you sales and profits! We don’t have the space here to list all
the mistakes new site owners can make. Some common ones are:
• Slow loading graphics and pages that frustrate visitors and drive them away.
• Sites that aren't compatible with all browsers.
• Overuse of distracting animation and graphics.
• Confusing layout.
• Poorly designed site navigation systems.
Ultimately comes down to this one thing: Their sites are not designed to move your
visitors to a decision to do business with you!
Learning to build a web site that will sell your product or service is going to take
time. If you have time and can afford to lose hundreds - even thousands - of dollars
in sales as you learn from costly mistakes, that's fine. And meanwhile, your taking
time away from your real estate business. That can be a pretty high cost.
Hire a web developer
Or you can hire a web developer. A good web designer will not only build your site
for you, they'll guide you through decisions about the layout... they'll let you know
what works, what doesn’t, what they recommend, and why.
But here's where your troubles can begin...
There has literally been an explosion of web designers selling their services on the
Internet. And sifting through them all to find one who is qualified and talented
enough to build your web site can be a challenge in itself.
In addition, a web developer knows nothing about your business or what is needed
to achieve all the benefits we’ve described above. That is something you need to
learn about and be expert in.
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Invest in a professionally designed proven website for your business
Or you can get a ready made professionally designed site that is specifically geared
to doing the creative real estate investing that we have been talking about
throughout this discussion. We will tell you more about that opportunity below (you
can check out an example of what we mean by going to
http://www.investorwealth.com/websites/index.htm.
In any case, you need to get savvy about what goes into creating a successful real
estate investment website, so you can make intelligent decisions that save you
money and boost your business to the next level. And this is what we’re here to tell
you based on practical experience. Our site (http://www.homefriendseller.com/)
gets 30,000 to 50,000 hits a month.
How do I get people to visit my site?
Put Your Website Address On Everything
That is a good question! The main answer is simple: Put your website address
prominently on every piece of marketing material that you put out. That means
everything—Street Signs, Newspaper ads, Flyers, Postcards, business cards, car
signs, etc.
You will get traffic – that means sellers as well as buyers. As we mentioned above,
our site gets 30,000 to 50,000 hits per month.
How do you advertise using your website?
“The sign in the yard and the flyers list the website for further information on the
house. When someone calls in off the signs or the fliers or the newspaper ads, it
says ‘please check out our website for pictures and more detailed description and
directions to the home.” - Butler
Do I have to know how to put my houses on my website?
“I was real pleased” it was easy as can be “Matthew had taken the pictures with our
digital camera”. We just emailed them to the Webmaster – that was it! “They
looked great on there.” - Butler
What about search engines?
What about search engines? That is how most people find things on the Internet.
For finding buyers this way, you would have to tell the Webmaster exactly which
keywords and Meta tags to use so that you narrow the flood of buyers that will be
coming to your site. For example you may only want buyers who are interested in
your farm or local area.
You can make your search engine listing specific enough: “Houses for sale in Atlanta”
or “Owner Financed Homes-Atlanta”. This will help. You will get some visitors this
way, and we have gotten some great prospects.
There are many free search engine submissions. However, you can boost your
online traffic by getting your website listed in other places for a relatively low cost.
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“We also went up on Yahoo and Looksmart - and actually I have already increased
my budget for Looksmart twice this month.” - Butler
Are ‘Hits’ to my website important?
“My website gets so many hits Michelle, that I guess I really haven’t taken the time
to see where they are all coming from, but I’d say the majority are coming from the
search engines.
“The great thing is, that we also offer credit restoration, just like you do Michelle.”
Talk about additional streams of income – “I have more credit restoration requests
than I can handle.” – Butler
Remember, the main reason for starting with a website is to boost your credibility,
give information and gain trust, and get the qualified and motivated lead.
When you are ready to increase your site’s income potential by marketing other
services to your site visitors, then placement on search engines and monthly payper-click listings will be your next step.
How long before my website shows results?
Not long. Once you put your first ad to sell your houses in the newspaper (especially
if your newspaper has an online classified section) or put your web address on your
signs, you will immediately start to getting “hits”, and buyers sending you their
information through your website.
“I believe it was the end of May when we put [the website] up. Just a couple of
months [until the traffic to the site exploded].” –Butler
Just put your website on everything and they will come!
Choosing A Domain Name
What's in a name? Everything!
Choosing an appropriate domain name for your web site is one of the first and most
critical decisions you'll have to make on the road to Internet success.
What Makes A Great Domain Name?
Is it attention getting, memorable, is short and fits the ways you buy and sell
houses? Does it begin with a letter closer to the beginning of the alphabet, instead of
towards the end? If so, and it's not taken, you may have a winner!
However, with more than 60,000 new domain names being registered each month,
many of the short, memorable, two-word names have already been snapped up. But
don't give up: there are other strategies to win the domain name game.
Expired or 'On-Hold' Domain Names
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Every day, domain names come up for renewal. And every day, the owners let them
slip away. Why? Either they've gone out of business, or simply forget to renew. You
can use free web sites to monitor these domains, and you may get lucky. As a
bonus, your new name may come with built-in traffic!
Just be aware: many people are actively searching for good domain names to buy
and sell, at a profit. For example, one domain, http://www.business.com, sold for
millions! So be warned: if you see a name you want, don't wait - grab it.
You can find lists posted on the following two sites: http://deleteddomains.com and
http://www.dailyexpireddomains.com. You'll soon notice that some names are
available immediately, while some are 'on hold.'
Technically, once expired, all names are available. However those that have expired
within the past 45 to 60 days are in a grace period. Prior owners are given the
chance to make good on their debt. If they don't, and the grace period expires, the
name is 'deleted' from the master domain registry. It is then available for purchase
by others.
The date of expiration is posted. If your dream name is 'on hold,' you'll need to pay
close attention to the lists. When the one you want is finally free, buy it quick.
Expired domain names can be purchased at any domain registration site. We prefer
http://www.godaddy.com, since buying a name through them for a year still costs
under $10
We also have a very limited number of great domain names we can sell to you as an
ebook customer (see below).
Once you've bought the domain, immediately make you schedule a reminder to
renew one month BEFORE the domain expires. Don't forget and have your business
name snapped up by someone else!
One last tip: Reserve your own name AND your business name as a domain. Even
though you may never actually use it as a web site, this at least insures that no one
else will either! Take your name off the market. And you might want to use your
business name for your website.
By the way, long names are actually great as long as they communicate an attractive
message to your prospect/visitors. For example, ‘WeSellHomes-NoCreditCheck.com’
would deliver a message that would be of interest to a large segment of your buyers.
Another trick: if your name is long, also get domain names of likely misspellings and
letter or word transpositions. For example, if you had the domain: ‘HomesForYou’,
you also might want to get ‘HomeForYou’, ‘Homes4You’, ‘HomesFourYou’, etc.
Should I have a ‘Dot.com’?
As more and more people come online, and the most popular names are taken off
the market, there will be more 'suffixes' added to expand registration options.
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Currently, the following endings are available: .com, .net, .org, .info, .biz, .ws,
.name and .us, with more to come.
If at all possible, choose a domain name ending in .com ('dot.com'). This is still the
most widely recognized ending, and the most popular. When typing in a domain
name, people will still, by default, try “.com” first. The next popular ending after
.com is .net -- but always try for a .com name, if at all possible.
As you make this very important decision choose well because, if you're successful,
you'll be living with it for a very long time.
What Your Home Page Should Look Like
Just like in action movies where our hero has 10 suspense-filled seconds to dispose
of the time-bomb before it self-destructs, you have an equally short 10 seconds to
grab your prospect’s attention before your chances of getting him or her to look at
your houses self-destruct... and your first-time visitors leave your site forever.
Your mission, should you choose to accept it, is to make those critical 10 seconds
count by ensuring that the first view of your web site grabs the attention of your
visitors with a compelling benefit that persuades them to stay just a few minutes
longer to find out what you're offering.
Why just 10 seconds?
The first screen view of your site is literally the most valuable real estate on your
web site because this is the screen that your visitors absorb during the first 10
seconds of their visit and use to make their "should I stay or go" decision.
The first view of your web site needs to be strategically designed so that, in 10
seconds or less, it clearly communicates the biggest, most compelling benefit you
have to offer your visitors.
We know this concept probably sounds simple enough; however, most web site
owners make fatal mistakes here that drive visitors away and limit the sales
potential of their sites.
Think about all of those times you've arrived at web sites that:
• Overwhelm you with graphics
• Point you in 14 different directions with links here, there, and everywhere
• Annoy you with flashy banners
• Slow you down with long, pointless Flash presentations
• Spend the entire first page talking about "Mission Statements"
• And just plain drive you away with a lack of relevant information
We've all been to (and been frustrated by) these sites. So what can you do to insure
that your site isn't one of them?
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Communicate Your Biggest Benefit With Your Headline
Any professional copywriter will tell you that your headline can make or break your
success. Unfortunately, this is an element that is sorely neglected.
The very first thing that should draw the eyes of your visitors when they arrive at
your web site is a headline that clearly states the biggest benefit your site has to
offer. Graphics, logos, illustrations, menus, links, etc... should never overpower or
distract from this critical element.
Your headline should be located at the very top, center of the page in a larger font
size that naturally attracts attention. It should communicate information about what
you offer and how you're going to help them:
• Buy
• Buy
• Buy
• Buy
• Etc.
a
a
a
a
house
house
house
house
with no money down
even if they have poor credit
with owner financing
and move in within the week
Plus, it should be visually appealing. For your headline to be most effective, your
visitors must be able to absorb the benefits it shares in a glance. So you not only
need to write a killer headline, you need to strategically format it!
Advice to keep in mind:
Visitors should never have to read through your site to understand your title. The
benefit should be clear to everyone immediately.
Speak in a language that your target market is going to understand. For example, a
lot more folks understand rent-to-own, rather than lease option.
Don’t use your domain name as your title. It doesn't communicate a benefit or give
visitors a reason to stay.
Don't worry about being clever, worry about being clear. While cute slogans might be
fun to write--make sure they're selling visitors on why your site is worth their time.
Capture Visitors' Names And E-Mail Addresses
The next critical element that should appear within the first view of your web site is
an opt-in e-mail form that offers visitors a compelling reason to become a
subscriber.
Not every person is going to look at your houses or like your houses the first time
they visit your site, so it's very important that you capture their names and e-mail
addresses before they leave.
You've spent the time, money, and energy getting your site listed in the search
engines, purchasing advertising in newspapers, etc... Why would you let these
potential prospects slip away?
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You might want offer a special report on “How To Buy Houses Even If You Have
Lousy Credit”. Or some other issue that is a problem for your prospects. And you
know if they opt-in for the report – that is an issue for them—so you have learned
the “hot button” of this group and can make offers to them appropriately.
Make Getting Around Easy With Your Navigation Menu
The other critical element that should appear within your first page is your navigation
menu, which should be placed somewhere on the top, left of every page.
When visitors first arrive at your site, they should be able to see in a glance that
your site is going to be easy to navigate.
If your visitors are struggling to get around, then they're not thinking about buying
your house. And if they're not thinking about buying, they're going to leave! So
rather than scatter links around your homepage, group them together in a concise
menu that's easy to understand and use.
Part of making your navigation menu easy to use involves carefully choosing your
menu button names.
These buttons should give the visitor information about how they're going to benefit
from clicking on them. Don't assume that your visitors will instinctively know what
these buttons mean. Choose compelling link and button names that are both benefitoriented and clear! For example:
• Home
• Awesome Homes For Sale
• No money down Financing
• About Us
• Contact Us
Notice that each of these menu options clearly tells the visitor where they're going to
go or what they're going to get by clicking on them.
Avoid These Common Design Errors
Once you understand the key elements that should immediately grab your visitors'
attention what you should avoid become obvious:
Avoid Links And Banners That Give Your Vistors a Chance to Leave Your Site
Be careful not to drive traffic away from your web site with distracting banners and
links. You want them to buy your house—why would you want them to go anywhere
else, even if you did make a few bucks?
Especially avoid placing any links or banners on your home page; this is where you
should be directing visitors towards your homes, not away from your site!
Avoid Distracting Graphics And Animation
Words sell, not graphics. So if your prospect spends the first 10 seconds at your site
waiting for large graphics to load, you can be sure that they're not going to stick
around.
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While there is a time and place for graphics and animation, be certain that if you've
chosen to include any on your site, you've done so to strategically enhance your
message and illustrate a benefit – and make sure they load fast.
Avoid "About You" Text Like Mission Statements
The truth is, nobody cares about your company’s goals or mission. They want to buy
a house. Don’t bore them or you’ll lose them. Now, a prospect may want to find out
about you. That should be found when they click the ‘about us’ button.
And when you write an ‘About Us’ – talk about how you help buyers get into homes.
Put up as many testimonials as you can get. Always collect testimonials from your
buyers and sellers. They are worth their weight in gold.
It’s far more persuasive to have somebody else say your great to do business with
than if you say it.
Final thoughts:
The first view of your website is the most valuable real estate on your site because
this is where new visitors make their 10-second decision to stay or go.
That's why you need to side step the tempting design errors like misplaced banners,
distracting animation, wordy mission statements, etc., and use this space to
carefully:
Communicate the biggest benefit your web site has to offer,
Persuade your visitors to opt-in to your mailing list,
And convince them that your site will be a breeze to navigate.
This is how you'll not only dramatically increase the average length of a visitor's
stay; it's how you'll also dramatically increase your home selling!
How To Lay Out And Market Your Homes Online
For buyers, this is why they go to your site, so you’d better make sure it is attractive
and can answer their initial questions. Here’s where pictures are important.
A picture is worth a thousand words
First, get yourself a digital camera. It should be good quality, but there is no need
to go overboard. You are going to use it to take pictures of your houses. The
pictures should show the outside of the house, the rooms, like the kitchen, family
room etc. Of course choose the most attractive features of the house to take
pictures of.
