Guide To Real Estate Investing

Guide To Real Estate Investing
TM
Guide To
REAL ESTATE
INVESTING
GUIDE
TO
REAL ESTATE
INVESTING
GUIDE
TO
REAL ESTATE
INVESTING
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GUIDE TO REAL ESTATE INVESTING
Table Of Contents
GUIDE TO REAL ESTATE INVESTING
introduction:
Investing In Your Future .........................................................1
The Major Benefits Of Real Estate ..........................................2
A Market Full Of Opportunities .............................................5
chapter 1:
The Circle Of Wealth .....................................................................11
Many Property Types and Business Strategies .........................12
The Circle Of Wealth And Multiple Income Streams ................13
Types Of Earned Streams Of Income ....................................14
Types Of Passive Streams Of Income ....................................14
Types Of Portfolio Streams Of Income In Real Estate ................16
An Introduction To Some Key Areas Of Real Estate Investment ...17
Making The Right Income Stream Choices .............................18
Wholesale Buying ............................................................20
Lease Options ..................................................................22
Foreclosures ....................................................................23
It’s A Learning Process .......................................................24
chapter 2:
Understanding Market Analysis & Evaluation ............................ 27
History Is A Great Teacher - And Predictor Of The Future ..........27
How Does That Relate To Today’s Markets .............................30
If Educated Investors Don’t Buy Emotionally, How Do They Buy? 30
You’ve Got to Know When to Hold—and When to Fold!.........32
What This Means To You ..................................................33
chapter 3:
Getting To Know Your Market ............................................ 37
True Market Value .............................................................38
Defining The Area You Will Invest In .....................................38
Segmenting Your Area .......................................................39
Deciding What Area You Want To Focus On .........................41
Determining Property Values Using Comps .............................41
What The Comparables Will Tell You ...................................42
chapter 4:
Selecting A Power Team .................................................... 47
Finding The Right Real Estate Professional ..............................47
Choosing The Right Real Estate Professional ...........................48
Not Too Big, Not Too Small, Just Right!!! ..............................49
Real Estate Professional Interview Script ................................50
Finding The Right Mortgage Broker ......................................52
Mortgage Broker Interview ................................................53
Community Banker ..........................................................54
Contractor Handyman .......................................................55
Tax Professional ................................................................56
Appraiser ........................................................................56
Lawyer ...........................................................................56
Title Company .................................................................56
Home Inspection Professional ..............................................57
Surveyor .........................................................................57
Termite Inspectors .............................................................57
Insurance Agent ...............................................................57
Property Manager ............................................................58
Mentor ...........................................................................58
Government Grant and Loan Specialists................................58
Networking Contacts ........................................................58
chapter 5:
Finding Motivated Sellers .................................................. 63
What Is A Motivated Seller? ...............................................63
How Do We Find Them? ...................................................64
Niche Marketing ..............................................................77
Networking Resources .......................................................81
chapter 6:
Making Quick Cash: Wholesales ........................................ 91
Where To Find Wholesale Deals .........................................92
Driving For Dollars ............................................................93
Assignment Of Contract And Double Closing .........................96
Contingencies ..................................................................97
Title Companies or Closing Attorneys ...................................99
Building A Database Of Buyers .........................................100
Advertise To Find Your Buyer .............................................104
What To Offer ...............................................................105
Negotiating With The Seller .............................................107
Contracts ......................................................................108
Why Wholesaling? ........................................................110
Exit Strategies ................................................................112
chapter 7:
Securing The Financing ................................................... 117
Getting Creative.............................................................117
Working With Mortgage Brokers ......................................118
Calling Mortgage Brokers ................................................119
Pre-Qualified Vs. Pre-Approved..........................................120
Questions To Ask Mortgage Brokers ...................................121
Seller Financing .............................................................126
Other Low Or No Money Down Techniques ........................130
GUIDE TO REAL ESTATE INVESTING
Table Of Contents
chapter 8:
Profiting By Controlling Property: Lease Options ............... 149
Elements Of A Standard Option Contract ............................150
What Is A Lease Option ..................................................151
Benefits Of A Lease Option ..............................................152
Buying And Selling With A Lease Option ............................155
Who And What We Are Looking For? ...............................157
Working With The Motivated Seller ...................................162
Things To Agree On With The Seller ..................................168
Sample Contracts and Documents To Use As The Buyer .........169
Bulletproof Your Option With The Seller ..............................171
Bulletproof Your Option With Your Tenant/Buyer ..................173
Finding Tenant/Buyers For The Deal ...................................175
Meeting With Your Potential Tenant/Buyer ..........................178
How Do I Qualify Them? .................................................179
Sample Contracts and Documents Used by The Seller ...........180
13 Steps To Being Successful In Lease Options ....................188
How To Do A Lease Option..............................................191
Points To Consider ..........................................................193
Sample Car Magnet Ads .................................................194
Sample Newspaper Ads .................................................195
Sample Signs And Flyers ..................................................197
Sample Postcards ...........................................................198
Sample Property Information Sheet .....................................199
Sample Authorization To Release Information Form ................200
Sample Letter Of Instructions To Lender ................................201
Sample Residential Lease With Option ...............................202
G
GUIDE TO REAL ESTATE INVESTING
Table Of Contents
chapter 9:
Becoming A Problem Solver: Foreclosures ......................... 207
What Is Foreclosure? ......................................................208
The Three Phases Of Foreclosure .......................................211
The System For Buying Pre-Foreclosures ...............................216
Sample Authorization To Release Information .......................259
Sample Bill Of Sale ........................................................260
Sample Affadavit And Memorandum Of Agreement ..............261
Sample Car Magnet Ad ..................................................262
Sample Newspaper Ad ...................................................262
Sample Letter And Flyer ...................................................263
chapter 10:
Negotiating With Confidence .......................................... 269
Practice Talking To Get Over Fears ....................................269
Listen To The Seller ..........................................................270
Communication And Salesmanship ....................................270
The Anatomy Of A Presentation .........................................272
chapter 11:
Making An Offer: The Contract ........................................ 279
The Offer Vs. The Contract ...............................................280
Basic Requirements Of A Contract .....................................281
Sample Contract For Purchase And Sale .............................283
Glossary: .................................................................. 309
GUIDE TO REAL ESTATE INVESTING
Introduction
1
hrough real estate investing,
many individuals just like you
have been able to increase their net
worth substantially, obtain the things
they always wanted to have, reached
their financial goals faster than they
thought possible, and preserved their
wealth for their retirement and/or their
families. And many have done so
without much money to start with, or
without any money to start with at all.
The fact is, real estate investing is
a powerful tool for building and
preserving wealth no matter where you
live and no matter who you are. And
unlike some investment opportunities,
real estate investing has “staying
power.”
Demand for real estate in most areas is
constant although there are economic
factors that influence the market and
its demands. The good news is that
when the economy is in a slump,
there are tremendous opportunities for
good real estate deals because the
number of buyers decreases along
with tougher economic times. Now
is just such a time and that makes
investing in real estate more lucrative
than ever. The key to building wealth
through real estate is having the
knowledge to understand the market
swings and pressures and then being
able to capitalize on the opportunities
as you find them. There will always
be a never-ending supply of buyers
T
INTRODUCTION
Investing In
Your Future
1
2
This appreciation rate generally takes
place as part of natural market growth,
essentially, without you doing anything.
To illustrate, consider homeowners who
purchased their homes 20 years ago
and now find themselves with $150,000
in equity in their homes, something they
never thought about at the time they
purchased the home. Beyond that, you
can create situations where you “force”
appreciation, such as through renovations
or cosmetic improvements to a home (we
call this rehabbing properties). This is
where the work you put into a property
makes it instantly more valuable than the
price you paid for it.
GENERATE POSITIVE CASH FLOW
YOU CAN USE Some investors will
purchase property in order to rent it out
and create positive monthly cash flow.
Property can sometimes be rented for
more than the total expenses (principal
and interest, taxes and insurance), so
you can make money from the rental,
while someone else is building equity in
your property. Another way to buy and
hold property is to lease it to someone
else with an option for them to purchase
it in the future. This technique creates
excellent positive monthly cash flow since
looking for everything from their first home to
their retirement home—and you will be the
investor who has exactly what these buyers
need.
Before we go into greater detail in
this manual about profiting with real estate,
locating and negotiating deals, evaluating
properties, and making the most out of some
of real estate’s best opportunities, let’s take
a brief look at the real estate investment
market in general to see why it provides so
many avenues for building wealth.
THE MAJOR BENEFITS
OF REAL ESTATE
The benefits of investing in real estate are
many, from creating situations where your
profit potential is up to you, to building a
lifestyle some people only dream of. With
real estate, you can:
OWN YOUR OWN BUSINESS
Work part-time or full-time, be your own
boss, and time things according to your
schedule and goals.
TAKE ADVANTAGE OF APPRECIATION
Real estate typically appreciates around
four to five percent annually.
GUIDE TO REAL ESTATE INVESTING
Introduction
3
these tenants are willing to pay more than the average renter will
pay.
CREATE A HEDGE AGAINST INFLATION Even in times of
inflation, opportunities abound with real estate. That’s because
inflation tends to force higher real estate prices and because the
underlying asset (your property) can be counted on to be there
through inflation (while some other investments may not survive
economic downturns).
MAKE MONEY WITH LOW RISK AND LOW STARTUP
COSTS The market for potential customers is huge and you
can start your business in real estate investing with little or even
no capital of your own. There are always private investors in the
marketplace who have the money to invest but do not know how
(or don’t care to do the work) to do the deals themselves.
PROFIT FROM EQUITY BUILDUP You build equity at the
same time as the property is naturally increasing in value due to
market conditions and demand. And you can tap that equity in a
property to finance additional investments.
ENJOY MULTIPLE CHANNELS FOR PROFIT – There are many
ways to invest in real estate and there is something for everyone,
from the casual or first-time investor to the more experienced or
full-time investor. Once you understand the variety of opportunities
available, you can choose the deals that help you reach your
individual goals faster.
4
many easy ways to find the opportunities
that will help you succeed.
MARKET YOUR BUSINESS EASILY
Marketing real estate is not complicated.
Everything from a For Sale sign in the front
yard of a home you have renovated to
an ad or direct mail campaign can bring
in customers. Some investors have netted
thousands of dollars in profit on deals
simply because someone called them
from a car magnet ad on the side of their
vehicle or from a flyer they posted on a
community bulletin board at an apartment
complex.
BUILD A POWER TEAM TO HELP
YOU INCREASE AND EXPEDITE YOUR
PROFITS To succeed with real estate
investing, you will want to establish solid
relationships throughout your community
and in the business… relationships with
people who can help you build your
business, partner with you in investments,
or be available to buy your properties.
A winning team of contacts would
include people like a good real estate
lawyer, real estate agents or brokers, an
accountant or tax expert, a mortgage
broker, a professional home inspector,
mentors or coaches who can guide
BENEFIT FROM REAL ESTATE’S
REPEATABILITY Once you learn the
basics, learning advanced skills is even
easier than you might realize. You can
use the knowledge you build about real
estate investing to repeat the process
over and over again, on multiple types
of properties, increasing your profits
considerably without working harder to
do so.
BENEFIT FROM TAX BREAKS When
you invest in real estate, consult with a
tax professional about the opportunities
that may be available to you through
depreciation, in writing off certain business
expenses, and through tax breaks (for
example, deducting the interest portion of
mortgage payments).
FIND INVESTMENT PROPERTIES
AND OPPORTUNITIES EASILY – With
real estate investing, opportunities are
all around you. You can make a simple
effort, like driving through neighborhoods
looking for For Sale By Owner signs, or
you can do everything from establishing
relationships with real estate professionals
to placing your own ads to generate leads.
What’s nice to know is that regardless of
the time you have available, there are
GUIDE TO REAL ESTATE INVESTING
Introduction
5
you through transactions and help motivate you, and qualified
contractors, builders, and other professionals who can assist you
in rehabbing your properties.
HELP OTHERS One great aspect of real estate investing
is you can help others in need. Consider someone who has a
distressed property because they live in another state and they’re
trying to manage it long distance. You could help alleviate that
burden. Or consider someone who is struggling with debt and
now the bank is going to foreclose on their home. You could
help them save their credit. The possibilities for helping others are
endless.
A MARKET FULL OF OPPORTUNITIES
There are not only many benefits associated with real estate, but
also many opportunities for success regardless of your financial
goals, location, or financial situation.
SHORT-TERM AND LONG-TERM STRATEGIES
With real estate, there are both short-term and long-term investment
strategies available to you, giving you the flexibility to make
investment choices that fit your schedule and needs.
As an example, you may wish to hold properties only for the
short-term, so you might purchase a property below fair market
value, fix it up with minor repairs and cosmetic improvements (such
as painting and landscaping), and then turn around and sell it
quickly for profit.
6
OPPORTUNITIES IN ALL AREAS
You can make money with real estate
regardless of the area you live or invest in.
This book will begin helping you to become
knowledgeable about how to analyze and
identify profit potential in real estate markets.
Your future training will take you to the next
level and to those who are committed, the
potential for wealth accumulation will be
unlimited.
Just a few examples of ways to build
wealth follow and illustrate this point. For
example, in low-income areas, you can find
several great opportunities for rehabbing or
wholesaling properties. These opportunities
allow the owner/landlord to provide
affordable, clean housing for low-income
families, while generating positive cash flow
through highly profitable weekly or monthly
rentals. When you act as the intermediary
investor, they provide a way to generate
income through either quick turns after
the rehab or fast cash through wholesale
techniques.
In moderate-income areas, you can
profit from excellent resale values and work
with a large market of first-time homebuyers
who may need special financing options
to purchase their home. Moderate-income
areas can also provide good rental income
opportunities.
You can even purchase or contract for a
distressed property at well below fair market
value, and sell either the property or the right
to buy the property, immediately to another
investor who will do all the work improving
the property. This short-term strategy is known
as “quick-turning” or wholesaling properties.
Individuals have made fast profits of thousands
of dollars on just one deal in wholesaling
a property and you can too! Additionally,
investors have used wholesaling strategies to
make quick cash to pay down their debts,
generate extra income in addition to a full-
time job, start their own business slowly and
with limited risk, and create capital for future
investments.
A long-term strategy might be to buy
a home below fair market value and then
rent it out for any number of years or lease
it to someone else giving them an option to
purchase it in the future. In situations like these,
when you have tenants, they are building
your equity because with every payment they
make to you, you are taking that payment
and decreasing your existing mortgage.
GUIDE TO REAL ESTATE INVESTING
Introduction
7
In just above median home value areas there are currently
great prospects for two techniques: either offering lease options
to potential homebuyers, or buying at substantial discounts due to
distressed seller situations and then holding the properties for short-
term for profits at the time of sale.
And finally, there is tremendous opportunity in some of the best
neighborhoods and school districts in the cities across the U. S. due
to the distress of the sellers who must get out of a property quickly.
While not for the beginning investor, these types of deals can give
experienced investors the opportunity to invest when tax shelters are
the priority.
EVALUATING BUY & HOLD PROPERTIES
If you intend to buy and hold property for cash flow, it is important
that you choose properties that will cash flow—and the United States
has an abundance of properties available that will meet your needs!
