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Real Estate Articles By Ben Innes-Ker
7 Big Reasons To Invest In Pre-Foreclosures
Why Most Real Estate Entrepreneurs Don’t Make Consistent Profits and What To Do About It
Use Options To Minimize Risk And Maximize Profits
7 Big Reasons To Invest In Pre-Foreclosures
By Ben Innes-Ker
Looking for an "in" to real estate investing?
Working a nine to five job swapping time for money can be incredibly dispiriting. After the futility of it all hits home, it's all you can do to limit the number of home business opportunities you investigate to twenty per week.
One of the more compelling home business opportunities is real estate investing. Real estate investing is the perennial wealth builder, and the transition from working a job to achieving wealth through real estate investing is becoming increasingly well documented.
You've probably thought about investing in real state yourself but you've not gone for it because you thought you needed tens of thousands in savings for a down payment, and perfect credit along with strong banking relationships.
Well, you can get all that together if you want. It doesn't hurt to have those resources. But it's not necessary to have a huge pile of cash and perfect credit to buy a house cheap and resell it for a profit.
It's especially not necessary in the preforeclosure market. Preforeclosures are houses in the default phase of foreclosure; where the bank has filed initial foreclosure papers but the Sheriff Sale or Trustee Sale where the bank auctions off the property, or repossesses it if no-one buys at the auction, hasn't occurred yet.
Buying during the preforeclosure period is one of the best ways for anyone to get involved in real estate investing. With little more than a few hundred dollars and some specialized knowledge you can buy a house at a substantial discount and resell it retail picking up a five figure profit check in the process.
Don't believe it?
Well, let me give you seven reasons why it's true:
1) When people are in default on their mortgage they have stopped making payments to the bank. So when you are negotiating with the seller, and the bank, right up until the point where you buy, no-one is making the payments. For novice investors worried about holding costs this is a huge advantage.
2) Preforeclosures are a very well defined niche market. One of the most deadly mistakes rookie investors make is trying to be a jack-of-all-trades, going after any and everything they can lay their eyes on. The result of this lack of focus is they are soon back at their jobs. By being a very defined market, preforeclosures allow you to develop focused marketing campaigns and standardized processes to get deals completed and closed.
3) One of the fundamentals of real estate investing is contacting and talking "only" to motivated sellers, and avoiding all the rest. Sellers in preforeclosure are some of the most motivated sellers you will find. Their world has been turned upside-down, they are about to lose their house, and their motivation is such that they just want out of the house and the bank off their back. By buying houses from people in preforeclosure, creating 30%+ equity spreads on houses often in good condition is not a difficult thing to do.
4) Buying houses in preforeclosure enables you to create unusually large equity spreads. Recent economic uncertainty has caused a lot of foreclosures, and rising rates will cause more in coming years. If banks had to take back all of the properties that went into foreclosure the FDIC would shut them down. They know this, so they try not to take properties back they don't have to. By requesting the Lender discount what is owed on their payoff, large spreads of equity can be created on houses that are totally "maxed out" with loans. This can't be done on loans not in default.
5) Because Lenders are under pressure to liquidate bad loans rather than take the property back, large discounts can be negotiated. After becoming familiar with the issues that cause Lenders to discount, larger and larger discounts can be achieved as you hone your negotiating skills.
6) If your plan is to buy and hold the property, having good enough credit and financials to get bank financing excludes a great many people from getting into real estate. On top of that, if you do get a bank loan, your financial exposure is at it's maximum when everything is in your own name and personally guaranteed. Buying houses in preforeclosure allows you to simply take over the existing financing already in place. No qualifying needed. You can take title to the property in a Land Trust, begin making payments on the existing mortgage(s), and still get all the tax advantages, appreciation, depreciation without any of the risk of being personally liable for the mortgage and the property.
7) If you have ever bid at auction for property at the courthouse steps, you are only too aware of the competition breathing down your neck. Lots of mind games. The 40 thieves are talking trash to you trying to get you not to bid. If you are Larry Bird, no problem. Make sure you have $500K on your credit line though. However if you are not the 'Bird' and you don't pack half a mil' of credit, you can sneak in and avoid this NBA showdown by buying the house during the preforeclosure period... before the auction.
(c) 2005 Power Marketing, Inc.
Ben Innes-Ker is a full time real estate investor and author of the Motivated Seller Magnet - Automatic Lead Generating System.
He is constantly fine-tuning his marketing and business systems to make his investing more profitable with less effort, so he can spend more time enjoying life with his wife and 2 young children. He shares these unique profit-making systems with his Power Marketing Members.