You want to give the prospective buyer enough to look at so that they actually want
to go visit the house in person.
And the beauty of digital pictures is that it is easy to edit, crop, lighten/darken,
remove distracting objects, etc.
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“I really think [having a website for your business] is invaluable Michelle, because
number 1 . . . people can see the interior of the house, they can obviously ride by
and see the exterior but they can go to the website, see the interior, get all of the
information even more so than I normally put on our flyers which is difficult to
always keep filled, particularly when the houses are distances away. . . its going to
move the houses much much quicker. Plus being more convenient for me and for
the buyers.” - Butler (To find out more about getting a website, click here http://investorwealth.com/websites/index.htm
Laying out your pictures
Then you want to layout the pictures as if your prospect is touring the house, and
add text. Pictures should not stand alone. Add the descriptions of each picture to
tell them more about the house and manage how the see the picture.
Captions that Appeal
Appeal to their imagination. For example, instead of labeling a picture: ‘kitchen’, you
could write: ‘enjoy your morning cup of coffee in your spacious eat-in kitchen while
looking out at your patio in your private fenced in backyard’.
This is your chance to tell them all the benefits of the house without having to be
there!
Talk about Financing
If you are offering owner financing, lease option, or zero down purchasing, make this
a major headline of your page. It should come even before the address or at least in
a large font right below the address.
If you are looking to cash out, tell the prospect how much easier it will be to work
with you and how much more smoothly the process will go if they decide to buy one
of your houses. Remember once they like the house, the financing is usually what
makes or breaks the deal. Sometimes people will choose to live in a certain house
just because of the financing.
How do you determine whether your buyers are worth the risk?
A preliminary approval form – and even your Application for Rent, Application for
Lease can be on your website for a buyer to print, fill out and fax – OR – fill out
directly on your website. This information comes to you directly without your having
to drive anywhere to meet them other than for their earnest money or down
payment.
These are another great benefit of a website – not only for qualifying your buyers –
but for building a qualified and categorized buyers list. Just think – an electronic
way to capture that info so retrieving it takes minutes, or even seconds.
How To Get All The Information You Need To Decide Whether They Are
Prospects
As we mentioned before, capturing information about your prospects is critical.
You will know who they are and will be able to contact and stay in touch with them.
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It pre-qualifies them as people who are seriously interested in one of your houses.
Which house? That brings up a good point. You want to know more than that they
visited your site. You want to collect information on what they are looking for, what
they can afford, when they want to move, etc.
For this you’ll need a form. A motivated buyer will happily fill out this information.
They will understand that this information will help you help them get into a house.
(You should put a little explanation of how they will benefit by filling out the form at
the top of the page).
When they hit submit, this form is automatically emailed right to your inbox. You
can open it up, see what house they are looking at, determine whether and how they
could afford it, and if it’s a fit, call them back.
This is a time saver and a benefit to the flow of your business. “This definitely
benefits me. There are times where I am on the phone constantly and I can’t get
any work done. Having the prospective buyers and sellers complete that form is a
godsend. Not only for them, because they can do it at their convenience 24 hours
per day, but I can sit and evaluate it in a very peaceful calm setting as opposed to
being running around and answering the phone and trying to help them. “ - Butler
Building A Buyers List That Will Tremendously Reduce Your Advertising
Costs
Now you have the beginnings of a buyers list. This is one of the keys to the
kingdom. The next time you get a house, before you go spend your precious cash
on a newspaper ad, scan your buyers list.
Look for people who can possibly afford your monthly payments. Note: it doesn’t
have to be exact. E.g., if your rent or mortgage payment were $1200, we would
contact people who say they can afford only $1000 (or more).
The reason is that people often don’t say exactly how much they could pay. If they
really like the house, they may decide to endure a little budgetary pain to live in the
house.
How To Get Them To Give You Permission To Pull Their Credit
If your going to want your buyers to go out and get a loan, you might want to do a
quick credit check to pre-qualify them. You can create a form for that, where you
can ask them for their social, income, employment etc.
Why would someone give you this info? Because they want to buy your house.
These people are very motivated. FYI – make sure the site is secure—you don’t
want hackers stealing people’s social security #’s.
How can I get a site like you describe?
Whew, you might be saying, this is a lot work to do this right. Yes, you’re correct.
And is it worth it? We think so.
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Buying site unseen
We have had several people who lived out of state who actually made their buying
decision based on what they saw on our website. In one instance a woman saw our
house on the site, and called us very excited because she was moving to our area in
the next few weeks, and ‘just loved the house’. We discussed the terms and the
timing, which she agreed to, and then she sent a friend over to take a look. The
friend gave her a favorable report, she sent us a deposit, and ok’d the remaining
paperwork and put down the rest of the option fee and first month’s rent when she
arrived, and moved in that same day! She and her husband are still in the house.
It doesn’t get any better than that.
A Ready-made site for the Real Estate Investor
So how can you get all these benefits without having to become a web guru? Well,
we do have a special offer for you, our customer. With the help of our web designer,
we have created a complete Buyer website incorporating all the features and benefits
we have described here.
It can be customized with your company information; the web designer will set the
whole thing up for you. All you have to do is choose a domain name. You can even
get all the pictures and descriptions of your houses posted in a way that sells for a
trivial fee. To get more details, click here http://investorwealth.com/websites/index.htm.
Do I have to design the web site myself?
“No. I used one of the website choices that you had available. [The design] called
‘Millennium’. [Why reinvent the wheel? Your websites were already set up for our
business] which I thought was wonderful. Which is one of the reasons we went with
your website. I didn’t want to take the time and trouble to sit and design a website
or try to advise someone on what exactly I wanted. I mean I just loved yours and
said this is great – let’s do it!” -Butler
The Bottom Line: A Website Now
In our opinion anybody who is serious about selling houses in the 21st Century needs
to have a website. A website will
A permanent low cost ad for your houses
Explain the benefits to working with you
Automate your lead capturing process
Build a buyers list to reduce your advertising expenses
Be where your buyers are—on the Internet
Provide credibility
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Set you apart from other investors
Prescreen your prospects
Gather information automatically
Automate follow-up
Just like any marketing piece you need
A Headline that will grab the web surfer.
A home page full of benefits
Other pages that explain the benefits you offer your buyers (lease option, owner
financing, zero-down, etc)
A display of your homes that allows the prospect to make a pre-buying decision
before going out to the house
Forms to capture complete buyer information
A method to keep in touch through auto responders
You can do it yourself with or without a web designer if you would like to start a
career as an Internet professional. But if you really want to enhance your real estate
investing business because you want to buy and sell houses, get a ready-made
customized site.
You can find out more about ours by clicking here http://investorwealth.com/websites/index.htm. This may sound like bragging, but
we don’t know of anything else out there that performs all the functions we’ve
discussed here and has a record of success.
Resources
1. Where to get the Best Real Estate Investor Websites – these are the websites
we use to do business. You can get a separate site for finding buyers for your
properties, and a second one to attract sellers of homes your interested in
acquiring (http://www.investorwealth.com/websites/index.htm)
2. Great RE Investor Domain Names (while they last). Email
[email protected].
3. The Investorwealth Marketing Kit – These are a set tested signs, ads, and
scripts, marketing flyers, and other material for selling houses fast. They are
word and powerpoint documents that can be modified with the investor’s
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6. Monthly Group Coaching on Foreclosures and Short sales – A get way
here (http://www.investorwealth.com/mssn/index.htm)
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Chapter 4: Pre-screen Buyers before you talk
to them
Even if you have a website some buyers will choose to call you anyway.
So how do we avoid talking to tire-kickers that call me on the phone?
Don’t answer the telephone
Simple, DON’T ANSWER THE PHONE!
You have several alternatives that work well for pre-screening buyers before you talk
to them:
A website as the ultimate tool
In addition to your website being a powerful marketing tool to sell houses, it is part
of a system to save you an enormous amount of time.
When you market your houses the way we are suggesting here, you will get a lot of
inquiries. Not all of these leads will be interested in or ready to buy your house, or
they may not be able to afford it.
Talking to these people is a waste of your valuable time, which should be spent,
going out to buy houses, make deals and close sales. And every minute spent on
talking to a non-motivated buyer, takes away from you focusing on moneymaking
activities. This is a high cost in this business.
Now, if they go to your website, you will have a system in place to show them the
house, explain its benefits, describe the financing terms and have them contact you
without you lifting a finger.
Use Pre-recorded messages
Call Flow for a messaging system
The main goal of the first contact is to inform the potential buyer of the benefits of
working with you and give them information that will get them to the house. It’s
really not worth talking to someone until they’ve seen the house or you have prequalified them as a buyer.
Kris Kirshner uses a multi-step process for advertising to and informing the buyers –
each time pulling them further along on the path to buying the home they want.
[We use] “our 24 recorded message, it states ‘this list of homes changes weekly –
please don’t loose this number, because the house of your dreams may not be
available this week, but it may be out there next week’.” This message also can be
used to give your prospective buyer the address and directions to the house.
When they get to the house, the signs leading to and in front of the house provide
another phone number – the one to a live answering service which takes their name,
phone, and an address if possible – THEN gives them the lock box number to see the
inside of the house.
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Once inside the house, the flyers, lease how-to info, etc. now has the phone number
of Kris’s sales associate. This way, the buyer does not call the office until they have
been through the whole process and a motivated buyer is all you have to talk to.
Multistep Messaging System to Prequalify buyers
The voicemail system can be used as a multi-step system to successively pre-qualify
the buyer. You could set up your call flow as follows:
1.
The prospect calls off the ad to your 24hr pre-recorded message that
gives benefits and directions to the house
2.
At the house the prospect can get a number off the sign or flyer that
directs her to call for the lock box number to get inside. (For this you
should have a live person to make sure they get a name and phone
number, and give instructions on how to use the lock box for giving the
prospect the combination
3.
Inside the house, there is your credibility pack, information about
financing options, an application and a phone number where they can call
and speak to you or your salesperson directly.
So, the only people you will be speaking with are those who are serious and have
enough motivation to go out to the house, take action to get in to see it and then are
excited enough to call you to buy your house.
Anyone who calls at this point is a motivated buyer. If they can meet your terms,
you’ve got the house sold.
Use of a Live Operator
With a live operator you have more flexibility than with a voicemail system. It is also
more cost per call. You have to decide whether it is worth it for your business.
“Currently what we are doing is we are running an ad [that] basically says ‘No Banks
Required’. All my pre-screenings go through PATLive (see below). So I’m calling back
serious people. I’m having a meeting all in one day at one time and I overlap my meetings,
so one is pulling up as the other one is finishing up talking on the lot.
“The meetings are in person at the house because I’ll talk my way through just about
anything. “ – Polunci
What should be in your script
You want to collect the basic information:
Contact info: (name, phone #’s, email
What area they’re looking in and what house
What is their maximum monthly payment
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What is the most they can put down for their deposit
How’s their credit: good, fair or ugly
When do they want to move
At this point, the operator could give direct them to the house or forward their call to
you. However, using a live operator to give callers long descriptions of houses or
directions can get to be very expensive.
It is better for the operator after gathering the pre-qualifying information to direct
them to your website or a pre-recorded message.
If you have a really good answering service, you may be able to program multiple
scripts for the operator to read depending on what the caller says (for more
information on this service click here - http://www.patlive.com/).
You might initially have the operator ask if the caller is wanting to buy a house or
sell their house. If they are buying, go to one script, if selling go to another script
with a different set of questions. If they are buying, would they like a description of
the house and directions, or are they in front of the house and would like to know
how to get in.
The point is that you want to make it easy for your buyer to go and see your house.
If he or she has to make several phone calls, some might give up. On the other
hand, that’s prescreening also.
800, 888, 877 vs. local numbers
Choosing whether you’re going to use a local phone # or one of the toll-free #’s is a
strategic decision.
The local number brands you as part of the community, maybe even a local
homeowner trying to sell his own house. For some people that may be more
desirable since they feel they will be talking to someone like themselves, not an
answering machine or a telemarketer.
With the expansion of area codes, toll-free numbers allow callers in a different area
code to call for Free. Yeah, it’s only a few pennies, but some folks think like that.
Also, toll-free numbers can capture caller ID even from blocked lines (the theory is
that you’re paying, so you have a right to know who’s calling).
800# prefixes are the most desirable, and they are virtually all taken. 888#’s are
second best since they are easy to remember. And 877 comes in last since it is still
not widely recognized as toll-free. In any case, add the words ‘toll-free’ in your ad.
Vociemail Services available
We use Arch Telecom ( for more info click here - http://archtelecom.com) for
automated voicemail. You get an 800# and 1000 boxes to direct caller’s messages.
It automatically captures the phone # and name and address if available. You can
record and update your messages. For an extra fee, you can custom program a box
#.
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With this service you also get the ability to do fax broadcasting and voice
broadcasting. We have used this effectively to voice broadcast to our buyers list
when we are having an open house.
A downside: you do not own the 800#. That means that if you and Arch Telecom
part ways, you will have to change all your signs, and marketing material. And some
people keep the stuff you send them for a long time, so you might miss some
callbacks.
Live Answering Services
Finding a good answering service can be quite a hassle. You need to find one that
has trained operators that can read your script and not sound like a robot—this is a
lot harder to find than it sounds.
Next you have to constantly check how long the service is leaving your callers on
hold. The tolerance level of a telephone caller is about 17 seconds. If your service is
leaving you on hold for more than 30 seconds, you need to do something about it.
Again, you do not own the 800#. One strategy is to get a cell phone or another
business line and forward it to the answering service. That way you always have
your own local # on your advertising. You will forfeit the caller ID feature then.
One of the better services out there that we have found is PATLive
(www.patlive.com/signup/hfp for more info). They’re not perfect, but they are better
than most, and are very responsive to fixing anything. And they do put their money
where their mouth is. They use their own service to answer their own phones.