Having said that, if you are considering rental housing consider
carefully the benefits of buying houses that have more than one
stream of income coming in each month. For example, if you are
buying a single family house to rent out, if it is vacant for a month,
you are making the entire mortgage payment. However, if instead
of buying single family houses to rent out you focus on duplexes,
triplexes, and quads, if one of the units is empty, you still have the
other(s) to help cover your expenses. That is part of the beauty of
real estate—various tweaks on your buying decisions can make
big differences in the outcome of the deal. And in this scenario, the
price of a duplex is seldom anywhere close to double the price of
the single family. Yet, the rents from each unit are not half as much as
the single family’s rental income price. For that reason, it is unusual
for us to recommend you buy and rent out single family homes in
working class neighborhoods. Go for the duplex! On the other
8
SELLER FINANCING You can take
advantage of seller financing, lease
options, etc., to allow you to purchase
properties with little or no money down.
SOURCES FOR SEED MONEY
(CAPITAL) TO FINANCE YOUR
INVESTMENT Even people with poor
credit have still been able to achieve
success in real estate investing; you just
have to know how to look for the creative
financing opportunities. Some examples
include seller financing, wraparound
mortgages, equity financing, partnering
with other investors, etc.
So, for many reasons, real estate provides
people with opportunities to profit and
earn income in ways they never would
have dreamed possible. The more you
learn and the more prepared you are
to take on new opportunities, the better
you’ll succeed in generating amazing
profits and changing your life forever. We
are dedicated to helping you get there.
So let’s get started!
hand, in the upper income neighborhoods,
lease options work beautifully on single
family homes because you will be dealing
with future buyers of the property from the
beginning. Knowing what to buy, where to
buy, and how to hold will move you to your
financial dreams more quickly than you can
imagine—the opportunities are endless!
MULTIPLE FINANCING OPTIONS
Real estate investing can be done virtually
anywhere by anyone—the key is knowledge.
It provides a way for any individual to
get involved and reach their financial
goals, regardless of their current financial
situation. That’s because there are many
creative financing and buying approaches
available. You just have to know where and
how to look for them. For example, you can
find opportunities through:
GOVERNMENT PROGRAMS There
are many ways to purchase homes
well below fair market value through
government-sponsored programs, and
there are ways to use government
programs to find opportunities you could
not find anywhere else.
CHAPTER
ONE
9
PORTFOLIO
2-3 Streams
EARNED
3-4 Streams
PASSIVE
3-4 Streams
11
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
CREATING YOUR PERSONAL
BUSINESS ROAD MAP
f you were going to travel from
New York City to San Francisco,
there are such good road signs and
highways systems across the United
States that you could probably find
your way without having a detailed
road map that outlined your journey.
But doing so wouldn’t make much
sense, would it? You would end up
taking a few wrong turns, you’d have
trouble getting started, and ultimately,
you would be sure to get lost a few
times along the way.
The same is true for choosing
to invest in business. Having a clear
idea of the benefits and advantages
of different types of real estate deals,
clearly evaluating where you are in
terms of resources, and moving in the
right direction with the least amount
of wasted time will be a tremendous
asset to you. That is the purpose of
this chapter—to help you begin to
get more clear about where you are,
where you want to go, and the best
way to get there.
One of the first things you should
do is a personal financial evaluation
of where you are at this moment in
time. Do you have strong or weak
I
THE CIRCLE OF
WEALTH Multiple
Streams Of Income In
Real Estate Investing
12
TECHNIQUE/
CIRCUMSTANCE
Wholesale buying
& contract sales
Lease Option
Foreclosure
Rehabbing
Mobile Homes
Tax Liens & Deeds
Property
Management
(Managing other
investors’ property)
BENEFIT
Quick cash
return/low cash
investment
Cash flow,
appreciation/
can be structured
with a low cash
investment
Quick cash
(short-term), needs
some cash to do
Quick cash,
cash flow/needs
cash or credit
investment
Cash flow/low
cash investment
Portfolio income
from interest/
higher cash
investment/little
leverage
Cash flow/
very low cash
investment
needed to begin
credit? Do you have access to money
lending sources? Are they public (lenders,
banks, mortgage brokers) or private
(personal contacts who might be willing to
help you to get started)? Once you have
clearly delineated your current position you
are better able to begin choosing the right
types of deals to move you towards financial
freedom. For example, if you have few
financial or credit resources, you will want
to choose types of real estate deals (at least
in the early stages of your career) that do
not rely on either credit or funding. One of
these types of deals is called “wholesaling.”
So, let’s begin this chapter by outlining the
various ways to make money—and the type
of money it takes to do that kind of deal.
MANY PROPERTY TYPES AND
INVESTMENT STRATEGIES
Real estate investing is attractive because
there are many property types to invest in,
as well as many strategies for what to do
with those properties. And each comes with
its own rewards. The following are some of
the main types of investment opportunities,
with their primary benefits listed.
13
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
Investors consider different options based on the outcome they
want to achieve, the amount of cash they want to invest in the
project, and/or their level of experience with different strategies.
For example, an investor may want to consider quick cash
investment strategies for a variety of reasons, among them being
high consumer debt (generating quick cash to pay down that debt)
or lack of seed capital to work with (using wholesale opportunities
to quickly build more money for future investments).
Of course, with multiple income streams and opportunities
comes the need to obtain the proper knowledge to specialize
in different areas. Because wholesaling, foreclosures, and lease
options are some of the more popular ones in real estate investing,
we have included chapters focused specifically on those strategies
in this manual. This book also introduces you to several other streams
of income in real estate investment and defines the types of income
those strategies can produce. As you grow your business and find
the real estate investment areas and strategies that interest you most,
you can discuss with us more opportunities for advanced training in
those areas so you can maximize your profit potential.
THE CIRCLE OF WEALTH AND
MULTIPLE INCOME STREAMS
You might be wondering how to choose your streams of income
and what factors should influence your decision, so before we go
any deeper into this book, let’s take some time to define the various
types of income and the benefits of choosing one over the other.
14
deals, you collect the rent (or your property
manager collects it for you) every single
month. Another real estate related field of
income that would be considered passive
is when you become a property manager,
have a property management company,
and investors hire you to collect the rents for
them and pay you a fee to do it!
TYPES OF PASSIVE STREAMS
OF INCOME IN REAL ESTATE:
RENTALS— houses, apartments,
mobile homes, etc.
LEASES— lease option properties
PROPERTY MANAGEMENT—
mentioned above
RECREATIONAL PARKS— where you
rent out spaces
MOBILE HOME PARKS— where you
rent out lots and others own the
mobile homes
APARTMENT HOUSES— which bring
you in multiple payments every month
TYPES OF EARNED STREAMS
OF INCOME IN REAL ESTATE:
Wholesaling
Foreclosures, Pre-foreclosures, and
Real Estate Owned Properties (Post-
foreclosures)
Rehabbing
Probate
Discount Note Selling
Remodeling
• Land Development
Basically, anything that you are going to
contract and sell quickly would fall into the
Earned Income category.
PASSIVE INCOME: Passive income is
money that comes to you week after week
or month after month without you going
out and doing another deal. This type of
income is also sometimes called “recurring
income.” In real estate, these would be
your buy and hold properties—your rentals
and leases. Once you have closed on these
15
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
COMMERCIAL SPACES— offices, retail establishments,
storage unit facilities, industrial buildings, etc.
Buy and hold properties are where you build long-term wealth and
begin to benefit from appreciation and tax advantages. So, earned
income streams help you generate the cash to move towards buy
and hold long term wealth! The two work hand in hand to help you
achieve your goals.
PORTFOLIO INCOME: Portfolio income is when your money begins
to make money for you—typically through interest. Let’s say you
have $30,000 to invest in some type of real estate related deal but
you do not want to have to do any work or invest any time once
you have made your purchase. In this situation, you might choose to
invest that money in tax liens that earn a return of 18% per year. You
attend the tax lien auction, purchase liens that take the $30,000
investment amount, and then you sit back and wait for them to be
redeemed! Your money begins earning interest at the rate of 18%
per year the day you pay for the liens and the county property tax
office employee does all the monitoring and paperwork! That sure
beats investing in a CD at 1% or 2% interest, doesn’t it?
There are several other ways for you to generate portfolio
income that is real estate related, as well. Most of these streams of
income relate to the investor earning interest on his or her money.
While this book will not go into depth on these techniques, it is
important for you to at least understand the potential and definition
of these income streams.
16
New investors who have a limited
amount of money begin by becoming
knowledgeable in a few earned income
streams such as wholesale, foreclosure, and
rehabbing. Now they have more control
over their ability to generate large amounts of
cash in a short period of time. They then take
that money and begin to invest in buy and
hold properties such as lease option houses.
They have now learned to invest safely, and
once we learn to do it safely, we can do
it quickly!
As the passive income grows or the lease
option properties begin to sell (usually three
years later), the investor has two choices:
either buy another buy and hold property or
invest in a portfolio stream (such as tax liens,
defined above).
Begin to train your mind to
think in terms of The Circle of
Wealth and always ask
yourself what your short
and long term goals are
at any given moment.
Yes, we get rich in buy
and hold situations, so
that is your ultimate goal,
but if you are beginning with
limited resources and need to
generate some cash so you can build a
substantial portfolio in a fairly modest number
of years, earned income can help you do that.
TYPES OF PORTFOLIO STREAMS
OF INCOME IN REAL ESTATE:
Tax Lien Auction Investments
Discount Note Buying
Seller Financing
Hard Money Lending
Venture Capital
In real estate, you will often hear others refer
to “The Circle of Wealth.” Real estate can
allow investors to create wealth through a
very systematic process that builds
upon itself. Here’s how it looks
and how it works:
While everyone is
different, with different
goals and demands on
their time, professional
real estate investors will
typically want to have
three to five streams (and
accompanying knowledge
bases) of earned income, three to five
streams of passive income, and two to three
streams of portfolio income.
PORTFOLIO
2-3 Streams
EARNED
3-4 Streams
PASSIVE
3-4 Streams
17
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
AN IMPORTANT CONSIDERATION: As investors, it is crucial for
us to “begin with the end in mind.” Now, I realize that you might
be starting on a shoestring and you probably have immediate
needs that you want real estate to assist you in fulfilling. However,
this business can be one of the best ways for you to become a
millionaire or a multi-millionaire—and on some level you understand
that or you wouldn’t be reading this book. So, set aside your fear
and discouragement from yesterday and ask yourself, “If I could
retire in ten years and own and control 350 apartments in a good
neighborhood that produced $25,000 a month in positive cash
flow, would I feel safe and secure about my financial future and
my golden years?” I believe that most of you would answer this
question with a resounding, “Yes!”
So, let’s begin your investing business with that level of
commitment to your future. The Circle of Wealth can help you
achieve those goals. Consider it carefully and ask yourself what it
could mean to your current lifestyle (and checkbook balance) if you
had 7-10 streams of income and could generate both short and long
term cash flow. Then, commit to your future, to your accumulation of
knowledge, and to having a mentor to guide you along the way.
AN INTRODUCTION TO SOME KEY AREAS OF
REAL ESTATE INVESTMENT COVERED IN THIS BOOK
Before we delve deeper into these subjects, let’s take a moment to
discuss some of the key property and investment types in overview
form to familiarize you with some of your options and prepare you
for what you are about to learn from this material.
18
As professional investors, we weigh each
deal against the ideal and then consider the
benets of that type of deal versus another
opportunity. We do not always hit each one
of these characteristics—particularly in the
beginning of our investment careers—but we
always evaluate and make informed choices.
When considering a distressed property,
we are looking for the following advantages:
There is often less competition for
them since the average individual wants
properties in good condition.
Most market areas offer numerous
distressed properties to choose from.
You can often purchase distressed
properties under flexible, easy terms
and for prices substantially below
market value, making for a nice profit
margin on a resale or good cash flow
on a rental.
You have the ability to instantly
increase your property’s value through
minor improvements and rehab
work (forced appreciation).
MAKING THE RIGHT
INCOME STREAM CHOICES
DISTRESSED PROPERTIES VS. DISTRESSED
OR MOTIVATED SELLERS
There is an old maxim when it comes to real
estate investing: “There are only two types of
deals out there—either distressed properties
or distressed sellers. Regardless of your
investment strategy or targeted property type,
you will find that some properties provide
more ideal investment opportunities than
others. When we refer to a property as
“ideal,we do so for a reason. The word is
also an acronym for the following:
I = Income (Produces Cash Flow)
D =Depreciable (Offers Tax Advantages)
E =Equity (Equity Build-up Increase Net
Worth)
A =Appreciation (Increases in Value)
L =Leverage (Increases Return on
Investment)
19
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
Some things to think about with distressed properties include:
Most real estate markets have a sizable number of investors
looking for these types of properties, so your marketing efforts
need to be active, well planned, and effective to find good
deals. It would be wise to investigate different marketing
strategies that have worked well for other real estate
investors, and to find others in the business that are willing to
teach you where to look for opportunities and provide tips
on how to bring opportunities to you.
To avoid costly mistakes, you’ll need to know how to
effectively evaluate the property and its neighborhood.
Thorough inspections and repair estimates should be
performed prior to a purchase.
If the property is in a lower income and/or older
neighborhood, the comparable sales in that area will
not go over a certain amount of money, no matter how much
improvement is made. Repairs are often costly—so in order
to maximize profitability in the older, lower income areas, it
is typically safer to combine a distressed property with a
distressed seller and maximize the profit potential on
each aspect.
20
You must know what put the seller in the
situation they are currently in and gure
out the best way to help them get out
of it. In order to understand their
problem and solve it, you will need to
develop good listening and negotiating
skills.
Some distressed sellers present
compelling reasons why they want to
stay in their properties and the
tendency is to want to accommodate
this. If their challenge is for financial
reasons, this can be risky. It is important
to keep your emotions out of it.
WHOLESALE BUYING
Distressed properties make for great
wholesaling candidates. And wholesaling is
an excellent opportunity because it requires
little expertise and typifies the quick cash
type of deal that many beginning investors
are looking for.
Wholesale deals may be one of the
first types of deals you will make in real
estate investing because it’s easy to identify
distressed properties and there is such great
potential for quick cash.
Advantages of working with distressed
sellers include:
There is seller distress in every price
range.
You can sometimes purchase
properties under flexible and easy
terms. The seller needs help and, in
many cases, just needs a way out,
but does not know what to do. You
can provide the solution.
Seller distress is often caused by
property distress, so the chances
of being able to increase property
value through cosmetic improvements
or rehabbing when you can match
a distressed seller with a distressed
property are excellent.
Things to think about with distressed sellers
include:
Seller distress must be handled
delicately. These sellers are going
through rough personal, professional,
ornancial times and they can be
experiencing all kinds of emotions.
21
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
To truly be successful with wholesaling, some of the things you
will need to learn include how to: properly segment your market;
develop a database of potential properties, investors, and buyers;
understand the multiple ways to target and market for wholesale
deals; locate absentee owners; build a network with other investors;
and develop key strategies that will help you close deals.
In addition, you should master several basic aspects of the
wholesaling business, including:
PRESCREENING PROSPECTS Since distressed properties should
be your primary target, you should learn how to both identify and
evaluate distressed properties. You should also understand that a
distressed property does not necessarily mean a deal is good, but
that it is a good start. So you need to master the techniques to
know when a deal is too good to be true, when it’s time to move
forward, and when the deal needs to be left on the table. It will
also help to know how to identify a motivated seller, because the
combination of a motivated seller and a distressed property will
make this opportunity far more advantageous.