Why Most Real Estate Entrepreneurs Don’t Make Consistent Profits and What To Do About It
By Ben Innes-Ker
Go to just about any town or city in the country and you’ll find real estate entrepreneurs and investors like yourself working far more than they should for the return they are getting. And this despite all the promises of "fast cash" and "easy money" that sold the courses that got them into the business in the first place.
You see, the reason many Real Estate Entrepreneurs don’t do so well is not because of lack of intelligence or their willingness to work hard. It is simply due to being focused on the wrong area of their businesss. We come out our training very "deal" focused, and not motivated seller focused.
If there is one thing that is the mark of someone experiencing problems in our business, it is that they cling to marginal deals. This is directly related to not having enough qualified leads to work with. You know. You only got two or three interested sellers even talking to you in the first place, so if you want to eat you better close those deals! And that sets up the worst of all scenarios; a desperate buyer chasing a luke-warm seller.
The solution to this problem is to have a continuous flow of sellers calling you so that you have a choice of who you want to work with. With so many people calling, you are in the position of not needing any one of them. If any particular seller is inflexible or difficult to deal with, you can legitimately walk away from them knowing that you having another seller to move on to right around the corner.
Where this leads in your deal-making and business is after a while you only talk to the most motivated people with the nicest houses where there is the most potential for maximum profit, people who are almost pleading with you to take their house! After all, it makes little sense to speak to anybody else.
These deals are the cream of the crop. People whose houses have diminished in value in their eyes because they now want something else more, and their continued ownership of the house is preventing them from getting that something else.
These are your motivated sellers. And they are the only people you should ever consider dealing with. Try calling a seller who is still emotionally attached to their house with an offer involving creative financing. Your offer is an insult to them. But it is a godsend to a seller whose life is elsewhere now and no longer wants his house.
Well how do we get so many people to call? And how do you get the right people to call?
The answer lies in the basic principles of Direct Response Marketing, and Emotional Direct Response Copywriting.
As business owners our overarching goal is to make the most profit, incurring the least cost, with (preferably) the least effort. As Real Estate Entrepreneurs that means talking to motivated sellers as much as possible, avoiding time-wasting unmotivated people as much as possible, and using a system to deliver those results predictably and consistently for us.
Nothing achieves this better than Direct Response Marketing! With Direct Response we decide who our best prospect is first, attract only them, then put a message in front of them that is more difficult to ignore than it is to respond.
A very successful direct marketer named Gary Halbert sums this up succinctly by asking a question. The question is: "if you were in business, say the restaurant business, and you could have one ultimate advantage over the rest of your competition, what would that advantage be?" People usually fumble around with things like best service, best food, etc. But no, that’s not it. The answer? "A starving crowd". So obvious. So simple.
By targeting precisely the high probability sellers (i.e. the starving crowd) you want to go after, putting a piece of paper in front of those people with a message on it that speaks directly to a burning frustration they are experiencing, and then tells them exactly what to do to get relief from that pain, your odds of being on the phone with a motivated seller go way up, as the odds of you wasting time with unmotivated people still in love with their house go way down.
That’s what we want. Only real motivated ("starving") people calling us one after the other, uninterrupted, so we can concentrate on our most profitable business activity; CLOSING DEALS.
Mastering the basics of Direct Response Marketing will take you from wherever you are now to a rare place in the business world; having predictable, reliable, profitable marketing systems that will provide you with all the deals you want.
(c) 2005 Power Marketing, Inc.
Ben Innes-Ker is a full time real estate investor and author of the Motivated Seller Magnet - Automatic Lead Generating System.
He is constantly fine-tuning his marketing and business systems to make his investing more profitable with less effort, so he can spend more time enjoying life with his wife and 2 young children. He shares these unique profit-making systems with his Power Marketing Members.
Why Most Real Estate Entrepreneurs Don’t Make Consistent Profits and What To Do About It
By Ben Innes-Ker
I received an ad call one afternoon. It was a woman named Leanne. She was married with three grown children. She wanted to sell their house, so I went through the process of screening the call and getting the relevant information about the house, the mortgage balances, and what they wanted. It was a nice house, 3/1, 1300 sf, basement, on 2.5 acres, no repairs needed, just outside a town called Spencer, Indiana. They had two mortgages totaling $64,000 and were $4,000 behind in payments. The property was appraised one year ago for $97,500. We talked for a while and she informed me that since they had gotten a 2nd mortgage, she and her husband Greg were having difficulty staying current on the payments, and Greg hasn't had much work recently so now they are really behind and have to do something. Leanne asked me what I would pay them for the house. I asked her what she was looking for. I believe the conversation went like this:
"Well, if we could sell the house and get $85,000 for it we'd go ahead and do that."
I said, "$85,000. For a cash sale, Leanne, that's a bit higher than I can go. If I did pay you cash and paid off your two loans, are you sure you couldn't go any lower than that?"