Resources
1. PatLive – An inexpensive service that has live operators answering the phone
24hrs per day according to a script you supply. To contact them: click
www.patlive.com/signup/hfp
2. Arch Telecom – You get 100 mail boxes. Drive your buyers to a recorded
message where they leave their contact information. You can download all
the information about the calls on each property you are advertising at any
time. Call Rick Hoyt at 800-224-4188- Ask him for the same deal he gave us.
Just tell him Richard Odessey referred you.
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Chapter 5: Preparing House to Sell
Staging the house
When you are selling a house for cash, you are competing with the entire real estate
market. You need to do something to set your property apart from others. You
want your house to be more attractive than others your buyer might see.
Curb Appeal
It’s still just like your mother told you—first impressions are the most important. If
you want someone to buy, you gotta get them to the house, then you have to get
them out of the car to see the inside. It’s just too easy to keep on driving if they
don’t like they way it looks from the curb.
So, unless you’re selling a junker, or a fixer upper, it is essential to make the front
view of the house attractive. Clean up the yard, mow the lawn, trim the bushes.
Make it look appropriate to or better than the rest of the neighborhood.
Visual Appearance
Again we’re dealing with emotions here. Your prospects want to feel that this could
be their home. Little inexpensive touches can make a huge difference in your
prospect’s decision to buy:
Mark and Kris take the high-end route:
We also stage all the homes. We do plant arrangements. We make sure there are
nice smells in there. We usually budget an extra $150 to $200 and make sure the
shower curtains are there, the soap dishes, the towel racks, you name it we finish it.
That’s what we are talking about our tactical actions – is the house truly ready to
market – not just from an appearance standpoint, but also from a communication
and an education standpoint for our new buyer. Basically we just want to let them
know, it is extremely easy to get into our homes, we are there to help you obtain
your dream and no one is going to work harder than us at letting you obtain that
dream.
“For my time and energy into it, it is not real productive for me to do the fix up, versus
what I can make when I go in and I simply spray paint the inside, detail the outside, pretty
the yard up and put new carpet in. The house in northern Virginia that we sold a few years
back when they said nobody else was going to be able to sell it because the market was
down, we had it sold within a month or six weeks of listing. The real estate agent kept
telling me I was nuts I was asking $10,000 higher than the comps proved. I talking back
then it was $106,000 and I sold it for $116,000. That bathroom was beautiful. Full wall
mirrors, new countertops in the kitchen, three appliances, painted the inside and out,
carpeted it and then it sold. Make it a dollhouse, that’s all you have to do.
“We always spend between $5,000 to $10,000. That usually takes care of carpet, painting
and cleaning up the outside yard. Now, the one in Virginia we did, as an example, we took
a track house, and we actually sold it and got $10,000 above the going market where all
the comps were and sold it within about a month. The way we did that was all new paint
inside and out, all new carpet and then we took the kitchen we put new countertops in and
in the bathrooms we put wall-to-wall mirrors. We just detailed the house, that’s all we were
doing. So we had maybe a week's worth of my labor by myself doing the work and that’s it.
“ - Polunci
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Olfactory Impression
Buying is an emotional decision. A buyer needs to have a warm fuzzy feeling when
they enter the house. We probably don’t need to tell the women, but this may be
news to the men, that smell is Very Important.
Of course eliminate any bad odors—that can kill a prospect fast than anything.
There are a number of products on the market designed to do this. Make sure this is
done before any of your prospects enter the house.
To really make your house stand out – go the extra mile: Make it smell nice!
Favorite smells: Apple Pie, Vanilla, Chocolate brownie. Several suggestions from
investors who have tried it:
Spray “Apple Pie” flavor on the rug
If you’re holding an open house – put some flavoring in water on the stove and
warm it or actually put an apple pie in the oven!
On any house we are selling is that I would go in and make sure that it smells like an apple
pie. That has to do with like putting some vanilla and apples on the stove and let them boil
in the background with a little cinnamon. Or actually having a chemical sprayed put in the
carpet that smells like an apple pie. It has a tremendous response.
Power Open Houses - 1
The Key: Have a Crowd in the Room
Here’s the key to a successful open house: Have a Crowd in the Room. Crowds
build excitement, and they create a sense of urgency, which you can promote.
If the circumstances are right, you might even create a bidding war!
How to build a crowd
Use the marketing techniques we described above.
Once you have people calling, the next thing to do is to get them there at the same
time. You do this my limiting the time for the open house to 1-2h.
You may get lucky and get a sale at the first one. But there is no rule that restricts
you to that. If you really want to sell the house fast, do regular open house at a
time when people are free to come: for example 2hrs on a weekend day (not during
Church!) and 2hrs on a week day some people can come by after work.
How about this for creating a buying frenzy—you don’t need a lot of people:
“I had a lock box on the house and I was sending people to walk themselves through. But
this particular fellow called and I had a gut feeling that he was the buyer and 10 minutes
later somebody else called and so I said well, come on over, I’m going to the house I’ll show
it to you since I will be there showing it to someone else. So everybody pulls up and so I
point to the one guy who called first and said you are number 1 and I pointed to the other
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guy and said you are number 2. So he has first chance. So the second guy was very
interested and the first guy said yes within about 10 minutes. I asked him if he had money
and he said yes. He asked how much I needed and I told him $15,000 and he said fine.
Short and sweet.” - Axtell
Michelle – How much was the price of that house?
“The house was $105,500. [I] got a $15,000 lease option deposit. Non-refundable. I did
it again 2 days ago on another house. Same figure. “ - Axtell
Sell your house in 9 days system
Some of you may have seen signs around town saying “Sell Your House in 9 Days”.
This is not what we are talking about.
What we are going to reveal here is a highly effective system developed by Richard
Roop to sell a house for cash with 9-day marketing blitz. To give credit where credit
is due, Richard’s system is based on the book “How to Sell Your House in 5 Days” by
Bill Efros. We will be quoting here from Richard’s book (you can order the complete
course by clicking here - http://investorwealth.com/richard-roop/5-figurepaychecks.htm)
With this strategy you can:
Sell your house in 9 days with only one open house
Sell quickly in a bad market
Save thousands of dollars in real estate commissions
Get the best price possible for the house
Avoid months of negative cash flow
Maintain complete control throughout the sales process
You will only have to show your home to potential buyers for two days, Saturday and
Sunday. This lets you spend extra time and effort putting your home in the best
possible shape.
The price you decide to accept is determined by the bidding process. I will show you
exactly how this works. The specific terms of the sale are negotiated between you
and the winning bidder.
The 9 Day Plan
Here is Richard’s plan, broken down into three stages and the main action steps in
each stage:
A.
Preparation and Planning
1.
Let the free market determine the value of your property.
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B.
C.
2.
Decide when to sell.
3.
Get legal advice.
4.
Gather information on your home, neighborhood and market.
5.
Determine the lowest asking price possible.
6.
Prepare your detailed information kit.
7.
Write the most responsive, compelling ads.
8.
Get your home in perfect condition.
The 9-Day Sales Process
1.
Place your ads.
2.
Handle the responses.
3.
Conduct your open house.
4.
Accept bids.
5.
Conclude the bidding process.
Completing The Sale
1.
Make it legal.
2.
Collect your check!
Now lets cover each of these action steps in detail.
Preparation and Planning.
Let the free market determine the value of your property.
You want the best price for your property. By using this plan you will get the best
possible price as determined by the active buyers on the weekend you sell your
home.
The value of your home is what another person is willing to pay. It doesn’t matter
how much you paid for the property, what you need, or what you want.
In an inflationary economy, prices rise. Therefore, you may be able to wait for your
price. In a deflationary economy, you risk price depreciation and waiting may cost
you potential profits.
I am no financial expert . . . but . . . I stay in touch with several top market experts
around the world. It is my belief that we are in, or entering, a deflationary period.
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I personally do not want to own real estate at this time except in some very specific
markets, and only to own for the long-term. For example, I am planning to buy
several acres in the Colorado Rockies and build a custom home.
Gather information on your home, neighborhood and market
Use my information package as a guide to the type of information you want to share
with prospective buyers. It has been supplied with this report.
Think of all the reasons why someone should buy your home . . . for their benefit.
Put this information in your package. Think of all the things you would like to know
about a property before you would buy it yourself.
Determine the lowest asking price possible.
In order to attract the largest pool of buyers, you want to price my home as low as
possible. You want as many buyers bidding on your home as possible.
Most people, when they sell conventionally, overprice their property expecting to
negotiate. Due to this practice, sellers typically get 5% - 10% less than their asking
price.
Our approach is completely different. We want to attract lots of buyers with a low
price and then let them bid it up to the fair market value. Your ads need to attract
buyers who are actively seeking to purchase a home in your price range and area.
With enough buyers you will get the fair market value because these buyers are the
market.
Make your home the best deal on the market. Out of all the similar homes on the
market, make your home the next one to be sold. Do this by pricing your home
10% below the comparable homes on the market.
You can afford to do this because:
1.
You are saving 6% sales commission by selling it yourself.
2.
You could expect to get 5% less if you priced your home conventionally.
There is another key to pricing your home to attract the most buyers. It is called
price points. Buyers search for homes in a price range. The lower your price range
the more potential buyers.
The spread of price points is roughly 25%. For example: $200,000 - $250,000, or
$100,000 - $125,000, etc.
Buyers will consider homes that are priced 12.5% more or 12.5% less than they
think they can afford. You want to drop the price of your home if it will get it below
the next price point.
For example, if the market value of the home is $145,000. A 10% reduction would
be $130,500. Dropping down $5,600 would put you below $125,000. That would
allow you to be within the $100,000 – $124,900 price range. That will allow you to
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attract more buyers willing to spend between $109,000 ($12.5% less) and $156,000
(12.5% more).
The key is to attract a lot of visitors. This means marketing is the key as described
in Chapter 2. Experience indicates that if you can get 25 people in the house, you
will have 2-3 serious buyers and there is a good chance you will get the house bid up
to the market value when you follow the procedure laid out here.
Besides price, there is another reason why people will be attracted to your sale—
Greed, one of the most powerful emotions. Buyers and investors interested in
“making a killing” will take a look because of the “highest bid” sales process. They
hope you’ll settle for a ridiculously low price. That is fine. Here’s why.
You’re completely control the selling process. You are offering to sell for the highest
“reasonable” offer. This is for your protection. YOU determine what is reasonable.
Callers may ask you what you mean by reasonable. Your answer can be simple and
honest:
“We will sell our home for our asking price. We are hoping to get more because we
believe our home is worth much more than $[asking price]. We are also willing to
take less . . . but we can’t say how low.
We need to sell quickly but of course we can’t sell for less than the $[a number close
to what you owe or at least below the asking price] we owe the bank.
The truth is, we won’t know how low we’re willing to go until we know what the best
offer is on Sunday night after the bidding.”
So nobody is going to steal your home for a ridiculously low price. No matter what
the highest bid turns out to be, you are not obligated to sell until you sign a legal
contract. You’ll be sharing this information with your bidders. It will be spelled out
in the “How to Bid” section of your information kit.
Consult your attorney about this if you hire one.
Prepare your detailed information kit.
You want people to see your home and decide to buy it in one or two days. For
many people this is too fast. They need to think, discuss, look around, and do some
research.
With this plan, they don’t have much time to do research. And if they are pressured
or feel uncomfortable, they will shop elsewhere.
Therefore, provide as much factual, relevant and useful information you can. A good
rule of thumb is anything):
a.
You personally would want to know, if you were buying a home;
b.
Others might want to know;
c.
Made the home more attractive or desirable.
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Most homes on the resale market even if they are multimillion-dollar homes are
marketed using a one or two-page fact sheet. This is surprising.
Write the most responsive ads you can.
The Bill Efros’ book said all that you need is a classified ad run in the local paper for
5 days.
***Note that the premise of this book is Selling Houses in a Slow Market by focusing
on multiple and effective strategies. You want this to work the first time and you
should not trust that only a classified ad would do the trick.
Richard recommends a display ad in the newspaper. We would add that a display in
a more local publication would provide more bang for your buck. However, you do
want to run it on the Sunday before and on the Sunday of your open house. You will
have to balance the publication schedule of the paper with your selling deadlines.
Another effective strategy is a flyer distribution or post card mailing to the
surrounding area. In some areas we have heard that flyers work great (you will
have to factor in the cost of printing and finding someone reliable to distribute
them—the local high school may get bored after while and dump the remainder of
your flyers in the dumpster). In other areas, flyers may not be very effective.
Post card mailings are of course done by the post office, and you can get the printing
and delivery to the post office handled a mail house operation in your area. It’s
definitely less time, more reliable, and not much greater cost.
And of course, you should definitely email and/or voice broadcast to your buyers
list—especially those who have expressed an interest in that kind of house, price
range or area. You can even mention that you are making a special effort to contact
them because they are on your VIP buyers list.
Ask for an RSVP – to a voice answering system or by email (to an auto respondersee Chapter 3). This way you will know how many prospects have responded. If
your response is too low, you might consider postponing the open house.
Write your ads & do your marketing
Write your ad. Run it on Sunday, Wednesday through Saturday and then on Sunday
again. A good template for the ad can be found in the materials at the end of the
chapter (for more information, click here - http://investorwealth.com/richardodessey/marketing-toolkit-upgrade.htm). One little trick in placing ads: call up the
newspaper as if you were a homeowner (not a business). For some papers the rates
are much lower for homeowners.
Be sure to submit your ad with enough time to get back the proof and check it
carefully. You’d be surprised how often the price, address, phone # or other key
piece of information is in error.
Include only the important features in your ad. Remember it is designed to get
someone to call for more information, not to sell you home. Use only easily
understood abbreviations. Make every word count.
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Get your house in perfect condition
A big advantage you enjoyed with this plan is that you only have to spend a limited
amount of time over 2 days to get your house sold. So it is worth spending the extra
effort and dollars making the home as inviting as possible.
You should follow our suggestions in at the beginning of this chapter on staging your
house.