DETERMINING MARKET VALUE You need to understand the
importance of determining fair market value after repairs to be a
successful wholesaler. The real estate professionals on your power
team will be key assets for getting this information. Also, using
comparable sales of homes in the same market area will help you
determine fair market value.
ESTIMATING REPAIRS This won’t be a successful venture if you
do not estimate repairs correctly. Learn how to analyze deals to
ensure you make an offer that will result in the most profit. There are
22
LEASE OPTIONS
Lease options represent one of the most
attractive real estate investment opportunities
for both new and experienced investors
particularly because they can generate
multiple streams of income within a single
deal. The following offers a few general
points about using lease options to invest in
real estate:
If you buy property with a lease option, you
can:
Gain control of a property without
taking ownership of the property –
You have no obligation to buy, but
you have established the right to buy.
Work with distressed sellers, not
with distressed properties – Seller
circumstances create the deal. What
you need to do is find the problem
owners.
Live in or control nice homes in
nice areas – In these cases, the seller
needs to get out and investors want
to get in (an excellent match!).
Desirable neighborhoods create
demand.
also strategies you can learn that will save
you money on rehab projects and maximize
your profits.
MAKING OFFERS AND COUNTER-
OFFERS – You need to become familiar with
good negotiating and communication skills,
learn how to make offers and counteroffers
effectively without compromising your goals,
and learn how to work with contracts.
Knowing how to properly evaluate properties
will be critical to determining not only what to
offer, but if you should make an offer at all.
LINING UP BUYERS Wholesaling is actually
only partially complete if you can find and
negotiate deals, but you have nobody lined
up to readily assign contracts to. Building a
sizable investor database to tap regardless
of the type of deal you are working on will
help you move things forward quickly and
preserve your profit margins.
CLOSING EFFECTIVELY You need to
learn the strategies necessary to close
without cash, including how to do contract
assignments and simultaneous closings.
23
GUIDE TO REAL ESTATE INVESTING
The Circle Of Wealth
HELP SOMEONE ELSE IN MANY CASES – The determining
factor in lease options is often debt relief. You are usually
working with people who may not necessarily want to
sell their property, but who must sell it because of financial
problems. You can help someone else reach a solution
quickly. Meanwhile, you can do it with little or no money out-
of-pocket.
If you sell property with a lease option, you can:
Benefit from a large market of motivated buyers – Lease
options can be very attractive to people who are just starting
out or who are starting over. And lease options may be the
only option available to some people based on their credit
circumstances.
Find multiple profit centers through lease options – You can
create positive monthly cash flow for yourself, collect a non-
refundable option consideration, and profit from the
difference between what you paid for the property and what
price you set for your tenant/buyer.
FORECLOSURES
The foreclosure market can also provide a great avenue for profit
for the beginning to experienced investor. Foreclosures, while
unfortunate, are an everyday occurrence, and this can be your
opportunity to not only make a wise investment, but also to help
someone in need.
24
and opportunities that will afford you the
most profit. You can learn how to line up
investors before you buy properties to limit
your risk and how to line up potential buyers
before you move forward on deals. You can
become adept at finding motivated sellers
simply by knowing what to look for in their
ads and more successful with your sales
simply by knowing what to write in yours.
You can learn how to rehab properties to
maximize profits with minimal investment,
including what to look for and what to
avoid, as well as how to make money by
wholesaling properties without ever having
to fix them up. And you can master the
negotiating strategies necessary to get the
best deal or know when to walk away from
the table.
Remember that foreclosures can happen
for any number of reasons, and this is an
area where you can really create a win-win
situation and do something that benefits both
you and the person who might be in trouble.
Investors must be able to effectively negotiate
with both lenders and homeowners to
optimize profits on these deals.
IT’S A LEARNING PROCESS
With so many strategies to employ and ways
to make money in real estate, knowledge
will be key to your success.
By investigating the opportunities
available in real estate investing, you have
taken your first important step towards
obtaining financial independence. Now,
it’s time to move on to the next level with the
guidance and knowledge you can receive
through our program and this manual. Every
part of this program has been designed
to help you achieve increasing levels of
knowledge and success as a real estate
investor.
You’ll soon see that with the material
presented here, you can easily learn how to
spot distressed properties, motivated sellers,
CHAPTER
TWO
25
nvesting Is About Supply and
Demand: One of the most
important things you can learn when
it comes to real estate investing is
market analysis—having the ability to
evaluate a market, whether your own
or one in another part of the United
States, and determine if the values are
going up, going down, or are flat.
This is where amateur investors fall
short in their knowledge and this lack
of understanding creates problems for
them when they buy, hold, and sell.
HISTORY IS A GREAT
TEACHER—AND
PREDICTOR OF THE FUTURE:
A little bit of history from the past ten
years will illustrate our points as we
begin to increase our understanding
of market analysis. In 2000, the stock
market was in a self-correction process
and investors who typically put their
money in stock were worried about
their earnings and profit potential in
the short term. In any investment there
will be periodic self-corrections in a
market, whether it is real estate, stock,
or even in gold. Prices and values go
I
UNDERSTANDING
MARKET ANALYSIS
& EVALUATION
27
GUIDE TO REAL ESTATE INVESTING
Understanding Market Analysis & Evaluation
28
So, with the stock market in a state of
stagnation or self-correction, average home
interest rates lower than they had been in
over thirty years, and lending guidelines more
lenient than we had seen in decades, people
began to take their accessible investment
money and purchase homes and land.
In essence, we had a “blue light
special” or buying frenzy kick into full gear
and real estate became the investment
strategy of choice for many people who had
never owned real estate, at all! Adding to
that, investors who were disillusioned with
the performance of the stock market began
pulling available revenue from this type of
investing and move it to real estate.
On top of the stimulus of low interest rates
and extremely relaxed lending qualifications,
the first waves of baby-boomers were within
a few years of retiring. As they saw the
opportunity to invest (and also saw the
non-performance of their stock portfolios),
they began visiting retirement states and
purchasing their homes or condominiums
earlier than they had planned. This was
typically a wise move on their part—but it
created an increased demand on real estate
that was unexpected.
When opportunities to make money
abound, builders will rise to the occasion.
up, they hit a peak, they stabilize, and if
they are not in line with what the market
will bear, they will go back down until they
reach the point that buyers will once again
make purchases.
To add to the situation with stock
investments, in late 2001 we experienced
the trauma of September 11th and there
was more emotional fear generated by this
event than our population has seen on a
collective level in our entire lifetimes. The
natural reaction of people in the grips of
uncertainty is to do nothing—to “batten
down the hatches” until the storm is over.
The problem with this reaction is the paper
currency that we operate on in the United
States. The way our economy flourishes is
for the paper to keep moving. When the
flow of money stops, the economy stalls.
To encourage the American people to
buy/spend their money and keep the paper
moving, the Federal Reserve dropped
interest rates—which allowed people to buy
property with far less interest expense than
historic levels had demanded. Additionally,
loan programs were rolled out with much
more lenient lending guidelines so many
more people were able to qualify for loans
than historic guidelines in the past had
provided.
29
GUIDE TO REAL ESTATE INVESTING
Understanding Market Analysis & Evaluation
Since there were not enough houses available to purchase,
pre-construction plans became the norm. The mantra across the
United States became, “Pay a 20% non-refundable deposit, contract
for us to build a home or condo at a pre-agreed upon price, and
when construction is complete, you can close.” That accomplished
two different things: people were working (construction picked up
dramatically, jobs were in abundance, and building materials were
flying off the shelves), and paper was moving! For the potential
investor, a feeling of “locking in a price” was of utmost importance.
If the investor was “buying” in a 20% appreciation rate market, and
if the condo was going to take two years to complete, life seemed
golden! The condo would theoretically be worth 40% more upon
completion (and closing) that the contract price! Talk about getting
rich quick—it sure felt as if the goose was laying a golden basket
of eggs!
However, depending upon where an investor was in the
market cycle of self-correction, was there going to be a buyer
for the property to do a quick turn? In 2002, the answer was
a resounding, “You Betcha’!” However, by 2005 and 2006, the
buyers had exhausted their buying ability (run out of money) and the
markets began to stall.
Since real estate revolves around supply and demand, if there
are not buyers that match sellers, the market will stall—which is what
happened. What a concept—ultimately, there must be someone to
live in a house or condo once it is built.
30
else is afraid, be greedy.” In essence, the
professional investor will typically do the
opposite of what the general population of
amateur investors is doing.
IF EDUCATED INVESTORS
DON’T BUY EMOTIONALLY,
HOW DO THEY KNOW
WHEN (AND WHERE) TO BUY?
Several factors in real estate drive real
estate prices. For example (and this is
simply common sense), if a market has high
unemployment rates, the local economic
conditions are dismal, and interest rates are
high, the real estate market will stall along
with sales of other goods and services
Let’
s take a moment and list the factors
that influence and drive the real estate
market and prices:
HOW DOES THAT RELATE
TO TODAY’S MARKETS?
The following diagram provides a graphic
view of what happened, where we are right
now, and what to expect based upon historical
data, in the future. The solid diagonal line
(A) indicates where we should have been
in terms of appreciation. The vertical line
(B) in 2002-05 shows what happens when
demand skyrockets. The declining line (C)
illustrates what is happening across much of
the country as prices self-correct to get back
to the markets’ “normal” line of appreciation.
Do you notice that when we have an
upward self-correction, the prices will tend
to rise too high and too fast for the market
to bear (for a period of time) and then
come down too much and too fast on the
downward side? That is due to the tendency
for people to live and make decisions
based upon recency bias! If everyone else
is buying, they hear about it, jump on the
band wagon, and they buy! If everyone
else is afraid to buy, they jump on the
band wagon, and they are afraid to buy!
Warren Buffet has a saying that comes to
mind in these situations, and to paraphrase
him, it comes down to, “When everyone
else is greedy, be afraid. When everyone
31
GUIDE TO REAL ESTATE INVESTING
Understanding Market Analysis & Evaluation
Interest rates & inflation
Lending qualifications
Availability of housing
Tourism
Job growth and stability
Industry & Manufacturing
Population growth
Demographic changes
Every city has historic numbers for appreciation rates—how much per
year, on a fairly long-term basis, the value of real estate increased,
on average.
In most areas of the country, real estate goes up approximately
4-5% per year. Now, some years there may be little change in
prices, and then in other years there will be a jump to correct the
lack of growth in previous years—but when we take a 25 year
average of the median home prices, we see what the city’s average
growth has been in percentage points. That percentage tells us
what to expect for an area’s overall growth rate, prior to factoring
in anomalies such as a new factory moving into the area that brings
in thousands of new jobs.
So now we have an annual average and can base our decisions
and projections for appreciation on numbers, rather than feelings.
This is a key point! Human beings who are not knowledgeable
32
changes. What should they have done? A
knowledgeable investor would have been
researching markets for areas that were
under-valued prior to the drop in interest
rates and lending qualifications. Then, the
investor could target areas based upon his
or her knowledge of the upcoming baby-
boomers who would be moving into certain
areas of the country when they retired. And
finally, the investor would have worked
closely with professionals in that area and
found out how many homes were on the
market, how long listings were taking to
move, and if any changes were taking place
within the community to signal a change in
expectations for that market.
So, a savvy investor in an under-valued
city like Bradenton, FL. would have been
buying property in 2002, 2003, and 2004,
but would have seen that prices were no
longer in line with the economy of that city
by early in 2004 and begun to sell before
things got out of control in terms of the price
of houses. Always remember, houses in any
city are there for people to actually live in
(what a concept)! If the average person
does not make enough to live in a house
or apartment (either buy or rent), there are
going to be vacancies! Real estate is like a
finely tuned instrument—it will self-correct or
“retune” itself whenever the prices get too
far out of line with the economy of the area.
about a topic tend to make decisions on an
emotional level—and then to compound the
problem, they have what I refer to as “recency
bias. Whatever is happening today, sure
feels as if it will always be happening. That
is not a good place to make decisions from!
Think about this for a few minutes—if real
estate is dramatically increasing in value at a
rapid rate, it sure feels as if you’d better jump
on the bandwagon and buy real estate in
that area!
This is what happened to many investors
between 2003 and 2006. The news came
on at 6 p.m. and the announcer conveyed
the new NAR (National Association of
Realtors
®
) Quarterly appreciation rates for
the largest 125 cities in the country and
Bradenton/Sarasota, FL. was #1 in the
nation! What did uneducated investors do?
They jumped on an airplane for Bradenton
and bought four houses—and they had
no understanding of the above factors that
influence demand on real estate in the long
term scheme of things!
YOU’VE GOT TO KNOW WHEN
TO HOLD—AND WHEN TO FOLD!
What was wrong with that picture? They
bought AFTER the market had emerged
and grown—not before or during the
33
GUIDE TO REAL ESTATE INVESTING
Understanding Market Analysis & Evaluation
The educated and knowledgeable investor would have been selling
by 2004 and 2005—not buying! And, the people he or she would
have been selling to would, in large part, have been the people
who were buying airplane tickets and flying into the area to buy
property that they didn’t have the correct knowledge to buy.
WHAT THIS MEANS TO YOU
At this point you might ask yourself, “How do I find undervalued areas
to invest in? How do I evaluate where those areas are in terms of the
market cycle?One of the best things you can do as you begin your
real estate investing business is have a mentor to guide you through
the process. He or she will know and understand the intricacies of
investing and market analysis. As well, your mentor will work with you
to identify new market trends that are taking place in the area under
investigation, the number of days on market, the sub-areas within the
overall city that are most likely to appreciate the most quickly, and
those that are most likely to stall and begin self-correcting first.
Now, in a market that is already stalled, where do investors
begin? Start by identifying the sub-neighborhoods that are moving
the most quickly! Working with your real estate professional, do a zip
code search for the areas that have the properties that are moving
with the most frequency. And then, begin looking for distressed sellers
that are highly motivated to sell in those zip codes. If one of your
streams of income is going to be foreclosures, you could target all
sellers within a certain zip code who are in pre-foreclosure status.
If one of your investment strategies is to buy and hold using lease
option techniques, you could then buy the pre-foreclosure, hold it for
three years using a lease option technique, and realize the benefits
of the appreciation that the city’s otherwise stalled market is not
experiencing.
34
SELF-CORRECTING MARKETS: Areas
that have either gone up too quickly
or too much due to dabblers investing
and creating artificial demand that was
not filled by actual long term buyers or
tenants, or areas that are undervalued
that need to adjust upward to change
the pricing for that physical location’s
proximity to nearby, higher priced areas.
DEPRECIATING MARKETS: Areas where
industry, manufacturing, or tourism has
declined, decreasing the demand on
the existing available housing and new
structures or sources of revenue are not
yet in place to create a new demand.
Based upon these definitions and categories
of markets, where would you categorize
your city, overall?
Many new investors, as they evaluate
their local markets, believe that property is
depreciating when it is actually self-correcting.
As well, they buy based upon price, rather
than buying based upon market potential.
Most new investors lean towards buying in
the low or middle income areas because they
feel the risk is lower. However, when market
analysis is a part of your knowledge base,
buying decisions are made based upon exit
and holding strategies, not on fear of risk
(bigger numbers).
The key concept in this chapter is for
new investors to understand the magnitude
of analyzing a real estate market prior to
buying property. If you are buying in a
stalled real estate area, and you understand
that from the beginning, you will know to
buy at a large discount to cover and build in
the lack of appreciation that you understand
is going to be a part of that deal.
