Prosper Newsletter: November 2007 > Real Estate
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Approaching owner's in pre-foreclosure
One thing is sure: foreclosure is on the rise. And, the latest help from the Federal Reserve may or may not alleviate the slump in the housing market. Some of the problems with sub-prime lending will have to work themselves out. But with foreclosures up double digits in 2007 over 2006, there are definitely going to be huge opportunities for willing investors.
There is no "one way" to approach owners in crisis. Every homeowner differs from the next. Homeowners have varying loan structures, specific circumstances, unique hardships, and distinctive understanding/knowledge of their predicament. And, don't forget, they are in a precarious situation. Any indelicacy on your part will likely kill the deal. The holiday season provides yet another tender reality. Many homeowners are feeling especially down, knowing that not only are they faced with losing their home, but they are facing this during the holiday season.
With all these factors in play, you'll need to develop your own unique selling proposition-why working with you would be better than working with someone else that is looking to purchase pre-foreclosures. This is probably the single most important thing for you to do. Why? Because behaving like one of the circling vultures will get you nowhere with distressed sellers, especially this time of year.
As is always the case with pre-foreclosures, you want to try to be the first on the scene. The holiday season is no different, but your approach should be. You will want to work closely with the owner, and empathize with their situation. One thing to consider is approaching owners in a caring tone, and point out what you can do for them. This will have to be done carefully, but for an owner that is upside-down in their home, your creative approach should be able to provide them something out of the deal as well. Many owners facing pre-foreclosure are not aware of this, and it may help seal the deal if they know you can put money in their pocket and help save the holidays for their family.
Another idea is providing for their needs without giving them cash directly. You could offer to help them find a rental or lease option home to stay in while they get back on their feet. Even better, you can put them in one of your rental or lease option homes. On top of that, you could provide a great meal and wonderful gifts for the whole family in their new home. These thoughtful touches may be just what it takes to get an owner to work with you.
You may also come across some situations where you don't feel like you can make anything on the deal. If you can help the owner in any way, regardless of whether you will profit and especially at this time of year, do what you can to help them. You will always be rewarded in one way or another. Most of the time you will find that with the right creative approach you can profit as well, but even if it seems you will not, you never know if helping them will help you find another lead, a future client, another deal, and even a new friend. At the very least, you may be able to add them to your professional team. After being on the receiving end of your help, they may be willing to do some leg work for you, or help you find other deals. Most likely they know other people in a similar situation, and working closely with them is a great networking opportunity.
Many areas of the country are in buyer's market right now. At the holiday season, things are often slower in the real estate arena. This marks opportunity for the savvy and willing. If you get out there while everyone else is taking a break, you may find the gem before anyone else. Using these thoughtful and creative approaches will help you get in to work with them. Get started today. Go out and find those that need your help, and provide them with some holiday cheer!
Working with Todd Benson, my coach, helped me get a clear understanding of how to evaluate a property's cash flow. I remember him saying, "Trust your numbers!"
I found a commercial /residential building with four apartments and two commercial spaces. In the beginning, I thought I was getting a great deal because I was dealing directly with a very motivated seller (no brokers involved, means another 5-6% discount), plus the seller accepted my offer of $280,000 for a property listed for $350K. I remember being very excited and ecstatic about owning a building in a town that is undergoing revitalization but my excitement was short-lived.
Todd walked me through a systematic analysis based on current market structure and condition of the property. We went through the income and operating expenses, maintenance, vacancy rates, and minimum profits for each apartment. At the end of the coaching call, it was clear that this was not an ideal situation for investment because of the vacancies and scope of repairs involved.
A few weeks past, we continued to negotiate. From $280K, to $255K, to $220K…down to $210,000. It was beginning to make sense with these numbers, however, the building need extensive work. I didn't want to carry the mortgage while I am renovating as there won't be rental income coming in from the commercial spaces and two other units.
I proposed a lease purchase to the Seller, where I will pay him $1,000 rent per month for the next six months. I get to fully renovate, Seller continues to pay for the mortgage, all the utilities, taxes and insurance while he keeps the rental income from the two apartments. At the end of 6 months, Seller credits me back for total rent monies at settlement. I reduced my out of pocket expense tremendously. Creative financing allowed me to purchase this building and helped end the Seller's misery. This turned out to be a really GREAT deal!!! Thanks Todd!!
I am very grateful for the knowledge and confidence I gained in the short time that I have been in coaching. Having a coach to guide me took the emotion and fear associated with investing. Now, I am more relaxed and looking forward to buying another property. It is money well invested!!! Coaching works!
Carmina M.
Activity breeds success. As a real estate investor, you have to be ACTIVE. You must take action, aggressively chase after deals, chase after financing, shake hands and meet people. If you find yourself casually looking on the Internet and driving around scouring for deals, you want to rethink your strategy.
One way to keep yourself active and motivated is by setting goals. Set specific, actionable and measurable goals. Have a weekly goal set for how many phone calls you are going to make (to agents, lenders, property owners, etc), how many properties you are going to look at, and how many offers you are going to make. Set these goals and hold yourself accountable. Make at least 20 calls, look at five properties and make one offer each week. Good luck and happy holidays.
Prosper welcomes your feedback. Do you have a suggestion for a topic you would like us to address in the next edition of the monthly newsletter, or an idea for a great elective class webinar? Send us an email at newsletter@prosperlearning.com
