In Part 1 of this series, we discussed the initial steps in building your "Team 20" with the end goal being able to participate in multiple real estate transactions via the joint venture, despite your credit score or financial status. The members on your team are critical to your success. Part 1 discussed creating the real estate professional aspect of your business. In this issue we will discuss other key team members needed and the final part of the series assembles all the pieces together and shows you how to monetize the process.
Now that your professional team members are in place, let's look at some other key components of your Team 100 beginning with a seller and buyer. In any real estate transaction you need a willing seller and a buyer... that's obvious. If you can put both of these ingredients together, you have just created a solid revenue stream.
There are sellers out there selling their properties on their own (FSBOs), there are sellers who have MLS listings as well as those who have experienced their listing expire on MLS, and there are sellers who don't realize they are sellers yet.
Let's begin with the type of seller/vendor you need to source. From an investor perspective, every successful real estate transaction must begin with receiving fair "deal" from the seller; one that has either "margin" or one which produces positive cash flow. We are seeking out sellers that are motivated to sell based on their particular circumstances. Once you locate a potential seller, it is up to you to assess the situation and determine if this seller is willing to negotiate. At this point I would like to mention that my philosophy is to NEVER take advantage of a seller no matter what the circumstance, but instead create win/win deals benefiting all parties involved. I'll discuss negotiating and creative deal structure in a future article.
Now the question is... what does a motivated seller look like? Where and how do you find them? How do I know what to say when I do find them? The answer may be closer that you think... perhaps right in your own backyard. Below is a very short list from a myriad of potential situations describing circumstances surrounding the motivated seller.
1. Divorce or business partner disputes where the involved parties are co-owners of a property. This obviously is a "trying" experience for all involved. If you can provide a quick solution for the disposal of the property and get cash into the seller's hands quickly, you may find a deal.
2. A recent statistic stated that the average family is spending $1.56 or so of every dollar they make. This means there is $0.56 of outstanding debt for every dollar made! This astounding statistic may result in the need for people having to sell their properties, especially if current interest rates move up even a half percentage point. Too many families are "riding the line" when it comes to their finances. Credit cards, lines of credit, leases, loans and other debts may need to be paid off and many families may need to get out of their properties in order to do so. You could provide their solution.
3. A death in the family can create an immediate need to sell, particularly if the property has been inherited by the surviving family members. This is particularly sensitive time for the family which often results in the stagnation of the necessary processes in terms of dealing with the family finances. Often families are glad to get rid of what is often the biggest hassle which is getting the house ready for sale. Often the family is reluctant to go through this process, however you can offer a solution in buying the house quickly and in "as is" condition. Now what was a large looming problem is solved by you and you can perhaps get a great deal by being there with an answer to their problem.
4. Emergency or long term medical issues can create a need for a family to move into a more suitable house. You may be able to help the family quickly by purchasing their house.
5. Transfers, layoffs, a slow market place or even downsizing can create a strong desire to sell, especially when the seller has a specific deadline. You can be the answer the seller was looking for by being able to close quickly or on the day of their choosing.
Finding distinct physical signs of distress are evident through both obvious and more subtle signs. Overgrown grass, unpainted or unfixed external items or lack of snow removal are more obvious signs. A for sale sign on a lawn for an unusually long time can be a more subtle sign.
Depending on your personality, you may be comfortable investigating personally by knocking on the door and speaking with the owner directly, or use some hand delivered marketing material you or the mail system issue to the house. More often than not there are not many external signs of distress; therefore you must create marketing to encourage those distressed sellers to contact you.
The method to market your message can be anything from a written letter on a lined piece of paper hand delivered, a printed postcard using direct mail, advertising, a "bandit sign" on the street or advertising on Kijiji or Craigslist.
Here are a few marketing message ideas for more public viewing.
a) "Need to Sell Your House Yesterday? Call me Now!
b) "I Buy Your House Cash! Quick Closings"
c) "Houses Wanted! I Pay Cash and Close Quickly."
Hand written letter campaigns have proven to be quite effective in their response. They are intended to look simple and not "slick." Here's an example of a simple letter you can leave on the door.
"Dear Friend;
My name is Joe Smith and I'm writing because I am interested in possibly buying your house located at 123 Elm Street.