If you know where you are in a market
cycle, you can buy, hold, or sell accordingly,
as well as change or modify your exit
strategy to complement the part of the cycle
you are in. The cycles or conditions of a real
market are as follows:
APPRECIATING MARKETS: Areas where
there is not enough housing, high demand,
or a shortage of land. Areas where an
increase in population is placing pressure
on the housing market. Neighborhoods
that are in high demand due to location,
school districts, or other influences are
cause the area to be considered “choice.”
FLAT MARKETS: Areas that have an
adequate amount of housing for the
population and housing demands. Areas
that have an abundance of land for future
development and few restrictions on
building new houses.
CHAPTER
THREE
35
s we learned in the previous
chapter, real estate investors
must know how to analyze an overall
market to determine what is happening
within it at any given time. In addition,
they must use their knowledge to identify
the most profitable neighborhoods
within that market for their various
streams of income. Now, with that
knowledge we can begin to look at
ways to make wise buying decisions
in the right places.
The most important thing you will
do in real estate investing is buy right
(in other words, make the best deal
possible when buying a property).
This is where you will really make
your money in real estate. In fact, you
may have heard people say it before:
you make your money when you buy;
you just realize it when you sell your
property and make a profit, or when
you start getting positive cash flow
from an income-producing property.
And it’s true. So, it’s imperative you
buy right, meaning you never pay too
much for a property.
To do this, you need to get to
know and understand the market
you’re buying in. After all, the only
way you can calculate the after-repair
value of a property is by knowing the
fair market value of houses in the area
you choose to concentrate in. It is a
crucial part of the evaluation process.
A
GETTING TO
KNOW YOUR
MARKET
37
GUIDE TO REAL ESTATE INVESTING
Getting To Know Your Market
38
DEFINING THE AREA
YOU WILL INVEST IN
Start by looking in a low- to moderate-income
neighborhood, where you will find a large
inventory of properties. If you want to buy,
fix, and sell, look for decent neighborhoods
where it is clear neighbors care about their
property and the community (these are often
termed “We Care” neighborhoods).
If you want to wholesale properties
(quick-turn properties to other investors a
popular and profitable strategy you will
learn about in greater detail later), you will
be looking more toward extremely distressed
properties or neighborhoods.
Of course, in order to define your target
area in relation to your goals, you need to
know where each of these areas is in your
city. If you are not sure where these areas
are, you will need to segment your city with
the help of your real estate agent. If you do
not already have a real estate professional
or need to know what to look for in a good
real estate agent, please refer to Chapter
Two.
TRUE MARKET VALUE
Some people think the true market value is
what they see advertised in the classified
section of the newspaper or in flyers they
have pulled out of a box on a real estate
agent’s sign. But that is a “wish list” what
the seller hopes to get. The true market value
is not what people are asking for. It is what
someone is willing to pay and someone else
is willing to accept. And more specifically,
it is the sales prices of houses that have sold
within the last six months (not what they were
listed for, but what they actually sold for).
No matter what type of real estate
investing you do (buy, fix, and sell;
wholesale; foreclosure; lease option; income
property; etc.), you will need to understand
your market. Understanding your market
will help you know what to offer, how to
recognize a good deal when you see one,
and how to act quickly. And as you develop
your knowledge of the market, you will be
spending less time looking at properties that
aren’t worthwhile investments.
39
GUIDE TO REAL ESTATE INVESTING
Getting To Know Your Market
SEGMENTING YOUR AREA
Ask the real estate professional what the average price of a three
bedroom, two bath, single family home is in your city. You also want
the agent to pull up a one-line MLS (multiple listing service) list of
single family homes. Sometimes they call this a “short form.” Have the
agent start at $0 and go to 120% of the average home price.
With this information, you can now identify which areas are
low-income, working class, middle-income, and higher-income
neighborhoods. Next, take the average price of a home in your
city and multiply it by 70% and by 110%.
For example:
$100,000 = average price
70% = $70,000
110% = $110,000
EXAMPLE
Below 70% of
Average
70% of
Average
Average
Home Price
110% of Aver-
age
110%+ of
Average
Low Income
Neighborhood
Working Class
Neighborhood
Working Class
Neighborhood
Middle Income
Neighborhood
$70,000 $70,000 $100,000 $110,000 $110,000
Once you have this information, you will need to get a map of your
city, which you can usually obtain directly from your city, purchase
from a store, or find on the Internet. You will need to make at least
two copies of this map. Have one copy enlarged to a size that
allows you to easily see the streets and get this copy laminated. If
you live in a large city, begin by concentrating on about a one-mile
square area or on a 20 to 40-block square; you can gradually
expand your area.
40
neighborhoods more appropriate for
wholesaling opportunities. If you don’t know
where these areas are, talk to someone who
is knowledgeable about your area. You can
contact property management companies,
appraisers, postal carriers, cable workers,
or your local police.
These maps will also help you
understand what homes are selling for in
different segments of your city.
The second map should be on an
8 ½ x 11 inch sheet of paper that you can
put in a notebook and carry with you in the
car (you may need to use several sheets,
depending on the size of your city). Write
on the map where the low-income, working
class, and the middle-income areas are
based upon the information you received
from the agent. Identify extremely distressed
My City
Lease
Options
Wholesale
Pre-Fore-
closure Dovetailed
With
Buy & Hold
Lease Options
Com-
mercial Office
Space
Apart-
ments
Wholesale
Rehab
Potential:
Revitalization Areas:
Historic Grant &
Tax Credits
Apart-
ments
Land
Develop-
ment
Wholesale
Mobile
Home Lease
Options
Lease
Options
Wholesale
Pre-Fore-
closure Dovetailed
With
Buy & Hold
Lease Options
Com-
mercial Office
Space
Apart-
ments
Wholesale
Rehab
Potential:
Revitalization Areas:
Historic Grant &
Tax Credits
Apart-
ments
Land
Develop-
ment
Pre-
Foreclosures
Pre-
Foreclosures
Wholesale
Mobile
Home Lease
Options
Lease
Options
41
GUIDE TO REAL ESTATE INVESTING
Getting To Know Your Market
As you become more familiar with real estate investing and
the skills needed for the streams of income you will focus on, this
map will become more valuable to you as time passes. Now, when
you are searching the MLS list for various properties that are for
sale, you can do specific searches of zip codes or neighborhoods
when you are ready to go after your next lease option, foreclosure,
wholesale, or rehab property.
DECIDE WHAT AREA YOU WANT TO FOCUS ON
As discussed before, pick an area you want to focus on. Your target
area will depend on what kind of investing you want to do. For
example, if you plan to buy a house, fix it up, and then resell it, you
will be looking in the working to middle-income areas. If you want
to do quick-turns without ever fixing up the property, you’ll look in
areas that are more distressed—areas that the rehabbers tend to
work in. If you are not sure which area to target, then start with the
working to middle-income neighborhoods. You can always expand
to other areas.
Once you have completed this assignment, you will be able to
go into another region, anywhere in the country, and get to know
the market there quickly.
DETERMINING PROPERTY VALUES USING COMPS
Now that you have picked your target area, you are ready to get to
know the market. You will now ask the real estate agent to pull up the
comps (nickname for comparables) within a certain neighborhood.
What you will get is a list of properties that have sold within the
42
If you are buying rental properties, the
appraiser will use an income approach.
The value of the property is based upon the
income it produces. This method is used in
determining the value of multi-units.
Have the real estate agent pull up a
list of houses that have sold within the last
six months in the area you are focusing on.
Ask the agent to pull up about 20 houses.
If 20 houses haven’t sold, that’s okay. You
can’t make more houses sell than have sold.
On the other hand, if the agent pulls up 40
houses, that’s too many. Ask your agent to
condense the list down either by square
footage, number of bedrooms, geography,
or style until you have 20 houses.
Keep in mind that information about
houses that have sold within the last three
months is more valuable than the comps that
are six months old, since the market can
change quickly.
WHAT THE COMPARABLES
WILL TELL YOU
Looking at the list of properties that have
sold within the last six months, you will see
information about each house, such as:
LISTED PRICE This is the price the house
was listed for (the asking price).
last six months in the particular area where
you are focusing your investing. The reason
you need the agent to do this is because
the comps help you understand the market.
Earlier, we mentioned some people think the
true market is what they see in the houses for
sale section of the newspaper. But the true
market is what someone is willing to pay
and someone else is willing to accept in a
competitive and open market.
Real estate appraisers use the sales
comparison approach to identify properties
that have recently sold that are similar in
square footage, number of bedrooms,
location, property type, available amenities,
condition, etc. to the house they are
appraising. Appraisers will usually look at
three houses and determine the value of the
house they are appraising based upon the
recent sales prices for those similar houses.
Appraisers also look at other methods to
determine the value of a property, such
as a cost replacement method. With this
method, they are comparing this house to
what it would cost per square foot to build
a new one. This method is not as accurate
because supply and demand, as well as
the economics for an area determines what
people are willing to pay. You will find
the appraised value leans heavily on the
comparables.
43
GUIDE TO REAL ESTATE INVESTING
Getting To Know Your Market
SOLD PRICE – This is the price the house actually sold for.
Now you will know if the sellers got the price they were asking for
or less.
DAYS ON THE MARKET, OR DOM The number of days listed
next to this tells you how many days the home stayed on the market
before it was sold. Sometimes you will just see a number indicating
the number of days it took to sell the property; other times, you may
see both a listed and a sold date. Either way, this provides valuable
information because it helps you understand the time it typically
takes to sell a house in your area.
SQUARE FOOTAGE This tells you the size of the house. It also
helps you determine the cost per square foot that homes are selling
for (some comps will actually list the price per square foot).
HOW MANY BEDROOMS AND BATHS
LOT SIZE – It may tell you the dimensions of the lot or indicate what
percent of an acre the lot is (for example, .20 = one fifth of an
acre).
YEAR BUILT OR AGE OF HOUSE – This will either tell you the year
the house was built or how old the house is.
This is the minimum information you should have on each of the
comps. However, you will probably see more because you are
going to ask the agent to include the remarks (or comments) and a
picture. The reason the remarks are so valuable is you will be trying
to figure out why these houses sold for the price they sold for. You
will be driving by each of them, but because they have been sold,
44
DRIVE BY THE HOUSES THAT
HAVE SOLD
When you get your comparables list, you
need to drive by each of the houses on it.
Stop the car and look out the window. Write
down what you see. This is not a test to
find something wrong with the property. The
house may look great! You are just trying to
figure out why the house sold for that price.
START WITH THE ROOF
How does the roof look? You don’t have to
be a roofing expert to know it needs work
if you see some missing shingles or shingles
that are curling up.
LOOK AT THE EXTERIOR OF THE HOUSE
How does it look? Does it need work?
Again, this is not a test to find what’s wrong
with the house. You have permission to write
down, “House looks great.” But if you do
notice something is wrong, then write it
down. Be sure to pay attention to the picture
on the MLS sheet. If the picture does not
look as nice as the house does now, then
the person who bought the house probably
fixed it up.
LOOK AT THE YARD
Now, check out the yard. How does it look?
Does it look groomed and taken care of?
Again, pay attention to the picture.
you will not be able to see inside. Since you
cannot judge a house by its cover any more
than you can judge a book by its cover,
the remarks will give you a clue as to the
condition of the house.
Things you may see in the remark section of
the MLS include:
Great Fixer-Upper
Handyman Special
Needs TLC
Sold As-Is
Reading this, you will know the house
probably needed some work even if it looks
great on the outside.
Other things you may notice in the remarks
section are:
Motivated Seller
Must Sell
Foreclosure
Bank Owned
Illness Forces Sale
Divorce
Transferred
When you see words like that, it could be
an indicator the seller is motivated.
CHAPTER
FOUR
45
n order to be successful, you will
need to work with others… people
who know this business or can help
you build yours, people who can help
direct you to buyers for your properties
or provide financial assistance, etc.
As an investor, you’ll learn how to
leverage your money, but you will also
need to learn how to leverage your
time. Careful selection of qualified
people who can assist you in growing
your business can help you manage
your time and energy more effectively.
And leveraging your team members’
knowledge can also help you avoid
making mistakes.
To help get you started, this
chapter will introduce you to the key
contacts you will most likely have on
your power team.
The important thing to remember is
you don’t need to try to do all the
work yourself. Seek professional help
and support and recognize you will
need to learn to delegate certain
responsibilities at some point.
You will find that putting your
team together is an ongoing process.
Your team will grow as you expand
your knowledge of real estate and
take advantage of additional income
streams and opportunities.
FINDING THE RIGHT REAL
ESTATE PROFESSIONAL
A good working relationship with a
real estate professional is one of the
most important assets an investor can
have. For one, when a property you
I
SELECTING
A POWER TEAM
47
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
48
CHOOSING A REAL
ESTATE PROFESSIONAL
When choosing an agent, you want
someone who works in the business full time
and has strong knowledge of his or her field.
You are looking an agent who is creative,
hard working, and aggressive, and who
knows how and where to find deals.
Most real estate professionals have
not worked with investors. They have never
done a creative transaction. This can be
a challenge for you and it can take some
time to find the right agent, but the time you
spend will be well worth it. Since your agent
is one of the most important, if not the most
important, member of your power team, he
or she cannot be your weakest link in your
power team chain!
One of the most important things you
are looking for is an agent who thinks
like you do—like a millionaire real estate
wealth builder! Most agents are not
receptive to “unusual” offers. They may not
believe in “nothing down” offers or creative
approaches. If you plan to make a creative
offer and you are working with an agent
who doesn’t think “outside the box,” it’s
time to find a new one! In the meantime,
insist on being the one to present the offer
because you want the owner to hear the
are interested in purchasing is listed with an
agent you will want to have your own agent
working with you to represent your best
interests in the deal. Secondly, real estate
professionals can help you evaluate deals
by pulling up sold properties comparable to
the one you are thinking of buying, giving
you a good idea of the market value for that
neighborhood. And third, Realtors
®
have
access to the Multiple Listing Service (MLS)
remarks section, a valuable source for finding
potential deals. The MLS is a cooperative
exchange of listing information. When a
seller lists his or her home with a Realtor
®
,
the listing is put on the MLS, making the
home available for any agent who belongs
to the MLS to bring a buyer and share in the
commission with the listing agent.
The properties on the MLS will usually
include pictures and a good deal of
information about the property, including
the address of the property, the number of
bedrooms and baths, the square footage,
and available amenities. The MLS may also
include any special terms the seller may
consider.
As we discussed in the previous chapter,
the remark section of the listing will contain
clues about the condition of the property
and the motivation of the seller. Your agent
can put keywords into the remark section to
pull up properties of interest to you.
49
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
benefits of your offer. Believing in those benefits will be key to making
a convincing presentation.
Tell the agent what you’re looking for—and be specific. If you
are beginning with wholesale deals, let the agent know you are
looking for distressed properties that need repair. Do not let the agent
pre-qualify you. Let them know you use private funding and can close
quickly.
Find a real estate professional who works in your target area by
driving through the neighborhood. Look for agent signs and pick the
three companies with the most signs. As you do this, you may notice
an agent dominating the area. Real estate agents usually “farman
area, meaning they focus on a particular area and work it to get
listings. They do this by actively contacting the owners through phone
calls, mailing promotional material, and knocking on doors.
Begin your interview by saying, “We are real estate investors and
we’re buying houses in this area. We are looking for properties
that are 20-30% below market and/or distressed properties
in need of repair. We also look mainly for properties in need
of cosmetic repairs. We are also looking for an agent who
specializes in income properties such as apartment buildings,
duplexes, and four-plexes. Is there someone in your office who
fits that description?”