Here is Richard’s list of things he does put the home in the best shape.
Clean the carpet professionally
Make sure the house is spotless
Wash all the windows
Paint and repair cracks, marks and scratches on the walls.
Complete any repairs needed.
Buy a new doormat.
Have the exterior of our house, sidewalks, deck and driveway cleaned with highpressure water jets.
Clean and decorate the bathrooms
Make the yard attractive
Handle the responses
Give the callers the information they need. You will get a better response taking the
calls personally, but this can get pretty time consuming and distracting, which is a
lifestyle we are trying to avoid.
Unless you have a sales person working for your company, you might want to
consider driving callers to a voice mailbox on which a recorded message answers
most of the FAQ’s. Or put the URL in your email to drive them to your website to
give them information, pictures, etc. or better have them respond to an auto
responder which will keep in touch with them automatically and provide them with
information and incentive (see Chapters 3&4)
If you are using voicemail you can program the initial response to be the “Quick
Description” of your information package. Then ask, “Would you like to hear more?”
At this point, you can direct them to a different box number that “Detailed
Description” and answers additional FAQ’s.
You may want to take calls personally at first to understand what questions your
callers most likely have. Or you can start with the list in Richard’s package. Be sure
this information is included somewhere in your package before you hold your open
house and inspection.
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Conduct your open house
Don’t let anyone pre-inspect your home. You can let them drive buy, if they wish,
but don’t let anyone in your home. You want everyone to have an equal opportunity
to buy your home.
You also build up excitement and maximize the number of people in the room if you
don’t let them in beforehand.
It is up to you if you want to make a special exception to this rule. For example,
Richard offered to let a couple come late Friday night because the husband was
flying out of town on Saturday morning. He and his wife could work out an offer
over the phone and he could communicate with her during the final bidding.
Explained that you are making an exception to the rules only because of their special
circumstance.
It turned out that he changed his travel plans and attended the open house after all
and was one of my bidders.
Richard holds his inspections from 9:00 AM to 5:00 PM on Saturday and Sunday. We
prefer to narrow the time window. This will build the crowd in your house, and
create a sense of urgency that could lead to a feeding frenzy. So we prefer to limit
the Open House to 2hrs (e.g. 1-3pm), and in fact restrict it to one day (e.g.
Sunday).
Will some people not be able to make it? Yes, probably. The ones who really want a
house like yours, though will probably do everything they can to contact you to try to
get an exception like we mentioned above. Then you control how to handle it.
Place Your Signs
Again, Signs are Key in selling houses fast. Your home should always have multiple
signs on the front lawn (and in the windows, if the upscale neighborhood has rules
about it). For open houses you can get away with almost anything as long as you
restrict your signage to Friday evening through Sunday.
So, Friday night place you open house signs. Post signs at every corner on the way
to your house from the major thoroughfares.
The purpose a sign, like any other marketing is to get noticed and read. Pretty is not
the object. Richard’s signs were painted yellow with black lettering for maximum
visibility. He used some old plywood crates to construct signs.
The lesson is the more homemade and gaudy a sign looks, the more effective it will
be. You can have these type of signs made for you on corrugated plastic and metal
stands. They also work. We have toyed with the idea of making a hand-painted
lettering for a sign and then having in printed like that so you avoid to time in
creating a lot of sign and you get the home-made look.
You can also hire someone to post notices on shopping center bulletin boards. The
notice should consist of several color photocopies of the house and a photocopy of
the newspaper display ad.
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Saturday morning drive around to make sure all the signs are still in place. We have
discovered that there are people in this world seem to get their kicks tearing down
signs. Because signs are so effective it is worth your effort or someone you hire to
check that they stay up for your event.
At the house
Greet each visitor. Each guest should be given an information package or have them
prominently displayed on the kitchen counter. Richard offers to show them around
but lest them look on their own if they want. We think that people can figure out
what a bedroom and kitchen is, and look on their own. You or your associates can
answer questions when they have them.
Get some friends and family members lined up to handle answering questions. You
or your sales person should be in charge of explaining the bidding and taking the
bids.
Accept bids
Prepare a sheet to record bids. Only accept bids on the day of the open house. Ask
everyone if they would like to make a bid after they look around. Explain that they
must make a bid, any bid, to be included in the final round-robin bidding process on
Sunday night.
Keep the list of bids handy and show it to anyone interested. The bidding will be
open. Sealed bidding is not to your advantage and does not support the nature of
your sale.
Record all bids. You can tell people who do not know what to offer to bid $1. They
will then be called and be able to make a legitimate offer after the first round of the
bidding process.
Let people call back later with a bid. But only after they have received your
information package, which explains the sales process. Let people call until the end
of your open house, 5:00 PM on Sunday.
Don’t accept crazy bids. If someone says they will give you $30,000 more than your
best bid if you accept it right then, don’t do it. The advantage of holding the roundrobin bidding on Sunday night is that you have numerous bids spaced close together.
If your highest bidder, for any reason, has to back out, then you’ll have other buyers
lined up willing to pay slightly less.
Be sure every bidder understands the value of being the highest bidder going into
the round robin. They will be called first and will have the advantage of knowing
where all the other bids are. They can then increase their offer right from the start
in an attempt to scare off other bidders before the first round.
Read carefully, the details in the information package about the bidding process (for
more information, click here - http://investorwealth.com/richard-odessey/marketingtoolkit-upgrade.htm.). Customize the rules and procedures to fit your preferences.
It is your house and you control the process.
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Conclude the bidding process
At 7:00 PM (on the dot) call the highest bidder and describe the situation. Let him
or her know that he is the highest bid at $______.
Then call all the other bidders from the next highest to the lowest ($1 or more).
Go over the bidding rules and process with everyone so there are no
misunderstandings. Have a summary of the rules prepared and read it to each
caller. Do not assume people have read and understand everything in your package.
For example:
“I will be calling everyone until I have the highest bid. Each bid must be at least
$1000 higher than the previous bid. You must top the current bid to remain in the
bidding. Once you exit the bidding you can not come back in."
“If the highest bidder is unable to close on the deal (i.e., they can’t qualify for a
mortgage) then the second highest bidder will be offered the house. If they decline,
then the third highest bidder will be called. Only the top three bidders will be called.
“If you are the highest bidder then we will get together tomorrow and draw up the
contract to make it legal.”
“Do you have any questions?”
“The current bid is $______. Would you like to raise it?”
Half the bidders may drop out after the first round.
It can take a couple of hours until you have your highest bid.
Often, that is all you need to do. You call back the highest bidder and inform them
of they’re good fortune and arrange to meet the very next day to Ok the paperwork
and put down an earnest money deposit. Remember, you don’t have a deal until the
contract is signed and the money is exchanged. (Then you have to get your buyer
approved—see Chapter 7).
What if the highest bid is not what you want? You have a choice. Is it worth, readvertising the house, going through another open house campaign or trying other
means. Remember, if you have had sufficient number of buyers going through the
house, the market has spoken! The likelihood of getting a cash buyer at a higher
price is smaller, and you may have to wait quite a bit longer to find that buyer.
Another gambit you can try if you are really determined not to accept the highest
bid, you can call your highest bidder that you couldn’t sell at his offer. It is not
reasonable. Give them the reasons and tell him you could not go below $[your close
to bottom line price]. Indicate (and mean it) that you would rather try to sell it
again than to take less.
They may reconsider (especially if you price is still below what you have researched
as the market value). They may call back and offer a higher price.
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What about your other bidders
Do not disregard your other bidders. Your top bidder may not show up Monday
morning with the funds (only take cash or certified funds), or may back out or start
delaying. You should call back the next lowest bidder and let them know that the
highest bidder has dropped out and negotiate the price.
Use this technique for Lease Options and Owner Financing
Most investors have used this round robin bidding system to sell houses
conventionally to buyers who will go get a loan and cash them out. However, this
system also works for lease options and owner financing.
For a lease option, what you have your prospects bidding on is not the price, but the
Option Deposit. You may get more than you expect!
Similarly with owner financing you may have people bidding on the down payment.
If you don’t get enough, you can drop back to a lease option offer.
Collect your check!
If your buyer is getting a loan, you need to stay on top of process and work with
broker as we explain in Chapter 7. Then show up at the closing a check for all your
equity! If you are doing owner financing, you can collect your check the very next
day after getting all the paperwork signed.
We would suggest that this be done with an attorney. Even though you can do it
yourself if you have the proper paperwork (see Lou Brown’s Buy, Sell, Hold - for
more information click here (http://investorwealth.com/loubrown/volume1and2.htm), it is worth the small extra fee to have an attorney do it,
because it gives you a much stronger case if anything goes sour and you have to go
to court.
The One Weekend Sale
When you are selling a house with terms you can use a simple variation on the 9-day
plan.
In the Round Robin system, you don’t have to fix up the house, except to clean it,
and haul off the trash.
Then you offer the house as is and let the visitors to the open house put a bid in on 4
things:
What they’ll pay for the house
What’s the most they’ll put down for a deposit?
What’s the maximum monthly they want to pay?
When they want to move in
We tell them, we are going to take the best offer. It may not be the highest offer,
but it will be the best reasonable offer this weekend.
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You drive people to the house as described above with street signs, ads and flyers.
Send people by the house, the week prior to the open house (e.g. from about Weds
– 10 d before the open house). But nobody gets a chance to see the inside of the
house until you are there at the open house.
Put up a box in the yard with flyers, that the prospects can take, and tell them to
come back on Saturday for the open house.
The open house is only held for only 1 hour on Saturday. That will definitely create a
sense of urgency. It has worked perfectly.
At the time of the open house, collect
The Bottom Line: Selling Fast with an Open House
If you are looking for a cash buyer and you are happy getting market value for your
house (and you should be buying right so that market value in cash would be a great
exit strategy), then the 9 Day Round Robin Plan is what you should try.
Remember the Key Elements:
Use effective marketing strategies to drive prospects to the house
Stage the house inside and out to look great (appeal to the emotions)
Provide the potential buyer with all the information they would need to make a
decision
Limit the time of the open house to create a crowd and a sense of urgency.
Use the open bidding/round robin method to obtain the highest reasonable offer.
With enough people in the room, it is highly likely you will get what the “market”
thinks your house is worth.
When selling on terms, Richard Roop’s 1-hour open house has been very effective.
You would follow all of the steps above, except that the house does not have to be
gorgeous (it wouldn’t hurt), and
Instead of open bidding, will take bids on the four areas of price, down payment,
monthly payment and move-in. Then sequentially negotiate with the buyers for the
best reasonable offer.
Resources
1. Sell your House in 9 Days – Book going over all the details of doing round
robin auctions. (http://www.investorwealth.com/richard-roop/index.htm)
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5. The best paperwork for Selling Houses fast that we’ve ever seen. We’ve used
it for years and continue to use it. It’s stood the test of time and court cases.
Highly recommended –to find out more click here
(http://www.investorwealth.com/lou-brown/index.htm)
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Chapter 6: Negotiating with the Buyer
As I mentioned in Chapter 1, most people like to feel they’re getting a good deal. It
actually helps them make the decision to buy. This is usually accomplished by
negotiation. When negotiating with a prospective buyer, think of it as part of your
sales and marketing strategy.
And remember there are lots of things you can negotiate beside price. There’s down
payment and terms, if you are doing owner financing (see below). There are
freebies like paying the homeowner association dues for a year, lawn care or lawn
treatment after move in, a free refrigerator. You can offer to pay some or all of the
closing costs. You could give them a house warming gift, etc.
The Price
The game of selling your house always involves the buyer trying to get the lowest
price, and the seller wanting the highest price.
The truth is that 95 times out of hundred you are never going to get more than the
market value for your house—period. If you raise the price to give yourself a little
negotiating room, you are probably just going to wait longer for your house to sell.
First, make sure you actually know what houses are selling for in your neighborhood.
Also, find out how long they stay on the market. Be careful about asking a realtor
for this information.
Realtors usually quote homeowners a high price because they want to get the listing.
The truth is, one realtor can’t sell your home for any higher price than any other
realtor. The price is determined by what the current pool of buyers is willing to pay.
All a realtor can do is bring many willing buyers to your door, so you can get a sale
faster. So, if you speak to a realtor, ask them what price would get your house sold
in 30 days. And ask them to show you the comps, (prices of other recently sold
homes), that they based their opinion on. [Note that comps should be homes similar
to yours that have sold within the last 6 months, and within ½ mile of where your
home is).
Now, you have a decision to make. If your only consideration is getting the highest
price, no matter how long it takes, then set your price at about 5% above the
market value.
However, if you need to move, and want the house to sell quicker than the average
time on the market in your neighborhood, lower your price to the level that the
quicker moving homes sold for.
Of course, if you use the round robin technique, you will get your house sold in 10
days—but it may be a little lower than market value (or not).
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The Terms
The price is not the only consideration in selling a home. Other terms of the
transaction are also important for your aggravation level, and ultimately your cost.
For example:
•
•
•
•
•
•
When can they close? There is no reason why a loan can’t be closed within
30 days. This is something you can insist on. Make sure there is a possibility
they can get a loan – e.g. they’re pre-qualified with a lender (or use one of
the strategies in the next chapter).
Contingencies – there should be any contingencies. The most pernicious one
and the most common is the financing contingency that says, if you’re buyer
is not approved by the lender, they can get their earnest money back and
walk away. If they don’t think they can be approved, why should you sign a
contract with them to buy your house? Here’s a thought. If you feel forced
to agree to the contingency, make them agree to owner financing on your
terms if their loan is not approved (see below).
Closing costs – conventionally the buyer and seller split closing costs, but this
does not have to be so. In exchange for lowering your price (for example),
ask that the buyer pay All closing costs (and no contingencies).
Inspection – stuff inspectors find has deep-sixed more single-family home
closings than anything else (except financing). Put a clause in your contract
that says the buyer must go through with the deal no matter what the
inspector finds. (Click here for a list of investor friendly contract addenda http://investorwealth.com/richard-odessey/realtor.htm).