I am interested in buying soon but would be still interested if you plan on selling a bit later.
Please call me at 000-000-0000.
Thanks
Joe
P.S. Call me even if you don't want to sell right now, I'd love to hear from you."
Another approach is a printed postcard with a message like:
"Attention Homeowner;
Our company is looking to buy as many as 5 houses in your area in the next 60-90 days.
Have you been thinking ทาวน์เฮ้าส์มือสอง of selling soon? We noticed you house as a good candidate for our buying needs. We are not Real Estate agents, but simply real estate investors who are looking for win/win deals. We take all the hassle out of selling, will take your house "as is" and even help with your moving costs.
We will give you a fair price and let you pick the closing day. There will never be commissions to pay and you can get your cash quickly without the issue of listing your house, fixing it up, painting or removing stuff you've been meaning to take to the dump.
We are regular people who want to help, not agents. We use our own financing people, not banks to acquire the funds to purchase so we can offer you a fast and easy sale... sometimes less than 2 weeks!
Call me, Joe at 000-000-0000 now. Experience just how easy the process can be and don't forget to ask about the many additional benefits we can offer."
Direct mail can be good although it has a proven conversion rate of 1-3%. This means if you are "papering' a neighbourhood, you need to do it at least 3 times to be recognized, so have proper budget for the printing and mailing for this or you may be better with another method.
Another excellent source in finding a deal from a seller is through landlords. There are many landlords who are not overly savvy, nor have they built a very good business model for themselves and thus are disgruntled landlords and may be looking for a way out.
By scanning For Rent ads in the paper or Kijiji/Craigslist and calling the numbers it is highly likely that you can end up speaking to the actual owner. Now that you have the owner on the phone you can ask specific questions which may result in a deal.
It is your quest to discover if there are any "pain points" in this landlord's portfolio. Mentioning you are a landlord as well and saying phrases like "don't you hate vacancies... all that time spent advertising then showing the unit a bunch of times, then doing the applications and the credit checks... then there's the eviction process... tenants living for free while you try to get them out... man... don't you hate that?! " (You get the idea) If they are agreeing with your rant, you may want to ultimately ask if they'd be interested in selling or becoming a candidate for a lease to own program. (More on lease to owns in another article)
It is entirely possible to capture a number of motivated seller leads as a result of utilizing the above methods. Now you have some willing seller leads, it is also important to concurrently build your buyer list.
Why a buyer's list? This becomes clear for many who have tried adding their 3rd or 4th property to their portfolio, but get declined for financing because debt level doesn't fit the lender's criteria, being too high for the lender's risk tolerance. Although many good mortgage brokers can get around this issue, the point here is to successfully grow a real estate portfolio and that is where your buyer's list can come to your aid.
There are many people who have money and good credit but do not have the time, knowledge or desire in doing many of the day to day obligations needed in any real estate deal, because like most people, they are busy in their own business... but real estate makes sense to them and they have been waiting for an opportunity to participate.
There are countless people around you every day who could qualify to be on your buyer's list if you just spoke to them. It's as simple as opening a conversation with "... how about real estate prices these days, huh?"
At some point you can say that you have been/are planning to be involved in real estate acquisition and liquidation. You can mention the strategies you are/ are planning to utilize and the potential profit available. (Please do the research first if you have not much experience)
Once you gather some interested parties who would be interested in buying deals, it is now time to begin the qualification process. Some qualifying questions could be:
a) Is there an area you'd be more comfortable owning in?
b) Are you prepared to close with cash or cash and a mortgage?
c) What price range are you comfortable with?
d) What kind of property would you like to own? i.e. duplexes, triplexes etc.
e) What level of rehab properties can you handle? Are they full blown renovations or "lipstick and rouge" style?
f) How many deals could you qualify for?
g) If I bring you a deal, are you prepared to "pull the trigger" immediately?
h) Once you have successfully completed a property with me, are you interested in future deals?
Clearly some of these answers the potential buyer won't know until they perhaps consult with a mortgage broker, but you are moving that potential buyer closer to point venturing with you.
In the next article we will discuss other members you will need on your team. Once your "dance card" is full, you will now have the ingredients to monetize the process utilizing a number of strategies and you will have a real estate business.
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