NOT TOO BIG, NOT TOO SMALL, JUST RIGHT!
One of the questions new investors have when it comes to choosing
the right person to work with is, “How much experience should
the agent have?” There is no one size fits all answer to this, but
experience has shown me that somewhere between three and five
years seems to be a good blend of knowledge about the business
and not being too set in their ways.
50
by and present offers on properties that I’m
interested in.
This will be a good opportunity for
both of us to make some money. Are you
able to help me out?”
How long have you been in the real
estate business? (You want a minimum
of one year of experience.)
Do you specialize in any type of real
estate? (Their specialty should
preferably be your area of interest.)
Do you specialize in any area of town?
Do you have any satisfied customers I
can talk to?
Do you make real estate your living?
(Answer should be yes!)
Are you willing to put the time in to
help me find the right properties?
What neighborhoods are turning
around properties more quickly than
others?
Do you have any banking connections?
(Mortgage brokers, lenders, etc.)
REAL ESTATE PROFESSIONAL
INTERVIEW SCRIPT
The following is a sample script of what
you might say when interviewing potential
agents.
“Hello, my name is _______________. I’m
in a position to do some investing in real
estate. I am looking to buy properties in your
area and I want to develop a relationship
with someone who understands my needs.
I’m looking for any property that
makes sense. I will consider everything:
single family, and multi-units with a good
cash flow. I’m interested in properties that
are cosmetically distressed. Fixer-uppers
are great. You know, paint, carpet, and a
little cleanup, that sort of thing. I am not
looking for any major repairs like plumbing
or structural.
I can pay cash in some instances.
Generally I use private funding to purchase
these houses and can close quickly (they
think commission!). However, I am always
interested in seller financing.
I am looking for an agent who will
research the MLS for me to find properties
that meet my criteria and fax or email me
a copy of those listings. I will do a drive-
51
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
Can you recommend a good closing agent in town?
How much is your commission?
Do you have the flexibility to work with your broker?
Is this a good time to buy? Why?
What is your opinion of the direction the real estate market is
headed?
What are the average number of days on market in ________
zip code?
Do you own any real estate in town? (You want this answer to
be yes.)
Have you ever owned investment property?
Are there any areas you feel particularly good about? If so,
why?
Where would you invest if you were going to buy property
yourself?
What kind of properties would you buy?
Does your firm manage properties? If yes, what do you
charge?
What is the vacancy rate in the area?
52
FINDING THE RIGHT
MORTGAGE BROKER
A good mortgage broker can be the real
estate investor’s best friend. You want a
broker who can put the deal together and
get it closed.
Sometimes you have to go through
several brokers until you find the one you
want to work with, but remember that it
never hurts to have more than one contact.
In fact, we suggest that you have not one,
but THREE, mortgage brokers on your team.
Why? This keeps them on their toes and
provides you with more loan products to
choose from.
You are looking for a broker who has
been in the business a while. You want one
who is experienced in working with investors
and bridge financing (hard money lenders).
And you want one who is thoroughly
familiar with FHA financing, local down
payment assistance programs, grants, and
hard money lending.
A mortgage broker can be a good
source for finding investment deals and is
usually more creative than a banker when it
comes to funding your opportunities.
How many properties do you have
listed? (This is just to give you an idea
of whether this agent works primarily
as a buyer’s or a seller’s agent.)
How many properties did you sell last
year? (You want to see how busy they
are.)
Do you work with investors? If so, how
many are you actively seeking
properties for, right now?
Are you available on the weekends?
Do you have any properties for sale
that would be a good investment for
me?
Are there areas that seem to be going
up in value faster than others? If they
answer yes to this question, ask more
questions—such as what is driving that
market, why the demand is higher in
this area, etc.
53
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
When you talk with mortgage brokers, do not let them run a
credit check until you find a mortgage broker you like. Every time
they run a credit check, it can lower your score, so don’t authorize
a pre-approval credit check. The best way to find a good mortgage
broker is often through a real estate professional. Interview at least
five mortgage brokers before choosing the ones you will eventually
work with.
Another good question to ask potential brokers is how they
are creatively dealing with the tight lending policies in place at the
present time. Find out what they will need you to have in terms of
credit scores, down payments, and other qualifications in order to
get deals closed.
MORTGAGE BROKER INTERVIEW
Ask the following questions to help determine if this is the right
mortgage broker for your team.
Is the major part of your business refinancing? (Anyone can
do refinance. This is not what you are looking for.)
How long have you been a mortgage broker? (You want at
least three years experience. It takes experience to know a
lot of different lenders and products, and the mortgage
industry is constantly changing.)
Do you work with investors?
Do you lend on appraised value or purchase price? (Will
they lend on the after-repair value?)
54
who had good credit but couldn’t
qualify because of employment history
or down payment amounts? Would
you be willing to refer those people
to me for possible lease option deals
and then I would send them back
to you when they have improved their
scores (or whatever else caused them
to be ineligible) for funding at that
time?
COMMUNITY BANKER
Your contact at the bank should be someone
at the vice president level or another
executive with lending authority. Take time
to interview several bankers until you find
someone you would like to work with.
There are several benefits to using a
community bank. First, they have local
knowledge of the area and know the
growth pattern of the community first-hand.
Second, they have local decision making
ability (decisions are not being made in
some other state where the person doesn’t
know your real estate market’s potential or
the trends of your market). Third, they offer
flexibility and are able to be more creative
than the larger banks. And fourth, they want
to build relationships. Finally, and far from
the least important point, they often make
Can you put together 100% financing
packages?
Do you have access to hard money?
Do you specialize in the non-
conforming arena?
Are you a correspondent lender? (A
correspondent lender can lend money
for 90 days until lenders complete
their funding. They help ensure you
won’t lose a deal because of last
minute problems with the lender’s
underwriting team. Correspondent
lenders get the job done by lending
the money themselves.)
Do you have the ability to fund your
own loans? (If they are not familiar
with the term “correspondent lender.”)
Would you help me put the deals
together? (The mortgage broker can
put the deal together for you.)
Do you have names on file of people
who wanted to purchase a home,
were qualified in terms of a down
payment, but fell short due to their
credit scores? How about people
55
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
what are referred to as LTV loans—loans based upon the value of
the property, rather than the amount of the contract and appraisal
combined. What does this mean? If you are buying at 70% of
FMV, and the appraisal on the house is $100,000, an LTV lender
will lend the full amount (and sometimes even more). A conventional
lender through your mortgage broker will typically lend a maximum
of 80% of the contract price or 80% of the appraisal, whichever
gives them the most secure position! Community banks are known
for providing great service and will usually tell you why you were
turned down if a loan is rejected and work with you to help you
overcome that hurdle. They want you to stay with them a long time.
Realize that building a solid relationship with the right banker
takes time, but the effort is worth it.
CONTRACTOR HANDYMAN
A contractor or handyman can perform the necessary repairs on your
properties (investors generally prefer working with a handyman).
It is critical that the person or persons you use are licensed and
insured to protect you and them. You need to find someone you
can trust, and someone who can give you bids and manage the
subcontractors.
You can find contacts for the services you need through your
local home improvement store’s bulletin board or get a referral from
other investors or individuals you know who have had experience
working with contractors or handymen. Another good way to find
handymen is through internet sites, including internet referral sites.
56
LAWYER
Your lawyer must be in full-time real estate,
mortgage, and corporate law. You want
someone who is able to review documents
and contracts, and is familiar with rent
review and tenant’s protection legislation.
You also want an attorney who is aggressive
in asset protection. You don’t want to amass
a fortune and then lose it because of a
lawsuit. An attorney can also be a great
resource for finding deals.
TITLE COMPANY
If you invest in a state where title companies
are used, you’ll find that a title company can
provide you with many beneficial services.
For example, they can provide property
reports on properties you are thinking of
buying. And they can give you information
about owners of homes in an area you
are “farming.” Title companies can also
handle closings and provide title insurance
to protect you. Sometimes, they are able to
pull up pre-foreclosure lists for you. Another
advantage of working with a title company
is they usually know plenty of investors.
Ask them to alert you when deals don’t go
through.
TAX PROFESSIONAL
An accountant or CPA can help you take
advantage of any available deductions
from the ownership of real estate and can
help you stay on top of your taxes as a
self-employed individual. You need to find
one who understands what you are doing
and what you are planning to do. And
they should be knowledgeable about real
estate and tax law, as well as the impact
of income taxes and capital gains on what
you plan to do. They should also understand
corporations and what will help you achieve
your financial goals.
APPRAISER
Appraisers are hired to determine the market
value of homes when necessary and can
help with “Rent to Own” and “Sweat Equity”
programs. You want to find an appraiser who
will do “subject to” repairs, and who is FHA
approved. Appraisers know what needs to
be done to qualify for FHA and they know
how to bring a property to code. You can
learn a great deal from your appraiser.
57
GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
HOME INSPECTION PROFESSIONAL
Develop a relationship with a home inspection professional. Be
sure to accompany the inspector as he or she inspects the house
and ask a lot of questions. Use a property manager or a real estate
professional to help you find a good one.
SURVEYOR
These professionals will survey the land. A land survey is sometimes
necessary to close on the backend.
TERMITE INSPECTORS
Termite inspectors are sometimes necessary for closing and they can
alert you to expensive hidden problems. Use a large established
company. If the property is treated or was treated within the last
year, make sure there is a contract and that it is renewable.
INSURANCE AGENT
An insurance agent can be a great resource in helping you decide
the best coverage for your various properties and may be able
to direct you to potential deals. Look for an insurance agent who
specializes in working with investors.
58
MENTOR
Model yourself after people who impress
you. You will learn much from someone
“who has been there” before you. Follow
the approach of people who have proven
themselves in this business. A mentor could
also be a potential investor for you.
NETWORKING CONTACTS
Network with everyone you know and meet.
Hand out business cards whenever possible
because leads can come from some of the
most unlikely places (for example, stick them
inside the envelopes when you pay your bills
or leave them with your tip for a waitress).
Attend industry-related events such as
foreclosure auctions to meet and get to know
other investors and communicate regularly
with the members of your power team.
And definitely do not miss out on
attending meetings of your local real estate
investment club if you have one (if you don’t,
then consider creating one!). Most real
estate investment clubs have a guest speaker
and meet once a month. If you have trouble
finding a creative lender or another member
of your power team, you may get a great
PROPERTY MANAGER
If you are buying income properties and
don’t want to manage them, property
managers will be vital to your business. You
can learn a lot from property managers, such
as the vacancy rate for the area and what
the going rent is. Sometimes they will alert
you when an investor they are managing
properties for is thinking of selling. They may
also be able to give you a referral for a
good handyman.
GOVERNMENT GRANT
AND LOAN SPECIALIST
A government grant and loan specialist can
assist you in finding grants and loans that
will help you in your real estate investing.
You can find them by contacting government
agencies or by calling several banks in your
area. You may also want to talk to other
investors to see what they know and to get
referrals.
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GUIDE TO REAL ESTATE INVESTING
Selecting A Power Team
referral from a club member. And you can usually find hard money
lenders at the meetings.
Check with other investors, title companies, real estate professionals,
mortgage brokers, or anyone who is in the real estate business about
an investment club in your area. They may charge a monthly or yearly
fee for membership. Ask if you can go free on a complimentary visit
the first time you attend.
ASSIGNMENT
The following is a suggested assignment.
BEGIN BUILDING YOUR POWER TEAM.
Start by building relationships with a real estate professional, a
mortgage broker, and a banker. They are critical to your success in
real estate investing.
60
CHAPTER
FIVE
61
y now you should know how to
figure out the true value of a
property by using the comps you can
get from a real estate professional.
You should have started building your
power team and are now eager to find
a deal. You are ready to make money!
We talked about how you make
your money when you buy and the
importance of buying right. Buying
right would mean getting a great
deal to maximize your profit on the
backend.
Ultimately, you are going to find
what creates a great deal is finding
a motivated or flexible seller. In fact,
locating motivated sellers and helping
them with their problems is the secret
to great deals.
WHAT IS A
MOTIVATED SELLER?
Motivated sellers are real estate
owners who have to sell for one reason
or another. There are many factors that
affect their motivation to sell and these
factors fall into three main categories:
personal hardship, the property itself,
or economic problems.
What kind of personal hardships
may cause a homeowner to become a
motivated seller? For one, an owner’s
failing health may cause him to need to
sell the house. Or perhaps the owner
has a job out of state and the house
is vacant; as time passes, that owner
B
FINDING
MOTIVATED
SELLERS
63
GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
64
HOW DO WE FIND THEM?
Regardless of the factors that create the
need to sell, the point is there are many
motivated sellers out there and many ways
to find them. In doing so, you can locate a
great deal.
This chapter offers some techniques
you will find helpful in locating flexible
sellers in your area.
WORK WITH REAL ESTATE
PROFESSIONALS
We talked about the importance of having
a good real estate agent as a member of
your power team and that it may take some
time to find the right one. In fact, you may
have to try several of them out first before
you find the right agent or agents for you,
but that’s okay. Once you find just a couple
of agents who have the ability to locate
deals and who will work hard for you, your
phone and fax will begin ringing.
Working with real estate agents is
usually the best way to locate good deals
and motivated sellers when you first start out
with real estate investing. Look for the ones
who know how to be creative and who
specialize in working with investors.
will likely become more flexible on price or
terms. Maybe the seller has suffered a job
loss and the house is going into foreclosure.
Or maybe divorce is forcing a sale. Perhaps
the owner died and the house needs to be
sold to settle the estate and pay the heirs. Or
a partnership has fallen through, causing the
need to sell.
The property’s condition may create
a need to sell as well. Perhaps the owner
doesn’t have enough money to fix it up.
Sometimes a property may have financing
that has a balloon payment due and the
owner can’t refinance it because the property
isn’t in sufficient condition to qualify for a
loan. Or you may find a tired landlord with
a house that was trashed by the tenants.
Economic problems can create a need
to sell as well. But remember, some economic
problems you may encounter can be caused
by a change in the economy overall, not
just in the economics of the homeowner. For
example, a business that employs most of
the town, but then goes out of business, will
have an impact on real estate in the area.
Be careful! You may find phenomenal deals,
but are they really great deals if you can’t
sell the properties or rent them out?
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
WORKING WITH MORE THAN ONE AGENT
Most investors have more than one agent they work with because it
can be very beneficial to have different agents on your power team.
A listing agent, for example, can hold off putting the property on the
MLS for a couple of days so an investor has less competition for his
or her offer. When you work with an agent who has pocket listings,
they may give you first shot at making an offer on a property before
they put it on the MLS.
Another type of real estate professional you may find good
to work with is a foreclosure specialist. There are banks that work
specifically with certain agents in listing their foreclosures. Even
though not every foreclosure is a deal, some are worth checking out.
Another real estate professional you may want to work with
would be a “hoop jumper” – an agent who is aggressive and works
hard for you as a buyer. They will put keywords into the MLS and pull
up comps for you.
No matter how many agents you work with, you need to
keep one thing in mind: be loyal. If you receive information from
one agent and then buy through another agent, you cannot expect
that first agent to keep looking for properties for you. Real estate
agents have to eat, too. Always buy from the one who gives you the
information first. Be loyal to that agent and always create a win/
win situation for both of you.