Closing date – most contracts say “on or before” a certain date. But what
happens if there’s a delay? Nothing-you can void the contract. Or you can
put a contingency in your contract that makes the buyer pay a daily amount
to extend the closing for a period of time.
Earnest money – most times it’s $500 or less. Why? If the buyer backs out
of the deal, you have at least one more mortgage payment to pay, and you
have to start looking for a buyer all over again. We suggest the earnest
money should be at least 1.5-2 x your mortgage payment.
You can get a whole list of clauses you can put as an addenda to any contract
(realtor or otherwise), that will bullet proof the transaction in your favor (click here http://investorwealth.com/richard-odessey/realtor.htm).
Give Aways
Give-ways are items with a high-perceived value. They have a high perceived value
because it is something that the buyer would like to have, but is reluctant to spend
the money to get.
Sometimes you may be able to get some of these items for free (e.g., a nice rug,
lawn equipment, or a patio set left by the previous owner), or you may have to pay
for them. If you’re paying for them, it is a simple cost benefit equation. If a seller
wants $5,000 off the price, and you offer a new refrigerator, or a paid homeowner
association dues for a year, or even a wide screen TV, a year’s Tivo service, who
comes out ahead. If the answer is you, then it’s a good negotiating ploy.
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The most effective use of this strategy is when you can actually get to know a little
bit about your buyer. They may have specific hot buttons that cost you little but
have a high value to them.
Resources
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Chapter 7: Closing for Cash
Mortgage Brokers and Institutional Lenders
We interviewed a lender Jeannie Ruotanen to give us the scoop on the latest trends
in lending, especially to buyers with damaged credit. These FAQ’s contain some real
nuggets for working with your buyer and your lender. You should have one or more
lenders on your team.
What factors affect whether or not a buyer can obtain a mortgage loan?
A mortgage approval is based upon an evaluation of several layered risks. Imagine
the buyer is a chair with four legs. One wobbly leg, and the chair may still stand.
Two wobbly legs and the risk the chair won’t stand is greater. Three wobbly legs and
sitting in the chair is a recipe for disaster. The buyers “legs” are:
• Credit history: Reflects the buyer’s consistent ability and willingness to
repay a debt as agreed.
• Job history: Reflects the stability of gainful verifiable employment.
• Income to Debt ratios:- Reflects ability to afford mortgage payments &
dictates how much home the buyer can realistically afford
• Down payment/Equity in the deal: Greater equity in a deal reduces the
risk that the buyer will “walk away” from the deal when the going gets
tough.
Looking at recent trends, what is the single greatest factor that has enabled
first time homebuyers to get into homes?
The increased popularity of down payment assistance programs allows a
purchaser to close a home loan with very little of their own money in the deal. In a
nutshell conventional loan programs allow only a minimum amount of “seller”
enticements and specifically prohibits the seller from contributing the down payment.
Both FHA and conventional loans allow for a portion of the down payment to be a
“gift”. The “gift” may come from a family member or a non-profit agency. If the
seller is willing to contribute to a non-profit agency, the agency is then willing to
“gift” funds in the name of the buyer to be applied towards the buyer’s down
payment. The non-profit agency does charge a nominal fee to offset the cost of
doing business.
Typically the seller will agree to a donation of 3.5% of the sales price. The funding
fee is 0.5% and 3% is the “gift” amount. The seller does not have to come out of
pocket since the funds are distributed by the closing attorney, to the non-profit
agency from the seller’s proceeds at closing. Your mortgage lender professional
should be well versed in the various down payment assistance programs prevalent in
your area and should guide you through this simple process.
Some of the popular programs are called: Nehemiah, Ameridream, and
Neighborhood Gold.
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80/20 Loans
With 80/20 loans the borrower will obtain an 80% LTV 1st mortgage loan from a
lender, and at the same time, the same lender will create a 20% 2nd mortgage loan
to cover the balance of the purchase price.
This means the borrower can get in for zero down payment. In addition, since the
1st mortgage is only 80% of the purchase price, there is no additional cost to the
borrower for PMI (mortgage insurance – this insurance only protects the lender
against loss, even though it’s the borrower who pays it!).
This loan is suited for borrowers with little cash but good credit.
Stated Income Loans
A stated income loan means what it says—the borrower applying for the loan only
need state his or her income, and does not need to provide tax returns and pay
stubs to verify it.
This product works well for individuals who may own businesses where income may
be shielded for tax considerations. Of course, for the lender to overlook income
verification, other factors such as credit history become more important in getting
approved.
Adjustable Rate Loans (ARM’s)
This is a great invention for home sellers. It allows the buyer, to get into a loan at a
very low interest rate (often below prime). This means that people with limited
income can afford more house. And therefore, it expands the population able to buy
your home.
The downside is for the buyer. The lowest rate ARM’s are fixed for a short period of
time (e.g. 1-2 years). After that they start adjusting upward quite rapidly. If at this
time, the homeowner is unable to refinance, and whose income hasn’t increased to
afford the higher monthly payments—foreclosure or bankruptcy are the most
common outcomes.
This has led to a virtual epidemic of foreclosures in many parts of the U.S.
What are the options for buyers with less than perfect credit?
The minimum “credit score” for a conventional loan is 620 with no late pays in two
years. An FHA loan does NOT have minimum score and is NOT score driven.
An FHA loan requires the borrower to be clean without late pays for a period of only
one year. Because there is no minimum score, an isolated incident or short period of
slow pay history may be offset with adequate explanation or documentation. An FHA
loan is also more forgiving in the debt to income ratios. FHA loans require that the
borrower is not in default on any government loan, such as student loans or back
taxes.
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While FHA interest rates are priced 1/8 to1/4 of a point higher than a conventional
loans, the mortgage insurance is priced less, making an FHA loan a great alternative
for credit this less than perfect.
Serious credit issues may require the buyer to obtain a non-conforming loan. These
loans are often referred to as “B/C” loans or “sub-prime” loans. Because the risk of
default in far greater for these applicants, these loans are typically at a higher
interest rate. In addition a greater down payment is usually required.
An additional consideration is that the house has to meet FHA inspection guidelines.
To do so, may necessitate some repairs on the part of the homeowner before the
loan is approved.
How bad can a buyers credit be and still get some kind of loan?
In all honesty…pretty bad. Once again if they are willing to put a substantial amount
of their own money into the deal and be willing to pay higher closing costs/ points/
and or interest rates.
Some credit infractions are considered the “kiss of death” and are difficult to
overcome. A recent foreclosure is a certain indication to a lender of a poor credit
risk. A recent repossession is also considered a serious infraction.
What are the 3 most important things a buyer can do to improve his chances
of getting a loan?
Other than the obvious answer of paying their bills on time, many things can
improve their chances of getting a loan such as:
•
Participation in a company sponsored savings plan such as a 401k
demonstrates a willingness to save. Even if the actual dollar amount is
minimal, underwriters look favorably on any savings plan. A company
sponsored payroll plan is automatic, easy, and pre-tax dollars!
•
Don’t let any ONE bill go 30 days late. Remember that credit granters report
to the credit bureau when I bill gets to the 30-day status… not when they
charge you a late charge. Often when things get tight, a buyer will decide to
simply let the department store charge card go unpaid a few months. It is
far better to pay all bills slightly late than let any ONE bill go very late!
•
Don’t buy a new car, change jobs, open new charge accounts, or rock the
boat in any way until your loan is closed!
What about “credit restoration”?
BE VERY CAREFUL! Some of these programs are very little help to the participant.
There are some legitimate good programs out there (one of which we will discuss
below) but you must be aware of the pitfalls.
“Credit Counseling” programs are viewed negatively in the eyes of most lenders,
even if your participation is voluntary! They are helpful to assist you in your money
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management and to negotiate your balances. A lender will view the program in a
more favorable light after you have been in the program for about 18 months with
no late pays.
[There are a lot of scams out there. However, if you are in a lease-option or ownerfinancing situation, and want to get cashed out, you would be well served to work
with your tenant to get them able to be approved.
Best way to do this is a 2-pronged approach:
1.
Education: Raise their awareness of how to manage their money and
make choices that don’t put them further into debt, and do budget their
spending (Come to think of it, most of us could improve in those areas].
2.
Actively work on removing the blemishes on their Credit Report.
We know of only one “credit restoration” program, that we unreservedly recommend.
In fact, my wife Michelle & I are clients. I’m impressed with this program for the
following reasons:
1) They have an extensive track record of success with individuals who have
many inquiries, or derogatories such as late pays, liens, judgments, charge
offs, etc.
2) The program is passive. The only thing an individual has to do is mail in
the credit reports they receive.
3) After about a year, they can often boost an individual’s credit score 100200 points or more! That’s usually enough to qualify someone (credit-wise)
for any of the loan programs we discussed above.
In fact, there are lots of good reasons for you to become a client. Why? Because it
will increase the amount of money you keep in your pocket every month.
How? Having a higher credit score (very significantly higher) can reduce the interest
you pay on all your debts. This includes your mortgage, car loans and credit cards.
For example,
•
•
•
on a $200,000 mortgage your monthly payment could be $xxx less. That’s
the same as $xxx more income.
Credit cards – have you looked at your finance charge lately. If you’re like
most folks, it’s in the 20-30% range. If you have a $20,000 credit card debt,
a higher credit score could reduce your payments as much as $250/mo.
Buying a new home or a 2nd home? With a higher credit score you may qualify
for a low- or no-down payment loan or a stated income loan.
To find out more about this credit-boosting program that we recommend click here http://investorwealth.com/tracy-ballard/credit-repair-for-real-estate-investors.htm.
What should an investor who needs to sell fast, look for when choosing a
lender?
The choice of your lender and mortgage broker is critical!
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A good mortgage broker will have available a wide variety of loan programs. Make
sure when interviewing brokers that you ask them:
•
•
•
What programs they have for B/C credit borrowers. What success have they
had in getting these borrowers funded. Where are the challenges.
What programs do they have for people with no down payment. What are the
requirements for them to be funded.
If you choose to work through them, are they committed to attending your
open houses and pre-qualify prospective buyers, and keep you “up to date”
and “in the loop”, during the underwriting process (this is key—you should be
the 1st to find out if the loan is not going to go through.)
A good lender will return your calls promptly and complete a preliminary prequalification on your potential buyers. Most lenders do not charge to pre-qualify and
consider the service an investment in a long-term business relationship. The lender
will draw on his/her experience and offer an educated guess as to the feasibility of
the applicant obtaining a mortgage loan. Remember this preliminary assessment is
based on a credit report and the buyer’s unsubstantiated statements.
Choosing a lender that is both a mortgage banker and a mortgage broker is the best
of both worlds. If your lender is a banker and a broker, who can offer both Fannie
Mae and Freddie Mac loans, in addition to FHA and VA, you have the benefit of “one
stop shopping” at your fingertips. A mortgage banker can close loans in their own
name for popular loans. This allows for a faster, more controlled closing. A mortgage
broker has access to a wide variety of loan products and can shop around for that
special “niche” product. Brokered loans have the potential for more errors due to
adding a middleman. A brokered loan will typically take longer to close.
A BANK is usually the least competitive lender. Mortgage loans are not their primary
business and most mortgage loans are originated within banks due to the
convenience factor.
Another important aspect is choosing a lender that has their loan officers,
processors, underwriters and closers all in the same building. E-mails and courier
packages cannot take the place of the added control you gain when the process
takes place in one location.
A good lender will not keep you waiting on an approval or denial decision. Under
normal circumstances, two weeks is a reasonable time frame for a clear- to- close.
While no lender wants to, rush to judgment and deny a loan that may be possible,
you as an investor will lose money if you hold homes off the market waiting on an
answer from an unresponsive lender.
How can the investor and lender work together to get the loan approved
and the home sold?
Encourage your potential buyer to be upfront and honest with the lender. The loan
officer’s job is to obtain a mortgage loan on their behalf. Many issues can be worked
around, if the loan officer knows exactly what they are dealing with. Nothing is more
frustrating to the seller and the loan officer than to discover a misrepresentation the
day of closing! Ask your buyers to confide in their loan officer and be responsive to
any documentation requested.
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While you and your lender must work together and communicate, the lender
operates under privacy and fair credit restrictions. A professional loan officer will
make you aware of delays but may not discuss details of the loan transaction.
If you want to close quickly, staying in communication with the lender and the buyer
is key. Do not take anything for granted. If the loan is not approved in that 2-week
timeframe—find out why. Often your borrower is not getting the paperwork back to
the lender. And please note—the lender will not start the underwriting process until
all the paperwork they request is in their hands. If you don’t want unexpected
surprises (which will always cost you time and money), make sure the buyer
understands what the broker wants and actually gets it to them. Make sure you
know what the broker is requesting and why.]
Grants
There are an awful lot of government grants and loan guarantee programs for
individuals wanting to buy a house. They range from loans that are government
insured, reduced cost, interest rate or payments or actual cash gifts to purchase
property (for qualifying individuals).
•
•
•
•
•
•
•
For example, teachers and police may be eligible to buy a home from HUD at
50% of the listed value. And they may receive a mortgage with only $100
down.
Ameridream will provide actual cash down payment assistance to qualifying
1st-time homebuyers.
Loans for homebuyers willing to rehabilitate the property (qualifications on
the homebuyer and type of property)
Mortgage insurance for low- and moderate income buyers – low down
payment requirements and may include some closing costs in the loan
Mortgage insurance for members of the armed services – same as above
Growing Equity Mortgage insurance – allows for initially low payments that
only escalate when the value of the home appreciates. Helps young families
with limited income get into a home.
To find out more, click here - http://investorwealth.com/chrisjohnson/homestudy.htm.
If you want to take advantage of these programs as a home seller, you’ll need to
take an active roll in learning about the qualifications and terms of these programs,
and then specifically seek out individuals who qualify. The most straightforward way
is with a specific newspaper ad. For example: “Special Deal for Military Families” or
“Teachers—no down payment”
Cash out Owner Financing (Simultaneous Closing)
It’s a common occurrence that many individuals that would like to buy your home
simply can’t qualify for a mortgage from a bank or other institutional lender. You
may be able to solve the problem with one of the strategies mentioned above, but
you may not.
Don’t despair, we have a few more tricks up our sleeve. A powerful method is using
owner financing. This means that you lend your buyer the “funds” to purchase your
property.
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The advantage of owner financing is that you’ve opened the door to a huge number
of people who can now “qualify” to purchase your house. I guarantee you will get a
far larger response to your ads and signs if you advertise “Owner will Finance”.
In a slow market, this means you will make a quicker sale. Instead of remaining on
the market 6-9 months (with you making possibly 2 mortgage payments), you might
have the house sold and closed in 3 months or even less! This can be not only a big
financial benefit, it can also be an enormous stress reducer. It’s worth learn how to
do it.
What you are doing is creating a “wrap-around” mortgage—meaning your underlying
loan still exists and must continue to be paid, while your borrower makes monthly
payments to you on the note he or she signed.
For example, you own a house worth $150,000 that has a mortgage balance of
$120,000. Your payments are $800/mo (principal & interest). You sell your home
for $160,000 (yes, you can sell it for whatever you and the buyer agree to). Your
buyer puts down $16,000 as a down payment, and you create a note from him to
you for $146,000 @ 10% interest for a monthly payment of $1256.
From this transaction, you net $16,000 in cash, and have a positive monthly
cashflow of $456. Now, that’s great as long as you don’t mind continuing to pay
your mortgage, and making sure your borrower makes his monthly payments on
time.
If your borrower stops paying, you will have to go through the foreclosure process
(which will take 3-20 months) to get your home back, and you’ll have to continue to
pay your old mortgage during that time.
Suppose you don’t want the hassle or the risk. Here’s the alternative: Sell your
note. That’s right, you can do what all the banks do. You can sell your mortgage
note for cash. (and as I’ll discuss below, you can do it at the same time you close on
the sale.) This is called a simultaneous closing.
There are note buyers who will pay you anywhere from 80% to 95% of the balance
of your note in cash. In the example above, let’s say the note buyer offered to pay
you about 92% for your note at closing. Therefore at closing you would receive:
$ 16,000 (the down payment),
+ $134,000 (from the note buyer [92% of $146,000])
- $120,000 (owed on your mortgage)
$ 30,000 net to you
You would walk away from closing with:
• $30,000 in cash (less some closing costs)
• No mortgage debt on your old house
• No hassle collecting payments or the risk of having to foreclose.
Compare this to a conventional sale. Your probably going to make some concessions
to the buyer-say a 3% discount under market. And you’re going to have to pay your
realtor’s commission of 6%.
$ 145,500 (the selling price = $150,000 less 3%),
- $ 9,000 (Realtor commission of 6%)
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- $120,000 (owed on your mortgage)
$ 16,500 net to you
In this example, you almost double the amount of cash with the owner financing
option, and you sold your house a lot quicker.
How to Cash Out Owner Finance
The most important aspect of doing owner financing is the paperwork. Consider, all
you will have (or will sell) is paper that gives the note holder the right to collect
monthly payments from the borrower until the amount owed is satisfied. It is a legal
document that can be enforced in a court of law.
Therefore it is extremely important that the note and security deed (the document
that is filed on the public record) be legally correct and give the note holder all
possible remedies for collecting the debt including penalties, interest, collection and
prosecution cost recovery, and foreclosure, to name a few.
Don’t try to make one up yourself. Either get the forms from a real estate attorney
or you can get some battle-tested forms that we use (click here http://investorwealth.com/lou-brown/volume10-ownerfinance.htm).
The next consideration, especially if you wish to sell your note (or even if you don’t),
is to qualify your borrower. What this means is that you will want to know
everything about your borrower’s credit, employment, etc.—just like a bank would.
Now, you may not have the same standards for someone to “qualify” for your loan,
but you MUST get the information. Here’s the minimum list I recommend
• A mortgage 1003 (Fannie Mae) form – you can probably get this from your
friendly mortgage broker. I tells you all about your borrower’s financial
condition, and give you the right to pull his credit.
• A credit report – you may need a mortgage broker’s help to do this. If you
can’t get one—don’t worry. As long as you have a signed 1003, your note
buyer can pull credit. However, remember your buyer’s credit will affect the
price you can sell your note for.
• 2 years tax returns
• Latest 2 months bank statements
• Verification of Employment – another specific form verifying where and if the
borrower works
• Verification of Rent – verifies past rental history
• An insurance binder naming you as the co-insured
Yes, I know your anxious to get the house sold and get your cash, but do not
compromise on getting all this paperwork, and getting it filled out completely and
signed! Failure to do so will cost you dearly.
If you want to sell a note, or do a simultaneous closing click here (Also refer to
Resource #3 - http://buymyrealestatenote.com). If you want to learn more about
owner financing use this link (http://investorwealth.com/lou-brown/volume10ownerfinance.htm).
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Options
Options are really better for buyers than for sellers, but in some circumstances it
may be your best “option”. With an option, you grant the right to optionee (option
holder) to buy your house in return for a cash consideration.
The option, gives the holder the right, but not the obligation to buy your house. The
3 things that you can control (or negotiate) is the option period and the “strike price”
(the price that will be paid for the house if the option is exercised by the holder) and
option fee.
The advantage for the seller is that you have someone who may buy your house. If
they are serious, they will be out looking for a buyer to sell to at a higher price and
thereby make a profit.
Because of this, the option buyer (optionee) is going to want to negotiate a price
lower than the market value. If that will work for you, you will want to make sure
the option period is short (your house is being tied up). It can be for as short as a
month (or shorter) or as long as say 6 months. In any case, make sure your
agreement includes the right for you to find a buyer that you can sell to at any price
during the option period. The optionee may have the “right of 1st refusal” which will
allow the optionee to pay the price you agreed on with you new buyer and close on
the house.
The other consideration is the option fee. You will want it as high as possible. The
optionee will want it as low as possible. Remember, the option fee is nonrefundable. If the optionee does not exercise his option by the end of the option
period, you still keep the fee.
Converting Equity to Cash
If you’re needing to sell your home because you need the cash, there may be a
better way.
HELOC
If your home has equity (that is the difference between what the house is currently
worth, and what is owed on it), you can borrow against the equity. The best way to
do this is through a home-equity line of credit (HELOC).
With a HELOC, which you do have to qualify for, you may borrow up to 100% of the
value of your home. The beauty is three-fold.
(1) You have the ability to use up to the full amount of the equity line. But you
only pay interest on the amount of funds you actually borrow.
(2) Your monthly payments are interest only—no principal paydown, meaning the
payments are lower than what you would pay if you refinanced.
(3) Even if you don’t use the funds, the public record shows that there is no
equity on your house. This means potential creditors and lawsuits will be
discouraged from attacking you because you have fewer assets.
Using a HELOC is much better than refinancing (unless you can get far better rates
than you are currently paying), because
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(1) Your closing costs are low or non-existent,
(2) You only pay on what you actually use, and
(3) Your payments are interest only
Home Equity Conversion Mortgage
The home equity conversion mortgage is another government program that allows
older individuals to take out some or all of their equity in the form of monthly
payments or even one lump sum. It’s also popularly known as a “reverse
mortgage”.
It allows an older individual on a fixed income to remain in their house by using their
equity to pay their mortgage or daily living expenses.
Building up Your Equity
We’ve just described how you can convert your home equity into cash. But what if
you have little or no equity? Well, then you can create some.
The obvious way, which is what you are probably doing now whether you know it or
not, is making your monthly mortgage payments on time. Most folks have a
“conventional” mortgage on their home, meaning that their monthly payment on the
loan consists of interest and some principal. Every principal payment reduces the
amount you owe the lender.
The older the mortgage, the greater fraction of your payment is going toward
principle. You generally have to be about 1/3 into the amortization period (on a 30
yr mortgage – that’s 10 yrs) before principal reduction really starts to make a
difference. If you have a 15 yr mortgage, you hit that point in 5 yrs.
The second way for you to acquire equity is for the house to appreciate. That’s
great, but if you’re in a slow market, don’t hold your breath. It may be 5 to 10 years
before you start coming out of this phase of the cycle.
The 3rd way to create more equity which is actually offered by several lenders is to
pay one half your mortgage every 2 weeks, rather than every month. That way you
make 26 payments per year (about 1 additional monthly payment). That extra
monthly payment will knock off about 52 months (4.3 years) to completely pay off
your mortgage. If you started making 26 payments on day one on a $200,000
mortgage, after 10 years, you’d have almost $43,000 in equity vs. only about
$28,000 with the conventional payment schedule.
Still, that’s a long time to wait, and you still have to make an additional monthly
payment every year.
This is in fact a better way. You can pay off your entire mortgage debt in about 8
years, without taking one additional dime out of your pocket for your monthly
payments. I know this sounds incredible, but it’s mathematically true.
Here’s how it works. At the beginning of each month, you put your entire household
paycheck into paying down your mortgage. Then when bills come due or you want
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to make an investment or savings deposit, you withdraw the amount needed. Now,
because you made a big reduction in the principal at the beginning of the month, the
interest will be less, and in effect more of your monthly payment will go into
principal.
But, wait a minute. You can’t use your conventional mortgage like a checking
account, can you? Well, for most conventional mortgages your can’t. However, you
can do it with a HELOC (home equity line of credit).
With a HELOC, you can withdraw the entire amount, and use it to pay down the
principal on your first mortgage. Then use the method described to pay back the
HELOC.
To learn more about how you can pay off your entire mortgage in less than 10 years
with a Conventional mortgage or HELOC, click here (http://investorwealth.com/tjmarrs/homestudy.htm).
The Bottom Line: Cash from Creative Financing and Home Equity
Whew! There is quite a lot to digest in this chapter. Let’s summarize the basic
principles.
•
•
•
•
•
•
•
•
There are many conventional loan programs to get a buyer of your home
financed if they have either cash or credit. You can even make their down
payment out of your part of the sale in some cases.
The key to a successful conventional financing is to have a relationship and
stay in close touch your broker or lender. Stay in control of this process and
you’ll have a more successful and quicker sale.
Look or be aware of potential buyers that can qualify for government grants,
down payment assistance and loan guarantees. You’ll have these folks to
yourself.
A longer-term solution is to put your potential buyer into the credit-boosting
program we recommend. You’ll have to initially put the buyer in your home
with owner financing or lease option (see next chapter). However, there’s a
good chance that your buyer will be able to qualify for a conventional loan to
cash you out after a year. This credit-boosting program may be worthwhile
to you, in decreasing your interest expense and increasing the amount of
money you keep every month.
Offer owner financing and cash out with a simultaneous closing. With proper
attention to your paperwork and qualifying the buyer, you may end up with
as much cash as you would using a realtor. And you’ll sell your home a whole
lot sooner.
You can also option your home. This may be a way of increasing your chance
of a sale. As long as you protect your other possibilities, it can be worth a
shot.
Finally, you can obtain cash without selling your home by converting the
equity in your home to cash using a home equity line of credit (HELOC) or
Equity Conversion mortgage. We also described a method for rapidly paying
off your mortgage balance in 8 to 10 years.
As usual, you can find out more about all of these strategies by using the
links in the chapter, or the resource appendix at the end of the book.
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Resources
1. Boost your credit 100 points or more by working with professionals whose
methods have proven effective. No tricks, nothing illegal. How do I know it
works? Michelle and I have gotten over 100 point boosts in our credit scores
from this organization. And it has allowed us to get loans and $100,000’s in
lines of credit for our real estate investing. Click here to find out how
(http://www.investorwealth.com/tracy-ballard/credit-repair-for-real-estateinvestors.htm)
2. There really are government grants to help in purchasing real estate in the
form of lower down payments, lower interest rates, and loan guarantees. You
need to know which groups of your buyers they apply to, and how to show
your buyers how to apply for them. Learn also about grants for your business
and education. Click here to find out how
(http://www.investorwealth.com/chris-johnson/homestudy.htm)
3. Cash out of owner financing at closing. No risk of your borrowers
defaulting. Expert consultation on how to get maximum value for your note.
Quick quotes. We do all the work. (www.BuyMyRealEstateNote.com)
4. Payoff your Mortgage in 5 to 8 years, without increasing your monthly
payments. It sounds impossible, but it isn’t. I am in fact doing it myself.
Click here to find out how (http://www.investorwealth.com/tjmarrs/homestudy.htm)
here (http://investorwealth.com/mssn/application.htm)
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Chapter 8: Closing with Cashflow
Profit Centers
There are 3 ways to generate cashflow when you are selling/renting a property.
1) Rentals – the tenant pays you rent and pays down the mortgage for the
privilege of living in a house you own.
2) Lease Option – the tenant pays you rent and a non-refundable option fee for
the privilege of living in a house you own, and the option (but not the
obligation) of buying the house at some future date.
3) Owner financing – in order to buy your property, the buyer puts down some
cash, and you finance all or part of the remaining balance. By financing you
create a mortgage note specifying the terms by which you will be paid the
agreed upon amount, and the consequences of default. You also record in the
public records a document variously known as a “security deed”, “mortgage
deed” or “deed of trust” as public notification of the debt of the borrower.
The advantage of these strategies is that a tenant/buyer is not required to get a
bank loan to finance the purchase. This tremendously expands the pool of buyers
that are able to find the means to purchase your property. The advantage can
translate into a quicker sale (reducing carrying costs), and long-term cashflow.
The downside of these strategies are that you don’t get paid all at once. This means
you can’t use the cash you’re owed for a new investment. You also have the
responsibility to various degrees of managing the property, and collecting the
payments.
You also are accepting the risk that the buyer may default necessitating the time,
and costs of eviction, foreclosure and resale of the property.