Additionally, some investors try to go around the agent to
avoid paying their fees. But this doesn’t make good business or
moral sense. You need to treat the agent who generates good
leads right by rewarding them and not trying to take away their
commission.
Since you will be working with more than one agent, you need
to understand that it may be a concern to an agent that he or she
will bring you a property, only to have you go directly to the owner
66
Divorce
Illness
Transferred
Foreclosure
Condemned
Bank Owned
Desperate
Estate Sale
Moving
Seller Will Finance
Will Sacrifice
EXPIRED OR “AGED” LISTINGS
Once you have a good relationship with a
agent, you can ask him or her to pull up
the expired listings or the listings that have
been on the market for a while. Sometimes
the MLS system will allow your agent to find
properties that are free and clear.
CREATE A FLYER TO ATTRACT
AGGRESSIVE AGENTS
If you want to attract agents who may
already have motivated sellers or who know
of interesting properties, you may want to
run an ad or send a flyer to all the real estate
offices in your area of interest.
A sample of what your flyer might look like
can be found on the next page.
or work with another agent. To alleviate this
concern, you could offer to sign a Buyer’s
Broker Agreement. In the agreement, you
state you will work with only this agent on
the particular property he brought to you for
a specific period of time. This protects the
agent and keeps him working hard to locate
deals for you.
Using keywords
As we’ve mentioned previously, the
real estate professional can put keywords
into the remark section of the MLS to find
some interesting properties that meet your
requirements. For example, the agent can
put in the word “motivated” and the computer
will give a listing of every property that has
the word “motivated” in it.
Keywords you will want the agent to search
for include:
Handyman Special
Investor Special
Needs Work
Offer
Must Sell
Needs TLC
As-Is Condition
Fixer-Upper
Motivated
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
HOW TO
INCREASE YOUR SALES!
Attention: Broker and Real Estate Office Managers!
If you want to MAKE MORE MONEY,
then make a copy of this EXCITING OPPORTUNITY
for each of your agents or please post on your board.
WE NEED To BUY HOUSES AND
MULTI-FAMILY UNITS NOW!
WE’LL PAY UP TO 60% OF VALUE WITH CASH,
OR MORE WITH TERMS! ANY AREA OR CONDITION
$500 BONUS!
Call us with your properties to sell or sell our properties to your customers and
get a $500 BONUS on top of your commissions!
WE HAVE THE EXPERIENCE TO BE SUCCESSFUL
WE’RE FLEXIBLE, CREATIVE, AND GOOD AT SOLVING
PROBLEMS...
We have a WIN/WIN Philosophy! Call me today!
Joe Smith, 555-1212
68
phone number. Most neighbors realize this
vacant house is bringing down the value
of their home and will be anxious to help
you locate the owner. If they seem to know
how to reach the owner, but are hesitant to
give you this information, just give them your
business card and ask them to let the owner
know you may be interested in purchasing
the property.
Leave several flyers at the vacant
house. The owner or a family member often
checks on the house.
HOW TO FIND THE OWNERS OF
VACANT HOUSES
Look up the owner’s name in tax rolls,
appraisal districts, or computerized
services. Or check online at:
netronline.com. Click on public
records, then your county and state.
Look for the assessor or auditor’s office.
Many times this information is on the
Internet.
Check with the neighbors on both
sides of the house and see if they know
how to reach the owners or where they
have moved.
Send two letters, one to the address
FSBO (FOR SALE BY OWNER) SIGNS
By now, you are probably already taking
a different route to work every day. You
should be paying attention to any FSBO
signs you see, especially because some
of these properties may not even be listed
in the newspaper and the only way to
know about them is from the signs. Poorly
advertised FSBO homes are an excellent
source of leads (think less competition for
your offer!). Write down the phone number
and call the owner. Better yet, get out of the
car and knock on the door.
TRACKING VACANT OR
BOARDED HOUSES
Whenever you are in the car, you should
be looking for vacant houses, distressed
properties, FSBOs, and houses for rent. Drive
up and down your target area regularly and
seek out these types of properties. Owners
of vacant or distressed properties can be
motivated sellers.
Write down or tape record the
addresses of any vacant or distressed homes
you find. You can look up the owner’s name
at the courthouse. If you have time, stop
the car, get out, and knock on neighbors’
doors. They may know where the owner
has moved to or they may have the owner’s
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
of the vacant house asking it to be
forwarded, and the other one to the address with the words
“Address Service Requested – Do Not Forward” on the
envelope.
Check with the utility company to see if a new account is open
in the previous owner’s name.
Check the phone book or call Information to see if a new
phone number has been issued to the owner or if they have a
new address.
If you have a different mailing address for the owner, but it isn’t
listed in the phone book, check a reverse directory, which can be
found in the reference section of your public library. The directory
starts with addresses first, allowing you to search for the owner’s
name when the only information you have is their address. Or go
to reverseaddress.com. Sometimes the owner may be living with
relatives with a different last name and reverse directories can help
you find them.
Employ a private investigator (look in the phone book under
Private Investigator) to have them do a skip trace to find
the owner. Try to negotiate with them that they must find the
information you are looking for or there is no fee.
AUCTIONS
Look in the Yellow Pages and in newspaper advertisements for
auctioneers. Call every auctioneer you find and ask them if they
auction real estate. If they say yes, ask to be put on their mailing
list. If you see an auction for real estate property being advertised
70
properties to.
HUD, VA, FDIC, IRS, AND OTHERS
In some areas of the country, HUD (Department
of Housing and Urban Development) and VA
(Department of Veteran’s Affairs) foreclosure
properties are phenomenal deals. In other
areas, people pay too much and they are
not a deal. To find foreclosure properties
offered by HUD, VA, and others, such as
the FDIC, the IRS, and Customs, visit the
HUD website at www.hud.gov/homes/
homesforsale.cfm. HUD and VA foreclosure
bids have to be submitted through a HUD-
certified agent/broker.
Important Note: Never bid on an owner
occupied list unless you plan to live in the
property. If you are not going to live in the
property, you need to wait until it appears
on the list that is open to all bidders.
GARAGE SALES
When you see a garage or a yard sale,
get out of your car and talk to the owners.
Remember what most people do before they
put their house up for sale? They de-junk!
Someone having a garage sale may be
getting ready to sell his or her home. But
even if they are not planning on selling, they
or if you receive a notice in the mail from
an auctioneer, call and get the address
of the property. Drive by the house. If you
like the house, make an offer for them to
submit before the auction takes place (if the
property is bank owned, the bank will wait
for the auction to make the sale).
ABSOLUTE AUCTIONS
There are ABSOLUTE auctions. An absolute
auction means they will take whatever is
bid. Banks typically have 14 months to sell
an REO (Real Estate Owned); if it is not
sold by then, they have to quickly unload
the property. You usually have to enroll to
be able to bid. Get signed up and get a
bidder’s card.
FORECLOSURE AUCTIONS
Go to a foreclosure auction. If you plan
to buy at this auction, be sure to do your
due diligence first. You will also probably
need cash. There will be lots of competition.
This is also a good place to find investors
to network with. Go there to meet other
investors you can buy from or quick-turn
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
may know of someone else who is. You will usually find them to
be friendly and talkative. Talk to them about the neighborhood. Do
they know what houses sell for? Do they know of anyone thinking of
selling? Give them your business card.
COURTHOUSE RECORDS
The courthouse is an excellent source for researching and finding
motivated sellers. Get to know where the records are kept in your
county courthouse. Sometimes you may be going into different areas
of the courthouse depending on what you are researching. Look for:
Foreclosures
Foreclosure will inevitably create motivation. As mentioned
before, foreclosure doesn’t always mean a good deal, but some
foreclosure properties are great deals! When working a foreclosure,
there are four timeframes that provide profitable opportunities. They
will be discussed in greater detail in the chapter on foreclosures.
PRIVATE NOTE HOLDERS
Many private note holders are investors. They may own several
properties or they may be hard moneylenders. Obviously, not all
private note holders are investors. But if you see a private note
holder with several notes, then you’ve probably found an investor. A
private note holder can become a very motivated seller if they have
to foreclose on a property they hold.
DIVORCE CASES
Divorce is a primary cause of foreclosure. Even if a couple does not
lose their house to foreclosure, divorce can cause great financial
hardship and motivate the couple to sell. You must have full disclosure
with both sellers jointly signing any agreement.
72
there is a will, there can also be great deals
if the heirs and beneficiaries are just looking
to liquidate assets so they can disperse an
inheritance. This can be a huge opportunity
for an investor, especially when heirs live
out of town. The heirs may not want the
property or they may not be able to afford it.
Many times, the family tells the executor of
the estate to just get rid of the property and
the heirs are often willing to take a large
discount on it. And sometimes the executor
has to sell the property to pay off debts and
taxes. Contact the executor of the will. You
can find contact information in the county
recorder’s office or in public notices in the
legal section of your newspaper.
BANKRUPTCIES
You can find information about bankruptcies
in legal papers or at the bankruptcy court.
The name of the trustee who has been
appointed to handle the case will appear
in the papers and the notice should tell if
real estate is involved. The trustee will give
you the information if you call. Creditors
will usually take huge discounts. Even if the
bankruptcy has been recently filed and is not
closed, the court can release the property.
EVICTION FILINGS
Go to your county courthouse and ask the
OUT-OF-STATE OWNERS
If you can find an out-of-state owner, you
may find a more flexible seller. It can be
a hassle to manage a property from a
distance. Or sometimes the owner had to
move quickly and now the house is sitting
vacant. Sometimes a title company will have
the ability to pull this information up for you
from the county records.
HOUSES WITH TAX LIENS
When an owner is having trouble paying
their taxes, it is usually a sign they are
having financial difficulty. Often, there is a
lot of equity in the home and you could help
solve their problem and make it a win/win
situation.
LIS PENDENS
Lis Pendens is Latin for “suit pending,”
referring to a court action. In some states, it
is the beginning stage of foreclosure.
PROBATE SALES AND ESTATE SALES
With probate and estate sales, property can
be purchased from the estate of an individual
who has passed away. Sometimes good
deals can be found in circumstances where
there is no will or known heirs and the state
is liquidating the estate’s assets. However, if
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
clerk where to find the department to file an eviction complaint.
A landlord can become a motivated seller after going through
an eviction and may welcome an offer from an investor who is
providing a way out of ever having to go through one again.
LOCAL NEWSPAPERS
You should be checking the classified section of your local newspaper
on a daily or almost daily basis. Nationwide, the classified ads are
filled with real estate properties for sale. A small percentage of
these ads are placed by owners who are slightly motivated to sell.
An even smaller percentage only 1 to 2%) of the ads are placed by
sellers who are desperate and intensely motivated. These are the
sellers you want to talk to.
In the beginning, you may think there are no motivated sellers
in your area, but be persistent and keep calling. Most investors
check a few ads and then give up. Don’t let that be you! Make the
effort and reap the benefits.
You should also “grade” the ads, looking for motivated sellers
by using the keywords mentioned throughout this manual. Start by
circling or highlighting any word that might indicate a motivated
seller, a distressed property, or special financing terms, such as
“must sell,” “will look at all offers,” “investor special,” “needs TLC,”
“rent to own,” “owner finance,” “no qualifying,” or “take over
payments.” The ads with your target keywords can be your “A”
list, your top picks to call first. Call all the FSBO ads that depict the
keywords showing that either the property or the owner is distressed
or that there may be creative financing available.
You’ll soon find that your search for good leads is much more
effective when you know exactly what you are looking for.
74
these could be great places for your ad
in the same sections listed above. When
people are desperate to sell, they will often
look in the small newspapers. (We have
also provided other sample ads for you
throughout this manual.)
USE LEGAL NEWSPAPERS
Legal newspapers are another way to
find motivated sellers, as people who are
struggling with bankruptcy, foreclosure,
divorce, etc. will be in the legal notices. See
if your local library has a copy or ask how
you can find the legal newspaper by talking
to title companies, attorneys, and banks.
When you find the legal notices,
you may want to contact these potentially
motivated sellers with a simple letter. Your
letter might read like the following:
I understand you have recently gone
through some difficult circumstances in your
life and may be interested in selling your
home. If you are interested, please call me
at 555-1212.
People who are having difficulties will
often look in the legal publication to see
if their notice is in the paper, so consider
running an ad in a legal publication. You
may find attorneys will also start calling,
asking for a business card to pass on to their
clients.
PLACE A “GOLDMINE” AD
In addition to being a source of finding
houses for sale, newspapers can be a way of
generating deals when savvy investors place
their own ads in the paper. Getting the seller
to call you is extremely important. This can
save you time and give you a good deal.
An example of a goldmine ad follows:
Private investor
looking to buy
income properties.
Will look at all,
any condition.
CAN PAY CASH
555-1212
As a buyer, you want to get the seller to
call you! You can place these ads in the
Real Estate Wanted section or in the Houses
For Sale section of your local newspaper
and real estate magazines.
Additionally
,
if your town has a “Thrifty Nickel,” “Penny
Saver,” “Shopper’s Guide,” or similar paper,
75
GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
I Buy Houses Any Area, Any Condition
CASH
Completely Confidential Call 555-1212
“BIRD DOGS”
Bird dogs are referrals who act as your eyes and ears looking for
leads on your behalf. You might also hear this referred to as “ant
farming.” For the hard work they provide, you pay them a finder’s
fee.
Who can be your potential bird dogs? Think of the people
who are out in the neighborhoods every day, such as the mail
carrier and the cable installer. These people are regularly going into
your prime target areas. You may also consider talking to garbage
collectors, meter readers, lawn service workers, pizza deliverers,
newspaper deliverers, code enforcement officers, firefighters, and
more.
CREATE FLYERS AND REWARD CARDS
To help you find potential bird dogs, create simple flyers and reward
cards to attract them to the opportunity and explain the benefits of
your bird dog program.
To get the flyers noticed, you may want to use fluorescent
colored paper. For the reward cards, it may be best to use double-
sided business cards to make them easy to pass out. If your double-
sided business cards can have a fluorescent colored front and a
white back, it will help them stand out from the average business
card.
Here’s an example of how your reward card might read:
76
BIRD DOG FEES SAMPLE FLYER
CASH
REWARD
$250.00
Bring me any
vacant or boarded
houses.
Fluorescent color front with black lettering.
I WILL PAY
$250.00
every time I
buy one!
Dont bring me any agent signs.
Call
555-1212
White background and black lettering.
$CASH REWARD$
$250.00
Bring me any
vacant or boarded
houses.
Everywhere you go, hand your reward card
out. When you go out to dinner, put one
with the tip. When you see the mail carrier,
stop and give him or her a card.
Additionally, hand out a flyer listing
the fees you would pay your bird dog. A
sample flyer might include the following
information:
Make $5 every time you bring us the
address of a vacant or boarded up
house whether we buy it or not.
Make $10 every time you bring us
a Polaroid picture with the address of
a vacant or boarded up house whether
we buy it or not.
Make $250 every time you bring us
the address of a vacant or boarded
up house and we buy it (paid at closing
only). Exceptions: Please be advised that we
do not accept properties in the following
areas:
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
_______ or those with an agent sign on them or those addresses already
submitted by other bird dogs. All bird dogs are paid upon a first-come,
first-served basis.