Our discussion in this chapter will focus on:
1) the best circumstances to use each strategy
2) how to maximize your cashflow
3) how to minimize your expenses
4) how to minimize your other risks
Rentals
When to Rent
When you own a multi-family property, manufactured housing park or a commercial
property, you can only rent to individual tenants. It is the best way to create
incredible long-term cashflow and remarkable appreciation. (It is of course also
possible to sell the entire property for cash or with lease option or owner financing
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(click here for details - http://investorwealth.com/mssn/index.htm), or sell individual
units through a condo conversion (click here for details http://investorwealth.com/dave-lindahl/homestudy.htm).
You can also rent single-family homes. We don’t recommend it. Unless
1) the real net cashflow is high, and
2) you’re planning on keeping the property until the mortgage is paid off, or
3) you’re in a rapidly appreciating area (> 10%/year)
The reason is simply that renting single-family homes carries a very high expense,
and is management intensive. Let’s consider the expenses:
1) Your current mortgage
2) Property taxes
3) Landlord insurance (usually double the rate of homeowner’s insurance)
4) Maintenance of the aging property (furnace, AC, roof, pest control,
landscaping, etc.)
5) Fuel and water costs (unless included in the rent)
6) Tenant caused damage (you’re going to have a hard time collecting from the
tenant if they stop up the sink or toilet)
7) Increased fire risk or personal injury suits
8) Management expenses – hiring personnel, overseeing maintenance & repairs,
collecting rents, tenant phone calls, etc.
9) Eviction expenses
This is a cost of money, and your time (which is also a cost). Yes, you can hire a
management company to do some of the above. Unless you own a lot of property,
figure on paying 10% of the monthly rent and you will still have the costs of
materials, repairs, fuel, etc.
And unless you like working for free, doing any of these jobs, only appears to save
money. You need to really know what your expenses are going to be (not counting
the mortgage payments).
And let’s talk about the rent. Before you even consider buying a property that will
be leased to tenants, you must do your research on what the area rents are. You
will be waiting a long time to find a renter, and if you do find one, there will be a
reason they’re willing to pay you’re higher rent (like other landlords don’t want do to
a bad payment history).
Then, there’s the mortgage payments. If bought the property “subject to” (e.g.,
with the mortgage of the previous owner still in place, which you need to pay), or
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bought it with a loan, unless you got the property dirt cheap, your mortgage
payment is going to be a high fraction of the gross rent.
Finally, there’s the cost of eviction and re-renting the property. This can be the real
financial killer. In Georgia, which is a very landlord friendly state, you’re going to
lose at least 2 month’s rent payments getting the tenant out. In states like
Massachusetts, it could take a whole lot longer. And in the meantime, you’re paying
the mortgage—ouch!
And of course there’s the inevitable repair costs from the previous tenant, and the
carrying costs of re-renting the property. If you’re in a “slow market” (which is the
situation we’re addressing in this book), you could be facing several more months
before you get your next tenant.
This alone is enough to wipe out the positive cashflow for the next year or two (if not
more). Yes, there’s a security deposit, but. . . it’s usually only a month’s rent, and
some states make it difficult to even retain that.
Maximizing Your Cashflow
In a word—do Lease Options instead. We’ll discuss this strategy in the next section.
But if you insist on renting, here are a couple of tips.
1) Advertise some unique benefit for renting your house. For example,
free utilities for the 1st month, Free dinner at a local restaurant (you
can usually get these at reduced cost), a welcome package, cruise
opportunities, etc. Anything you have or can find that has highperceived value, but is low cost to you.
2) Charge to process rental applications. $25 to $50 is a reasonable fee.
This will also separate the serious prospects from the tire kickers.
3) Have each tenant fill out an extensive rental application. (Click this
link to get a copy of what we use - http://investorwealth.com/loubrown/volume8-propertymanagement.htm). Two points—make sure
you get a separate application from each adult that will be living in the
house. Grandmother too. Second, make sure the application is filled
out completely. The blanks are usually the most important
information you need to know.
4) Check out your tenant by calling and actually speaking to their
employer and former landlord. You’ll be amazed at what you can find
out.
5) Have someone visit them at their current address. See what the
house looks like. That’s the best your rental look.
6) Every adult signs and is obligated by the rental agreement.
7) Renting to students—both their parents must co-sign the rental
agreement—no exceptions.
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8) On you’re rental agreement, increase the rent 10% and give it back as
an on-time payment discount. Late is 1 minute after the deadline set
in the lease. Strictly enforce this and you’ll have more on-time
payments. Also, if you have to evict, you can get a judgment on the
higher rent amount!
9) If your tenant has a bank account, ask them if they wish to set up an
automatic debit to pay their rent. Then they’ll never be late (as long
as there are funds in the account), and you’ll usually get paid before
they have a chance to spend the rest of their paycheck.
The lease agreement also creates additional profit centers.
For example, additional rent—that’s what the tenant has to pay if the rent is not in
on time. Never call it a late fee—courts tend to only award you rent. Similarly, each
day the rent is late, there is a “daily additional rent”.
Another example: pet fees. Most apartments won’t allow pets, especially the fourlegged kind that ruin carpets and destroy walls and furniture. So you provide a
benefit by allowing the tenant to keep pets, but they have to pay rent too! There is
an initial fee and then a monthly pet rent. You can charge more for animals that
come above the knee.
If you’re rental agreement does not have some of these features, we have a rental
agreement package that you can use in conjunction with the rental agreement you
can obtain from an office supply store, that will beef up your cashflow and reduce
your risk (click here - http://investorwealth.com/lou-brown/volume8propertymanagement.htm).
Lease Options
As we explained above, a lease option transaction consists of 2 parts. There is a
lease, (i.e., a rental agreement), which obligates the tenant buyer to pay a monthly
rent, etc. And there is also an option agreement, which gives the tenant buyer the
right to purchase the property for an agreed upon amount within a certain time
period in exchange for a non-refundable option fee.
Adding the option agreement fundamentally changes the nature and consequences of
this transaction both economically and psychologically.
Psychologically, this transaction should also be presented to the prospective tenant
buyer as an opportunity to own the property (which it is). They are in essence an
“owner in training”. Because of this most tenant buyers with lease options, tend to
treat the property as if they already owned it. Sometimes, tenant buyers will
improve the property at their own expense.
This feeling should be reinforced in the terms of the rental agreement. For example,
•
The tenant buyer is responsible for minor repairs including clogged toilets and
sinks. They must inform you, and you may send out the repairman, but they
get the bill.
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•
•
Count the option fee as a discount from the purchase price of the property,
when they exercise their option.
The tenant has the opportunity to paint, and make improvements as long as
they submit their request in writing and get your express consent.
Maximizing your Cashflow and Profit with Lease Options
There are very few home sellers out there who are willing to sell their home for
anything but cash—meaning the buyer has to go down to the bank and qualify for a
loan. As we pointed out, 80% of your prospects are unable to qualify.
So, when they see a house they can get into home ownership without having to go
through that barrier, they have to accept your terms.
Profit Center 1 - Option Price
We regularly tack on $10,000 or more over the market value of the house as the
option sales price (between 5-10% of the market value). The rationale is that the
option agreement is for at least a year, and prices will escalate over that period of
time.
We also build in a 0.5% per month increase in the option price after the first year.
(This works out to about a 6% appreciation rate. If the rate in your area is higher,
you can adjust it upward). The rationale is that rather than setting an option
agreement for a year and then kicking out the tenant if they can get a loan to buy
the house within that time frame, you allow the option agreement to be extended
with the above mentioned escalation clause. We rarely have ever encountered an
objection.
Now, the reality is, you’re not likely to sell your home for more than the market
value, when the tenant buyer goes to exercise their option. Their lender is going to
do an appraisal, and if it comes out below the sales price, the lender is still only
going to fund a % of the lower amount.
This may kill the sale and cause some trouble for the landlord. It is not worth it. If
this happens, you can come out like the good guy, by agreeing to sell at the lower
price (which is still more profit than you’d make any other way).
Keep in mind also, that your closing costs are virtually zero. In fact, you can specify
in the purchase and sale agreement that the buyer pays all closing costs).
Profit Center 2: The Option Fee
A pretty good rule of thumb is that you have got to get at least 3% down, or you’re
going to get the house back. If you’re new to investing, you will be tempted to
violate this rule. We can tell you from our own experience and everyone we’ve
spoken to—you get the house back virtually every time.
Richard Roop asks for 5%. He will take 3% upfront and finance the rest (2%), but
he never goes below 3% if he wants the tenant buyer to stay in the house. Richard
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finds that tenant buyer actually exercise their option and buy only about 1 out of 3
times.
So make sure you have enough deposit to cover getting the tenant out if you have to
evict, and the holding costs until you sell again to a new buyer.
On the other hand, as Richard pointed out, if you don’t want the tenant to buy—for
example in a condo where the prices are pretty well fixed by the surrounding units so
you cannot create much of an equity spread, accept a deposit of less than 3%. The
chances are the tenant will leave after paying down some of your mortgage, and
while the property is appreciating, and you can sell it again with a bigger spread—of
course subject to the warnings mentioned.
Profit Center 3: The rent
As we described in the section above, we always charge 10% above the base rent
and give it back as a discount for on-time payment. This has all the advantages
described above.
You may also get away with charging a higher than market rent. The reason is that
the tenant has the opportunity to buy a home, which they might otherwise never be
able to do. And secondly, if they intend to purchase, the higher rent will be
temporary—a year or two.
However, you will wait longer to get your property rented. And the rent is one area
that is difficult to negotiate. No tenant will be able to stay in your property for long if
they’re paying more that 35% of their gross income in rent payments. (it will
depend partially on what other debts they have, and the figure is a good rule of
thumb).
We advise giving yourself the option of raising the rent each year. Our lease
specifies we can raise the rent up to 10%. Tenants expect rent increases, don’t
disappoint them.
When you raise the rent, get the tenant to sign a rent renewal agreement and give
you updated personal information. The motivation for them doing this is that your
rent increase will be less in exchange for their cooperation.
The lease agreement also creates additional profit centers (see the rental section
above).
•
•
Additional rent—that’s what the tenant has to pay if the rent is not in on time.
Pet fees. There is an initial fee and then a monthly pet rent. You can charge
more for animals that come above the knee.
If you’re lease or option agreements do not have some of these features, we have a
rental agreement package that you can use in conjunction with the rental agreement
you can obtain from an office supply store, that will beef up your cashflow and
reduce your risk (click here - http://investorwealth.com/lou-brown/volume12dealstructuring.htm).
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Minimizing Expenses
As we mentioned at the beginning of this section, we make a point to give the tenant
buyer the understanding that they are an owner in training. By their “taking
ownership” of the home, they will tend to treat it as if it is their own. This will
greatly reduce the wear and tear, and damage that your property will experience. (of
course, that assumes that they would treat their home with care—that is something
you should check before you agree to the lease option).
Second, since they are an “owner in training”, the lease should specify that they are
responsible for minor repairs. This will save you money, and repair calls. We usually
define minor as less than some specified amount (e.g. $500, $1000, etc depending
on the price of the house).
Third, by giving the tenant the opportunity to make improvements (with your
permission), it increases the sense of ownership, and you make actually get some
tenant funded improvements to the property.
Minimizing Risk
Getting an option fee doesn’t relieve you of the responsibility of finding a good
tenant (although it does mitigate the risk).
There are a few other things to be aware of:
•
•
•
An option agreement should not extend beyond 3 years. Some courts have
considered longer option agreements as financing arrangements and have
awarded the tenant equitable interest. Check the rulings in your state.
If you have to evict, evict on the basis of the lease. Do not bring the option
agreement into it.
Cross Default – both your lease and option agreement should have a clause
which states that if tenant buyer defaults any agreements with you, then all
the agreements are in default. This will prevent the issue of the tenant being
evicted and still having a valid option agreement, which would prevent the
resale of your property.
Owner Financing
What is Owner Financing
As we’ve discussed before, a majority of potential homebuyers cannot qualify for a
loan by a financial institution like a bank or credit union. Sometimes it’s their credit,
sometimes they don’t have provable income (or home businesses), some haven’t
lived here long enough, etc.
None of this necessarily disqualifies them from buying your house, if you are willing
to be “the lender”. In practice, what this looks like is:
•
•
•
You
You
You
and
agree with the buyer on a purchase price
get a down payment in cash
write a note for the remainder of the purchase price specifying the terms
conditions for the buyer to pay off that debt.
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•
•
After closing the transaction, you receive monthly payments from the
borrower
You continue to pay your mortgage and taxes. The borrower pays his own
homeowners insurance.
Ok, so you can see that in this situation, you’re not completely free of the property
since you still have your mortgage debt on the books.
Actually you have 2 options. One is to be the lender and collect fees and nice
monthly payments. The second, which very few investors even know about, is you
can cash out your owner financing note at closing and walk away with a check.
Let’s cover the financing part and then we’ll cover the cashing out scenario.
Owner financing profit centers
First, let’s deal with your profit, then we’ll discuss how to minimize your risk.
There are x profit centers in an owner financing
1) The down payment
2) Monthly payments
3) Closing costs (points, origination fees, etc.) to you
4) Late fees and penalties
Since you are the lender, you have the right to decide the down payment, interest
rate, the term, and charge loan origination fees, and discount points just like the big
boys do. Let’s look at each of these profit centers:
The Down Payment
Here’s a rule you can never violate. When you are the lender, buyer must put down
a substantial sum as a down payment in order to buy your house.
We recommend a down payment of at least 10%. Ideally, you want to shoot for
20%. In no case go below 5%. The reason is, that a buyer that doesn’t put
substantial cash in the deal, will immediately or eventually not pay you, and it will be
a long and very costly process to get your house back.
That down payment is also insurance that you’ll come out whole if you have to take
your house back.
The monthly payments
Remember, you’re offering the buyer the opportunity to buy your house that no one
else will give him. You’re taking an extra risk. That’s means you have the right to
greater financial compensation, and the terms of the loan should reflect that.