NICHE MARKETING
SIGNS
A fluorescent yellow sign with black writing attracts attention. Make
it a simple one-line ad that can easily be read from a distance
and include your phone number. Post your signs wherever you are
allowed in your city. For example, post signs on or at:
Bus stop benches
Community billboards (use small signs)
Stadium seating
Movie theaters
Take out menus
Grocery store carts
Utility posts or telephone poles
(best when they are posted up high)
Major intersections
(use surveyor stakes to put them in the ground)
You can go to an office supply store and buy a package of
fluorescent paper (8-1/2 x 11 sheets 100 sheet package) for
your signs. Place them in plastic sheet protectors and staple them on
telephone poles. Or use plastic corrugated sheets (lightweight, but
sturdy sheets of plastic) for your signs and attach them with roofing
nails. Make sure you are not violating any city codes.
78
in the neighborhood. Car windows and
mailboxes are off limits.
DOOR HANGERS
People generally respond well to door
hangers. Most printers will design and cut
them out for you. Hire someone to deliver
them or incorporate passing them out into
an exercise routine and do it yourself.
BULLETIN BOARDS
Put flyers anywhere you see bulletin boards,
such as grocery stores, laundromats,
restaurants, the community center, the
unemployment office, a city center, and mail
centers. Every time you enter a business
place, look to see if they offer a community
bulletin board where you can post your
information.
CAR WASHES
Ask the manager if they can hand out your
flyers. Offer to pay them per car.
HANDOUTS
You can provide handouts wherever you
are, wherever it is allowed. You may be
able to distribute handouts at some school
or local events, for example.
Example signs might be:
I BUY
HOUSES
FOR CASH
555-1212
In the beginning, you will need to have an
answering machine. The message they get
when they call might be something like:
“Hi! I’m Jimmy. If you’re interested in buying
or selling a house…”
Later, you may want to use an
answering service; people like to talk to a
live person.
FLYERS
Design an 8-½ x 11-inch flyer and distribute
it door to door in the neighborhoods where
you want to buy. The flyer should read like
an ad:
“We buy houses, fast cash, fast closing times,
any condition, any price, 555-1212.”
You can hire students or people from
your local labor board to distribute the
flyers. Two people can put out 500 flyers
in three hours. Put your flyers on every door
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
MAGNETIC CAR SIGNS
Put magnetic car signs on your car. It can give you credibility to be
in the neighborhood.
WE BUY HOUSES CASH OR TERMS PHONE #
Check with your car insurance company to see if you need to
change your coverage (some car insurance companies will consider
it a vehicle used for business if you display a magnetic car sign and
you will need to have that in the policy).
DRIVE FOR DOLLARS
As you are driving around looking for vacant houses, have your
signs in the back of your car along with a staple gun and tape.
Every time you see a vacant house, not only should you be writing
down the address, but you should also get out of the car and put
a sign on the vacant house (the wording can be the same as the
magnetic car sign). Make sure the signs are large enough to be read
from the street. We are not only trying to get the vacant homeowner
to call; we also want motivated sellers who happen to see our sign
to call us.
COOPERATIVE ADVERTISING
Have you ever received mail that contains advertisements for several
companies in one envelope, like Valpak®? Everyone shares in the
production costs, reducing your own cost. Make sure the message
is simple. The mailing company may have people on staff who can
help you design your ad.
Align yourself with a couple of banks or credit unions. Talk to
the branch manager and tell them you are involved in mailings and
ask them to join you. Tell them that every week, you will go to the
80
to continuous advertising or advertising
mixed with a few TV news-related programs.
In some markets, the cost of advertising on
this channel can be relatively inexpensive,
especially during non-peak times. This
is often the best time to advertise, when
people who can’t sleep turn on the TV.
Additionally, you may want to consider
radio advertising, which is another great
way to market your business, usually with
less competition for your services.
RESTROOMS
In some public restrooms, low-cost advertising
is offered on the back of the stall doors.
BUSINESS CARDS
Your business cards should say something
simple and to the point like:
I BUY HOUSES, CASH, ANY CONDITION
or
I BUY AND SELL HOUSES
or
WE BUY HOUSES CASH!
Or
WE SOLVE REAL ESTATE PROBLEMS
You want your business cards to clearly
state what you do. Avoid phrases like “real
estate investor” which means nothing to a
Chamber of Commerce and pull out leads
and send their information along with yours.
Suggest that their part of the deal be to pay
for the postage.
DIRECT MAIL
Make sure that when you mail to people in
your target area, you do repeat mailings. It
usually takes four mailings for most people
to respond. If you want to target a specific
area, you can get a list of owners and
addresses from your title company. Some
people will use a reverse address book.
YELLOW PAGE LISTINGS
Successful investors advertise in the same
section as real estate professionals. Make
sure you advertise that if they call you, they
will not be paying a commission. You want
to stand out from the crowd.
LISTING PUBLICATIONS
Consider placing a small display ad
approximately 1” x 2” in your Sunday
newspaper’s free TV listings guide. The cost
is usually quite reasonable.
RADIO AND TELEVISION
Most cable programming offers a TV listings
channel showing what will be on for that
day. The top of the screen is usually devoted
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
motivated seller. They are only interested in what you can do for
them: I BUY HOUSES, CASH! Your name should be the smallest
information on the card. Hand them out everywhere, such as
restaurants, barbershops or salons, stores, and offices. You should
be ordering new cards every three months or you are not getting
the best use out of them.
NETWORKING RESOURCES
BANKS, MORTGAGE COMPANIES, CREDIT AND FINANCE
The people at these businesses deal regularly with investors and,
quite often, are investors themselves. They sometimes have REOs
(real estate owned bank owned properties), foreclosures, and
other leads.
PRIVATE LENDERS
Private lenders can be more than a great financial resource; they
can also be a resource for potential deals. As more and more buyers
turn to them instead of banks and traditional mortgage companies
for loans, many of these private lenders start to build an inventory
of foreclosed properties when those loans default. Sometimes they
just want to cash out.
TITLE COMPANIES
Title companies close for other investors. By networking with them,
you can often find out what other investors are doing.
Ask the title company to let you know when deals don’t go through
and to alert you to those opportunities.
82
to let you know of investors who are looking
to sell and to tell you what’s right or wrong
with their properties.
SECTION 8
You can get a free database of owners who
do Section 8. Go to the Section 8 housing
office and get a list of properties for rent with
Section 8. Try to get a list of 1-to 4-bedroom
rentals. Bail Bondsman will also be on the
list if doing rentals.
CITY CODE ENFORCEMENT
Get a list of houses with code violations
from them. They tag the houses, so they
know before everyone else which ones are
vacant or have a code violation. In some
regions, the city council has a website and
you can pull up the minutes from their council
meetings. The code enforcement person has
to fill out a daily form.
APPRAISERS
You can learn a lot from appraisers, such as
what needs to be done to qualify for FHA.
An appraiser also knows when deals won’t
work because the house doesn’t meet code.
They know a lot of investors and sometimes
hear of deals.
ATTORNEYS
Contact bankruptcy attorneys. The attorney
doesn’t care what the property sells for; they
RELOCATION DIRECTORS
When an employee of a large corporation
is relocated, the company will often market
or buy the employee’s previous home as
part of their relocation package. These
corporations become extremely motivated
to unload these homes. To find them, start
by mailing letters to the relocation directors
of major employers in your area. You will
need to get the address for the corporate
headquarters, which may be out of state. Let
them know what you are looking for. If they
don’t have anything at this time, ask them to
keep your letter on file so they can contact
you if something in your area becomes
available.
PROPERTY MANAGERS
Property managers often manage properties
for out-of-state investors who may be tired
of owning property in another state or
for investors who don’t take care of their
properties for any number of reasons. Many
property managers also actively invest in
property themselves. Network with these
individuals; they always come across deals
and are a great resource if you end up
needing property management yourself.
Remember, as managers of properties for
other investors, they are in a good position
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
get the same amount of money regardless. And most of them only
have two or three investors they know to contact with opportunities.
In bankruptcy cases, the owner usually wants or needs the property
sold quickly. Usually they will settle for pennies on the dollar.
Contact attorneys who handle probate (check the Yellow
Pages). Get on their contact list to be the first person they call to sell
property. They want CASH – the advantage you want to give them
is that you can buy with cash.
Additionally, attorneys know of people who are having
financial or legal problems and need to sell their real estate.
Contact attorneys who specialize in real estate, foreclosure, estate
planning, and divorce. Network with them and ask them to refer
your services!
ACCOUNTANTS
Accountants work with people having financial or tax problems.
They will most likely not give out names, but they may be willing to
give your name to their clients.
INSURANCE AGENTS
Insurance agents have clients facing issues such as fire and water
damage, vacant homes, and mold. These situations can create
motivation on the part of the owner of such a house, and sometimes
the insurance company and lender. If they know you buy these kinds
of properties, they may be more than happy to pass this information
on to their clients.
BAIL BONDSMEN
When bail bondsmen bail people out of jail, some of those
people will have money and some of them will have property.
Send postcards to the bondsmen in your area. If they own a lot
of properties, they put signs out to get more people calling. They
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can’t sell at a discount until after the four-
year period or no one would donate.
You might send a letter that reads:
To whom it may concern:
Hello, My name is _____________. I am a local
real estate investor in your area. I am writing you
to inquire about charitable donated properties
you may have in the churchs portfolio. If your
church has any single family homes or investment
properties that have been donated, I may be
interested in making an offer on any or all of
them.
Thank you for your consideration in this matter.
Sincerely,
CONDEMNED AND FIRE DAMAGED
PROPERTIES
Contact the health department, fire marshal,
and the city code enforcement department
to locate these types of properties.
INVESTORS AND INVESTMENT CLUBS
Investors are a great source for both buyers
and sellers. For example, wholesalers (see
the chapter on wholesaling) are always
looking to quick-turn property and can lead
you to some great deals.
are used to buying and selling and they get
properties really cheap. They usually buy for
collateral and sell when they have too much
inventory. Some will do Section 8 rentals.
HEALTH AND SENIOR SERVICES
Health and senior services workers often
take care of people who have no family
to leave their properties to. In some cases,
the nursing homes have the right to sell the
assets. This is one time when you definitely
cannot put “and/or assigns.” The judge
wants to know who bought the property.
Contact the manager or the executors. Send
a postcard:
Attn: Nursing Home Director We buy homes
CASH
CHARITABLE ORGANIZATIONS –
A HIDDEN MARKET!
When a person donates real estate to
a church or charitable organization, the
appraised value is tax deductible. There is
a four-year hold for the full tax deduction.
If a church or charitable organization sells
at a discounted price before the four-year
period, the person who donates will not
get the full deduction , so churches and
charitable organizations are left holding a
lot of property, but they need the cash. They
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GUIDE TO REAL ESTATE INVESTING
Finding Motivated Sellers
Too many investors don’t want to work with other investors.
This is ridiculous. Somehow they have a false notion they will be
supporting their competition if they share ideas or make deals with
each other, but that just makes them miss out on some amazing win/
win opportunities. In fact, the most successful wholesale investors
work almost exclusively with other investors. They recognize that
they don’t have to spend all their time working with potential
homeowners who are often unsophisticated when it comes to real
estate; they can instead work with investors who understand the
business, who can move quickly on deals, and who know how to
spot good deals when they see them.
The bottom line is networking with other investors can be both
educational and profitable.
To begin building relationships with other investors, look for
their ads in local newspapers and contact real estate investment
clubs in your local area. Ask investors, bankers, and real estate
agents if they know where a local investment club meets. Attending
club meetings is a great way to sharpen your real estate skills,
network with like-minded individuals, and find great deals.
Clubs usually meet once a month and have a guest speaker
who may provide valuable information about your area. But don’t
judge the club by the speaker; look at the investors attending. Who
are the members? How can they help you? Are they friendly?
Most clubs charge a monthly or yearly fee to members, so ask
if you can go free on a complimentary first visit. At investor clubs
you will be able to find referrals to build your power team. You may
find deals, a hard moneylender, or creative financing. Locating a
good one is worth the effort.
Now go out and find a motivated seller and get a great deal!
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TRACKING VACANT OR BOARDED
HOUSES
Drive up and down your target area
Write down addresses of any
vacant or distressed properties
Locate the owner
Talk to neighbors
Check county records
Send out letters
Check with the utility company
Check the phone book or call In
formation
Check a reverse directory if you have
a mailing address and want a phone
number
Look on the Internet
Do a skip trace
AUCTIONS
Call auctioneers and ask to be put
on their mailing list
Can make a n offer before the
auction
Check out absolute auctions
FORECLOSURE AUCTIONS
Attend an auction
Research the property with
due diligence if you plan on buying
Good place to meet and network
with other investors
REVIEW
The secret to great deals is finding a motivated
seller. We do not want to waste time working
with sellers who are not flexible with their
price or terms.
We find these sellers in many ways:
• USE A REALTOR®
Work with more than one agent
Have the real estate
professional search the MLS
using the keywords you have
learned
Create a flyer to attract aggressive
agents
• FSBO SIGNS
Take different routes while driving in
the car
Write down the phone number and
call or knock on the door
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• HUD, VA, FDIC, IRS
Visit the HUD website: www.hud.
gov/homes/homesforsale.
Bids must be submitted by an
approved real estate professional
Good deals in some areas of the country
Do not bid on owner occupied list unless you intend to live
in the house
GARAGE SALES
People get rid of their junk before they sell
Get out and talk with the owners
Ask about the neighborhood and may be thinking of
selling
COURTHOUSE
Foreclosures
Private note holders
Owners of vacant houses
Divorce
Out-of-stat e owners
Houses with tax liens
Lis Pendens
Probate sales
Estate sales
Bankruptcies
Eviction filings
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Direct mail
Yellow Pages
TV listing publications
Radio and television ads
Restrooms
Business cards
NETWORKING
Banks, mortgage companies,
credit, and finance
Private lenders
Title companies
Relocation director s
Property managers
Section 8
City code enforcement
Appraisers
Attorneys
Accountants
Insurance agents
Bail bondsmen
Health and senior services
Charitable organizations
People who serve legal documents
Condemned and fire damaged
properties
Investors and investment clubs
LOCAL NEWSPAPER
Check out the classifieds
Place a goldmine ad
Legal newspaper
BIRD DOGS
Let others be your “eyes and ears”
Pass out flyers
Mail carrier
Cable installer
Garbage collector
Meter reader
Lawn services
Pizza delivery
Paper carrier
Code enforcement
Firefighter
Offer a finder’s fee
• NICHE MARKETING
– Signs
Flyers
Door hangers
Bulletin boards
Car washes
Handouts
Magnetic car signs
Drive for dollars
Cooperative advertising
CHAPTER
SIX
89
W
holesaling is immediate money
in your pocket. When you
wholesale a property, you are buying
and selling, not buying, fixing, and
selling. You don’t need to get a loan
to buy the property. You never fix it up.
You don’t have to put a lot of time and
work into the house. You simply put the
property under contract and sell it to a
buyer without ever having purchased
it. Once you have a property under
contract, you should be able to have
a “payday” a week to ten days later!
This is called quick-turning a property.
When you wholesale, you are using
a buy low, sell low strategy. The type
of real estate you will be looking at
will be considerably below market
value. These properties can be single
family or multi-family homes, but most
of the properties you wholesale will
be single family. This is because there
is a larger inventory of single family
homes to pick from and your buyer,
the investor, will most likely be more
interested in the single family homes.
You will find your best deals
in properties that are vacant,
abandoned, or boarded up
properties no one is really looking to
buy. Banks won’t finance condemned
properties. Insurance companies
won’t insure them. Most real estate
agents won’t list them. You should be
targeting these types of houses.
MAKING
QUICK CASH:
Wholesales
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Making Quick Cash: Wholesales
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WHERE TO FIND WHOLESALE DEALS
In the last chapter, we discussed how to
locate motivated sellers and, in doing so,
find the “deal.” Use the ideas given there
to help you locate this kind of property. In
the meantime, here is a quick review of the
techniques we have found most useful in
finding wholesale deals:
• Read and advertise in your local
newspapers
Check out the classifieds
Place a goldmine ad
Use the legal newspaper
Use bird dogs (pass out flyers and
offer a finder’s fee)
Mail carrier
Cable worker
Garbage collector
Meter reader
Lawn service worker
Pizza deliverer
Paper carrier
Code enforcement officer
Firefighter
Properties like this usually have
motivated sellers. For some reason the
owners are unable to take care of them or
just don’t want them. The houses don’t have
to be boarded up, just rundown and unable
to be financed. You are targeting problem
properties. You want properties that are
physically distressed.
Sounds pretty bad nothing you really
want to fix up, so why are we talking about
these types of houses? Don’t we stress
“cosmetic work only?”
Some of the properties may only need
cosmetic repair, but many will need major
renovations. They may be in marginal
neighborhoods. What you need to
remember is:
THERE IS NO FIX-UP.
WE BUY AND SELL AS-IS!
Remember, the key to any real estate deal
is buying right. With wholesaling, you buy
them ugly and sell them ugly to investors,
maximizing your profits with minimal effort.
Now that’s definitely buying right!
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GUIDE TO REAL ESTATE INVESTING
Making Quick Cash: Wholesales
Market your services whenever, wherever possible
Signs
Flyers
Door hangers
Bulletin boards
Car washes
Handouts
Magnetic car signs
Direct mail
Business cards
Drive for dollars (see the next section)
DRIVING FOR DOLLARS
Pick the areas of town that are known for having distressed
properties (identify two to five neighborhoods that would have these
types of properties). You will be looking at low to moderate class
neighborhoods and “we care” neighborhoods. These are the areas
where you will find investors rehabbing and where you might see
Habitat for Humanity building affordable homes. Look for areas that
have a lot of renters. Homeowners living there have usually lived
there for several years and many have their homes paid for.
Once you have identified the areas with these characteristics, you
will be “driving for dollars” (literally driving around, looking for
profitable deals). As you drive in your car, look up and down each
street trying to locate vacant or abandoned houses. You can easily
spot these kinds of properties. Look for:
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CASH
REWARD
$250.00
For finding vacant and
boarded up houses.
Any area. Any condition.
555-1212
Let others be your bird dogs your eyes and
ears. Offer them a reward for helping you
achieve success.
Tell everyone in your world what you are
doing! Talk to the grocery store clerk, your
hairdresser or barber, people at your church,
those you work with, and the waitress where
you dine. Let all your friends know what you
are doing. Get the word out!
Additionally, put magnetic car signs
on your vehicle. Many of our students have
had tremendous success making money
simply off calls from people who saw their
magnetic car signs.
While driving for dollars, you should
also have signs in the back of your car along
with a staple gun and some tape. Make the
words bold and large enough so they can
Tall grass, leaves all over, snow not
plowed
Lots of newspapers in the yard, at the
bottom of the driveway, or on the porch
No curtains or window coverings
Broken windows, boarded up windows
and doors
City or county stickers
Abandoned automobiles, junk in the
yard
Missing utility meters (electric, gas,
water)
Flyers stuck in the door
Property in bad shape needs work
(might be “ugly”)
Mail piled up in the mailbox
While you are driving for dollars, write
down the addresses of the distressed
properties you find. And be sure to talk to
neighbors, mail carriers, cable workers,
and utility workers. Create a “reward flyer”
and hand it out. Here’s an example of how
your reward flyer might read:
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GUIDE TO REAL ESTATE INVESTING
Making Quick Cash: Wholesales
be read from the street. Too many words will make it harder to read.
Keep the wording simple, such as:
WE BUY HOUSES CASH Phone #
Use colorful, fluorescent paper to attract attention. We want
everyone to see these signs.
If a house is boarded up, staple the sign on one of the boards. If it
isn’t boarded up, but it is abandoned, tape the sign on a window.
If the house has a “no trespassing” sign, then don’t put the sign up.
Try to place the signs where they can be easily seen and read, even
from the street. You want people with unwanted houses calling you!
You can also have surveyor stakes that you can attach the sign to
and place in the ground at intersections and very visible areas.
When you drive for dollars, you are not only trying to find distressed
properties, but you are also letting everyone know you buy houses.
$CASH$ FOR HOUSES
Any Area, Any Condition CALL NOW! Phone #
When you find a vacant home, ask the neighbors if they know how
you can reach the owner (see How to Find the Owners of Vacant
Houses in the previous chapter). Or you can go to the courthouse
where the property taxes are paid to see if you can find their name.
They may have a different mailing address.
96
to assign him or her the contract (the fee you
are charging for having found and made
this great deal that you are passing along).
The typical fee for an assignment of contract
is around $3,000 to $5,000. However,
students have made $10,000 or more
(when your profit is this high, you will want
to do a double closing instead, which we
will discuss in a moment).
When you assign the contract, you will make
sure you collect a non-refundable deposit. If
you can collect the full assignment fee at that
time, by all means take it. Otherwise, try
to get half of the fee or at least $1,000 to
$2,000. That way, if for some reason your
buyer backs out, you still have made some
money.
In essence, what you have done is sold
your purchase contract to your buyer. You
never own the property, you should not have
to pay closing costs, and your name will not
appear on the deed. You get the property
under contract, assign the contract, and
make money. It’s a terrific and very popular
way to make money in real estate.
DOUBLE CLOSING
(OR SIMULTANEOUS CLOSING)
Because your buyer will know how much
money you are making with an assignment
of contract, you will want to make sure you
don’t care if he or she has this information.
ASSIGNMENT OF CONTRACT
AND DOUBLE CLOSING
There are two ways you can wholesale a
property. You will either do an assignment of
contract or a double closing (also referred to
as a simultaneous closing).
ASSIGNMENT OF CONTRACT
With an assignment of contract, you will
have two contracts. One will be a purchase
and sale contract between you and the seller
of the property. In this assignable contract,
you will put your name plus the additional
words “and/or assigns” beside it (i.e, John
Smith and/or assigns). This gives you the
right to assign the contract. The idea here
is you have used your expertise to negotiate
a fantastic deal with the seller and now you
are assigning your right to make that deal on
the terms you have negotiated to someone
else, your buyer.
The second contract will be between you
and your buyer and is called an assignment
of contract. An assignment of contract will
have the address of the property, as well
as information about the seller, about you
as the original buyer, and about the buyer
you are assigning the contract to. It will also
have the amount your buyer is paying you
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Most investors and sellers will not mind you making some money.
You should be paid for your expertise and foresight. But if they
think you are making too much money, they may try to go behind
your back or not work with you again.
So
generally speaking,
when you are going to be making a lot of money on the deal (say,
more than $7,000), you will do what’s called a double closing (or
simultaneous close).
With a double closing, you will have two purchase and sale
contracts.
You will
have one between you and the seller of the
property. The other purchase and sale contract will be between
you and your buyer. This is how it works: You actually buy the
property and sell it in a simultaneous closing to your buyer. The
title company or closing attorney handles the transaction for you,
making everything happen simultaneously and smoothly, but without
ever having you, your buyer, or the seller together at the same table.
Your buyer will usually be asked to come in first to close with you as
the seller. They will bring the money that is needed to purchase the
property (you will later use this money to pay the seller). The money
given to the title company or lawyer sits in a trust until the original
seller of the property comes to sign their paperwork associated with
you as the buyer. You will
come in last and sign both sides of the
transaction (as a seller and as a buyer). The seller will only see the
transaction between you and him or her.
Likewise,
your buyer will
only see the contract between the two of you. There will be closing
costs that you may have to pay.
CONTINGENCIES
Note: is section oers only general guidelines no legal advice is being
oered. Always consult with your local attorney for guidance.
98
If the FSBO house is not vacant, then put in
a clause of:
• Buyer shall have access to the
property for the purpose of showing
the property to prospective occupants
and to obtain bids on repairs.
An optional contingency you may add (be
aware that too many “subject to” clauses
can kill a deal):
It is agreed that Buyer has 30
business days from the date of this
offer to perform due diligence. This
may include determining any needed
repairs, researching the title, and
confirming market value. In the event
the Buyer determines that the property
does not meet with his/her approval,
the contract will become null and
void, and the Buyer’s deposit returned
immediately.
When doing an assignment of contract,
give yourself as long of a closing date as
you can (preferably at least 45 to 60 days).
If you don’t have a buyer within two to three
weeks, back out of the deal. We don’t want
to hurt people and get the reputation of tying
up properties and never purchasing them.
Because the properties you are looking at
to wholesale are not the sort of properties
you really want to buy, you will want to
use contingencies (“subject to”) to protect
yourself if you don’t find a buyer (consult a
lawyer for assistance).
In both the assignment of contract
and the double closing, you will use the
same contingencies and conditions in your
addendum.
In the addendum, you may consider adding
these contingencies and conditions.”
Sale is contingent upon inspection
and approval of bids by Buyer and
Buyer’s partner to be completed in
writing within _________ business
days.
Upon acceptance of the offer, buyer
to receive key to the property and
have the right to show to any and all
prospective occupants.
Use this second contingency is generally
used if it is a FSBO. If the property is listed
with a real estate professional, put:
• Buyer to receive access to the property
upon acceptance of offer.
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TITLE COMPANIES OR CLOSING ATTORNEYS
A critical element in being able to do an assignment of contract or a
double closing is having a good closing officer who knows how to
do them. Start calling title companies (or attorneys if your state uses
attorneys for real estate closings). You will need to get past the front
desk and speak to the actual person who handles the closings. Ask
them if they have worked with investors. Can they do assignment
of contracts or double closings? Have they ever done them before?
Do not be discouraged if they don’t seem to know what you are
talking about. It is not uncommon for title companies and even some
attorneys to be unfamiliar with double closings and assignment of
contracts.
If you feel like giving up, don’t; just keep calling until you find
one who understands what you want to do. Sometimes it helps to
get a referral from an investor who has done this before.
Make sure the closing agent understands you do not plan to
bring any money to the closing table when you are talking about
double closings. You are simply bringing two purchase contracts:
one between the seller and you, the other between you and your
buyer. Ask them what they would charge you to handle this type of
transaction.
Also ask if they charge you to do an assignment of contract.
Routinely, it will be the seller and your buyer who pay the closing
costs. You are just the middleman and once you have assigned the
contract, you are out of the deal except for the fact that they will cut
you a check for the agreed upon fee that is listed in the assignment
of contract.
Ask the closing agent if they have had any problems doing an
100
You will also like dealing with
investors because cash or hard money
means a quick closing. Wouldn’t you
rather have a paycheck a week after
finding your buyer instead of waiting
30 days?
BUILDING A DATABASE OF BUYERS
You may be worrying, “How will I find the
buyer?” Finding the buyer is the easy part
when you have the right price accepted.
When you wholesale, it is not location,
location, location. Rather, it is the deal,
the deal, the deal! If you can buy it cheap
enough, you will have an investor who will
want the property. In fact, investors will keep
coming back to you for more.
When you wholesale a property, you should
create a database of buyers. Don’t panic if
you find an exceptional deal and you don’t
have any investors in your database. You
should have no problem finding a buyer
who will want to purchase the property. If
there is money for the investor to make, he
or she will want it. However, you should start
networking with other investors and building
your database as soon as you possibly can.
assignment of contract or a double closing.
They may tell you that when your buyer’s
lender looks at the assignment of contract,
they may say, “Who is this Joe Buyer? We
want the contract between Sally Seller and
Jim (your new) Buyer. Get Joe out of the
way.” Well that will work if Sally Seller is
willing to redo the contract. Otherwise you
have a problem!
There are many reasons why we want to
work with an investor:
An investor does not have to “fall in
love with the property.” They will
crunch the numbers and if it’s a great
deal, they want it.
Investors have access to hard money
or cash. Hard money and cash don’t
care if it’s an assignment of contract
or a double closing. You should build
a database of hard moneylenders for
you to use if later on you want to
buy, fix, and sell, and for your buyers
(if a buyer needs hard money to close
the deal, you can refer him or her to
the hard moneylender).
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There are many ways and places for you to find investors for your
database, including:
Investment clubs
Auctions
Properties with “For Rent” signs (write down phone numbers
and call)
Talk to people rehabbing a home and ask who the owner is
(probably an investor)
People who call off your signs
Real estate professionals, title companies, attorneys,
appraisers, contractors, bankers
Calling the “I buy” ads
Advertising
The following offers a little more insight into how to tap these sources
for your database.
REAL ESTATE INVESTMENT CLUBS
When you attend your local investment club, you need to network
with the investors there. These are potential buyers for your deals.
You will find endless possibilities when you rub shoulders with other
investors.
Tell everyone what you are planning on doing and see who is
interested. Ask them what types of properties they are interested in
and in what areas. Ask them if you can call them when you find a
property you think fits their requirements.
AUCTIONS
Attend a real estate auction. You will see other investors there. Talk
to them. Get their business cards and give them yours. Again, your
goal is to find out what kind of investing they do to see how you can
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REAL ESTATE PROFESSIONALS, BANKERS,
APPRAISERS, LAWYERS, ETC.
Professional people who are in the real
estate business know investors. They are
people you want to interact with.
CALL THE “I BUY” ADS
Call all the “I buy” ads you see in the
newspaper, such as advertisements that
read: “I buy houses. Pay cash. Any area,
any condition.” There are usually two
categories of people who place these ads:
1) wholesalers – buy low and sell low; and
2) retailers buy, fix, and sell properties or
buy, fix, and keep properties.
When you talk to the wholesalers:
Tell them you’re looking to buy some
properties
Let them know you are a new investor
in town and you need
some deals
Ask them if they have any inventory
(properties for sale)
If they have inventory, ask them to fax
you a list of the
properties they have for sale
work with them. Let them know what you do
and tell them you come across phenomenal
deals but you simply cannot buy everything
you find. Tell them you will gladly contact
them when you find a property they may be
interested in purchasing.
PROPERTIES WITH “FOR RENT” SIGNS
Properties that are offered for rent are oftened
owned by investors. Perhaps they are
looking to purchase additional properties. It
never hurts to call and ask.
TALK TO REHABBERS
If you see someone rehabbing a property,
ask them if they are an investor. You might
find yourself talking to the investor or with
a member of his or crew. If an investor is
rehabbing a property in one of the areas
you are focusing on, then he or she may
want a deal you find in that same area or
one similar to the property they’re already
working on. Let the investor know you are
just starting out and that you will be looking
for houses that need to be rehabbed. Ask
them if they would like you to contact them
when you find a rehab for a good price.
Most would be happy to have you bring
them a good deal. You save them time
researching so they can spend more time
rehabbing.
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GUIDE TO REAL ESTATE INVESTING
Making Quick Cash: Wholesales
Next, drive by the properties. Now you will see where these
wholesalers are finding the good deals and where wholesale
deals are being done in a short period of time. You will find that
wholesalers typically farm an area. Usually they concentrate in two
to three different areas. You’ll also see how much they’re asking for
the properties and what type of houses they have.
Call them back and say:
“I might be interested in some of the properties you have for sale. I
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