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Interest rate: you should charge at least 2 points higher that what the banks are
charging. What the banks charge depends on a person’s credit. So, find out their
credit before you set the rate. Rule of thumb – don’t go less than 9%. We charge
10% (9.9%) or more.
Term: It’s non-negotiable that you insist on an amortizing loan (e.g., the monthly
payment consists of both principal and interest). Most buyers expect that anyway.
Don’t get into an interest only or an adjustable rate mortgage. You’ll regret it.
Your basic vanilla mortgage has a term of 30 years (360 months). That’s probably
the best for your note also. You could make it shorter, but be aware of these 2 very
important issues.
1) Make sure the term of the loan is longer than the remaining term on
your underlying mortgage note (notes). Otherwise there’s the
possibility that they may payoff your note, and you will owe more to
your lender, than the balance of the note you wrote!
2) Shortening the term increases the monthly payments. That may be a
deal killer for your buyer. If you buyer can accept higher monthly
payments, it’s better to raise the interest rate (which is income to you)
than shorten the term.
You could also make the term longer (e.g. 40 years). However, it is in your best
interest, that the borrower pays back your principal (The return OF your investment
is more important even than the return ON your investment).
Balloon payment: this term refers to the condition that the borrower must payoff the
note at sometime prior to the term of the mortgage. For example, if your note has a
30-year amortization (will be paid off in 30 years) and states that there is a balloon
payment (also known as a “call”)—this means that in 10 years, the borrower is
obligated to pay off the remaining balance of the note (usually by refinancing).
The balloon payment can be used to force the borrower to come up with the full
payment after a period of time. This pay off will also pay off your underlying
mortgage and get you out of the business of collecting monthly payments.
It will increase the value of your note somewhat. However, it is decision that you
can base on your risk tolerance and financial situation.
If you want to get paid off quick, make the balloon for a short period of time (e.g. 12 years). However, consider the situation of your borrower and whether it is a
realistic option, for them to refinance. There is a way to increase the probabilities
(see below)
Taxes & Insurance: You’re paying taxes and insurance on your property. You’re
buyer should also. Now, for most loans from institutional lenders, the property taxes
and insurance is escrowed by the lender and paid when it comes due.
You should continue to pay your property taxes to the state and include in your note,
that your borrower will pay an additional amount each month, equivalent to 1/12 of
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your property tax bill. The reason is, that if you leave it up to the borrower to pay
the property taxes, and their not paid, you’re going to have a hefty lien on your
property, that you will only find out about when the home is subsequently sold or
refinanced.
Property taxes may go up. In this case you do just like the banks do. You send your
borrower an escrow statement each year showing him why his monthly payments
will be higher to make up the balance he owes in taxes, and increasing the new
monthly escrow to meet the new tax rate.
Insurance should be taken out by the buyer (homeowner). It is much less expensive
than if you do it. However, make sure you are listed as a co-insured. That way, you
will be notified in case borrower fails to make his insurance payment, and in the
event of an insured loss (e.g. fire, etc.) your loan will be paid off first out of the
insurance proceeds.
You can also hire and escrow service to make sure the payments are made. They
are usually pretty reasonable, and you can up your interest rate to account for the
fee.
Closing Costs to You
There are 3 types of closing costs that we’re considering here.
1) costs necessary for closing the loan
2) Points and processing costs to the lender
3) Escrowed payments for taxes, insurance and initial monthly payment
Closing the loan: If you’ve ever bought or sold a house by conventional means, you
may have noticed that the borrower and seller share in paying the closing costs.
That sounds fair. However, since you are the lender, we recommend that you insist
that your borrower pay all the closing costs. (That condition should be in your
purchase and sale agreement – see below or click here –
(http://investorwealth.com/lou-brown/volume1and2.htm).
Points: Again, you are offering a service to your buyer. There’s no reason why you
should do this for free. The mortgage brokers don’t. In fact, that’s how brokers
make their money. This should also be a profit center for you.
A loan origination fee is measured in points. A point is 1% of the loan balance. A
fee of 2 points on a $100,000 loan is 2% of $100,000 or $2,000. That is usually paid
in cash at the closing.
For owner-financed loans, we recommend charging 4 points. That may sound like a
lot, but it’s you who is taking the risk on this borrower. If this turns out to be a
serious deal killer, you have 2 options:
1) Suggest that the points (and/or closing costs) be wrapped into the loan. For
example, on a $100,000 loan with 4 points and closing costs of $1500, the
additional $5,500 would be added to the loan balance making it $105,500. Of
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course, the monthly payments would increase slightly (an increase of about
$35-$50/month, depending on the term and interest rate).
2) Lower the points, based on the borrower’s credit (lower points for better
credit)
Escrowed Payments: Most lenders will escrow 2 months of taxes and hazard
insurance payments in advance at the closing. This is insurance for not coming “out
of pocket” when these costs increase prior to increasing the payments of your
borrower. In addition, the borrower usually pays at closing, the following month’s
mortgage payment. Since mortgage payments are made in arrears, that means
your borrower has no payment for the following month.
These payments should not be wrapped into the loan. They must be paid in cash at
the closing. And you should also “escrow” the taxes and insurance payments in a
separate savings account, so you really don’t come up short.
Late Fees and Penalties
Late Fees: You need to train your borrower from day 1 that late payments are not
acceptable. If they pay late, there should be a penalty. We recommend you make
this late fee as high as possible without being usurious (e.g. 5-10% of the monthly
payment). Check with your attorney about your state’s usury laws.
Your note should also make the borrower pay for any collection expenses, attorney’s
fees, etc.
Prepayment penalties – A pre-payment penalty is when the borrower has to pay a
certain percentage of the remaining balance if the note is paid off before a certain
date. The only reason to have a prepayment penalty in your note, is if you don’t
want your borrower to pay it off quickly. However, be careful what you wish for.
Life is unpredictable, and if your borrower wants to pay off your note—let him.
That’s what we recommend.
Minimizing Risk with Owner Financing
The Paperwork that Makes You Money
Whether your planning to use owner financing as an income stream, or just want it
to get the cash from your sale, the documents you collect can literally mean the
difference between success and failure.
There are 2 areas that are extremely important.
1) Documents legally binding the transaction
2) Documents regarding the identity and financial status of the borrower.
Documents for the transaction
The 2 primary documents are the
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1) Note – this is the document signed by all the borrowers that lays out the
amount owed, how it will be paid back, what constitutes default, and what are
the consequences of default.
2) Deed of trust/Security Deed – this is the document that gets filed with the
county (on the public record). It spells out the obligation of the borrowers for
the loan amount, the rights of the lender and the consequences of default. It
must be signed by the borrowers and notarized with the prescribed number of
witnesses.
Since this is a legally binding document, make sure you use a lawyer to draw up or
approve the document you use. Also, make sure you understand the terms of your
note. Use the guidelines above.
Other required documents are:
1) Evidence of insurance – the new owner must have insurance binder with you
listed as a co-insured. This should be in your paperwork
2) Purchase and Sale agreement
3) Proof of down payment – a cancelled check, HUD1 signed
4) Proof of 1st payment – cancelled check – both sides
5) Appraisal – may substitute a BPO (brokers price opinion) whereby a realtor
inspects the property and issues a document on its current market value.
Title – Usually when a house is sold and the seller is paid, the buyer receives title to
the home in the form of a warranty deed. The title company will do a title search, to
determine that there is clear title (no other claims by any party to the property) and
issue title insurance.
With owner financing, you are in an in between area, because you, the seller have
not been paid the full amount. You could transfer the title if you want, but there is a
better way, that is legal in most states. That way is to use a land contract, aka,
agreement for deed.
What this document says is that the buyer has a debt to the seller, and when this
debt is satisfied, the seller will give the buyer title to the property by full warranty
deed.
This puts the seller in a far better position, in case the borrower defaults. Since the
borrower does not have title to the property, in case of default, the seller may evict
the borrower, instead of having to go through an expensive and often prolonged
foreclosure process.
Documents from the borrower
The most important consideration in lending anyone money is their ability and
willingness to pay you back. As Will Rogers once said, “I’m more concerned about
the return OF my investment, than I am about the return ON my investment.”
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For your own sake, and to get the best value for your note, should you wish to sell it,
you must fully document the borrower’s financial status. The documents you must
insist on whenever you are in the position of the lender are:
1) Mortgage 1003 form – this is an industry standard form created by Fannie
Mae, the biggest funder of real estate mortgages in the country. It details
the borrower’s personal information, assets & liabilities, income and
expenses, credit history, and most importantly, it gives the lender (you) the
right to check the borrowers credit.
2) VOR – verification of rent – this is a form that is filled out by the borrowers
former landlord or lender verifying their payment history.
3) VOE – verification of employment – this form is filled out by the borrower’s
current employer documenting that they actually are employed and what their
salary is. (don’t take any borrower’s word for anything).
4) Two years worth of tax returns if self employed & Three months bank
statements – Again, the point is to verify that the borrower has the income to
make the mortgage payments and the funds to close the transaction.
You must review these documents, and investigate anything at odds with what
you’ve been told. If the borrower has lied, we suggest you look for another buyer.
Converting Cashflow Into Cash
The beautiful thing about a properly managed owner financing is that the note that
you hold is an asset. Like any other asset, it can be sold. Most note buyers require
seasoning before they’ll buy your note, meaning that you have to collect payments
on the note for a year (usually) before they’ll consider buying it. However, certain
companies can actually cash you out at the closing of your sale (to find out more,
click here - http://www.buymyrealestatenote.com). This means that in practice,
you’ve used the owner financing mechanism to sell your house for cash without
having to collect a single payment.
Selling the note
When you sell your note, there are 4 factors that will determine whether you can sell
your note, and how much you’ll get for it.
1) The credit of the borrower – note buyers are even more concerned about
buyer’s ability and willingness to pay their debts. Foreclosures,
repossessions, current bankruptcy, liens and judgments can be deal killers.
Low credit scores (e.g. low 500’s or below) are hard to find buyers for.
Previous bankruptcy will lower the price you can get for your note.
2) Lien priority – with rare exception, note buyers will only buy 1st Liens. That
means that if there is a default on any debt on the property, your lien must
get paid off first, or you have the right to take back the property as collateral
through foreclosure that also wipes out all other liens. (Note certain liens
(e.g., tax liens always take precedence over mortgage liens).
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3) LTV – stands for loan to value ratio. This is the ratio of the amount of your
lien to the market value of the property. When you are selling your property,
the market value is usually considered equal to the sale price (that’s why it’s
important to have a BPO). LTV’s of more than 95% are problematical. That’s
why we strongly suggested you require a 10% down payment from the
borrower. Even if you are selling your house for less than market value, you
still must have the borrower give you the 10% in cash.
4) Terms of the loan – the buyer of the note wants a certain rate of return on his
asset. The rate of return is determined by the interest rate (based on the
note purchase price), the amortization term of the loan, and the payoff date.
There are some other factors that will affect salability. For example, mobile
(manufactured homes) will command a certain discount, especially those more than
15 years old. Certain businesses like bars are considered very risky, and there are
fewer buyers.
How much Can you get for your note
The only true answer is “that depends” on the factors discussed above. A note seller
with a well-constructed note, a good down payment, complete documentation, and a
borrower with decent credit, could expect to get up 95% of the current balance of
the note. Typically the range is between 80-95%.
Also, the actual balance influences the price. Small notes (typically with a remaining
balance of less than $30,000) are going to be more deeply discounted because of the
note buyer’s fixed transaction costs, which will be a higher percent of the value.
The easiest way to determine how much you’ll get for your note, or how to structure
the note so you’ll get maximum value, is to work directly with a note buyer while
your negotiating your sale transaction. This way you can create terms, and know
with certainty what you will get. For more information (click here http://www.buymyrealestatenote.com).
Forced Credit Repair for the borrower
If you have a buyer with cash but poor credit, and you want to do the deal, you can
negotiate for the borrower to agree to be in a credit repair program. This isn’t credit
counseling—that is basically a joke. It has to be a program that requires little to no
effort on the part of the borrower. And it has to be effective. And your borrower has
to make a believable commitment to start paying all his obligations on time.
The program we use and recommend can within a year boost someone’s credit score
a hundred points or more. That’s almost certainly enough to shift the balance from
“no deal” to “deal”. To find out more about this program click here http://investorwealth.com/tracy-ballard/credit-repair-for-real-estate-investors.htm.
Buying Your Next Home—No Money Down
No only can you sell a house on owner financing, you can also buy a home with
owner financing. The only difference being, as the borrower, you are going to
negotiate the lowest interest, the longest term, and the smallest down payment.
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Most property owners that are selling with owner financing are more anxious to get
their house sold, than to get top dollar in cash. So, as a buyer, you have potential
leverage in the transaction. Especially since, most homeowners selling on owner
financing have no idea about what they are doing (trust me on this one).
In fact, if the seller insists on all cash in the transaction, there is a way to make the
deal work with no cash out of your pocket! How is this possible. We’ll outline the
scenario for you.
You do this by creating a note with you as the borrower, and having the seller cash it
out at closing using your note buyer collaborator. You tell the owner that if he wants
all cash, he needs to take a discount on his property. The amount of the discount is
equal to the discount he’d get by selling the note he writes you! Pretty cool. (To
find out more, click here - http://www.buymyrealestatenote.com)
Resources
1. Doing Condo Conversions is a big bucks activity (Just imagine selling 10 or
20 single family homes at a 30% profit. To find out more click here
(http://www.investorwealth.com/dave-lindahl/bootcamp.htm)
2. The best paperwork for Selling Houses fast that we’ve ever seen. We’ve used
it for years and continue to use it. It’s stood the test of time and court cases.
Highly recommended –to find out more click here
(http://www.investorwealth.com/lou-brown/index.htm)
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Secrets of Selling Houses Fast in a Slow Market!

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