"How much lower?"
I told her, "Well, based on what you've told me all I can really do here is save your credit by paying off your underlying loans and back payments. I might be able to go a couple of thousand higher but that would be about it."
"So how much is that?"
"Now this is based on your information now. You said that you had $64,000 owing and were $4,000 behind in payments. If I paid those off and added on a couple of thousand for moving money then that would make it around $70,000."
"Is that what you would pay? $70,000?" she asked.
"That's right Leanne. $70,000 is what I could pay."
Long pause.............. longer pause..................and then a big, long, sigh from Leanne.
"Well how long would this take?" she asked, breaking her silence.
I said, "Well, the way I would have to do this Leanne, is to option your house. You see $70,000 is more than I'd be willing to come out of my pocket with to buy the house, but I would be able to finance it for that much. It would take about three weeks before I get things organized on my end to exercise my option and then another three weeks before we close."
"Six weeks, huh?"
"Yeah. Does that sound like it's going to work for you Leanne?" I asked.
"Well, it could be OK. I don't know. We were really looking for more but let me talk to my husband, Greg, and we'll talk it over. I'll tell him what you said and we'll get back with you tomorrow."
"OK Leanne. When do you think you'd be calling?"
"Oh, probably in the afternoon. Talk at you later."
"Bye Leanne."
And we ended the call. I thought the deal sounded good, but I didn't know what the husband was like and anticipated he would come back with all sorts of objections about the option. What was it? How are we protected? Why can't you pay more? Rather than worry about it I reviewed the answers to all of those questions and then set about finishing what I was doing before the call.
The next day at about 2:30 pm the phone rang. It was Leanne. She told me she had spoken to her husband about it and they had decided to go ahead with the $70,000 Option deal I had proposed to her yesterday. They wanted me to come out and explain it to them a bit more and get the paperwork signed. I made an appointment for the next day at 5:00 pm.
The following day, I showed up at their house in Spencer and after some small talk began to tell them about the option contract and what it meant, that it gave me the right to buy but not the obligation to, and that they also had the right to continue trying to sell the house on their own if they wanted to do that, that clause is written in the agreement. I explained to them how I was going to sell the house with owner financing and then sell the note for cash to pay them off.
They agreed with me that it should be easy to sell on a Contract, but they wanted to know how long it would take me. They then informed me that the house had been listed for nine months and hadn't sold. I didn't know that. Well, I couldn't be sure, but I expect it would take about three weeks to find my buyer. I would need a three month option, but it should only take about three weeks to find the buyer. I then went into an explanation of how I would market the house, how I qualify all my buyers first and then only call them for a walk-through when that's the only thing left to do. No pesky appointments.
All of this, including a bit of tangential chatter, took about three hours. But at the end of it all, Leanne and Greg signed the agreements and seemed to be comfortable with me and my plan. They asked one last time if I could pay them a bit more than $70,000. I explained that this was the most that I knew I could deliver to them. I could agree to pay them more but if I did that I would be dealing with unknowns and it could cause problems later if I wasn't able to deliver their price. So rather than get their hopes up with a higher price, I would prefer to stick with the promises I know I can deliver on. They seemed happy with the explanation.
So I drove home with the signed Option Agreement, pretty happy. The next day I ran the following ad:
Spencer - Contract. Owner
Will Finance Gorgeous 3br 2 ba
home on 2.5 ac. $105,000. $900/mo
+ Down Pmt. Call 333-4455
I set up a voice mail box to pick up the calls. The greeting repeated all of the information in the ad as well as the address and told the caller to drive by the property and, if interested, to call back and leave a message with their name and phone number.
After two days I began getting calls. Most people wanted to know how much down was needed. For each of these my response was "how much do you have?" They would say something like a thousand dollars and then they would say they couldn't afford that high a payment and they had credit problems and they didn't like the area. After two weeks, I'd spoken to about 30 junk callers like this, but also had about five people with good enough income and credit and varying amounts of acceptable down payment (5%+). After three weeks of screening calls I found a lady who said, "Hey that's a nice house. I want it." Her name was Candy and her husband was Charles.
I took an application over the phone and prepared to pull her credit. Candy and Charles made a combined income of $6,000 per month, easily covering their debts. I asked her how much she had to put down, and she said none. She didn't have anything to put down. I told her I needed something to show their commitment to buying the house, and with her income she should have had something saved, what was going on? She went on to tell me how they had just been through a very long and drawn out child custody battle with Charles' former wife, had won the custody of the two kids but had been cleaned out by the attorney fees. I told them I needed some sort of down payment, even if it was just symbolic. She said she had none. They had a good income but no cash right now, that's it. I asked what her credit was like and she said perfect. So I told Candy that I would give her information to the note investor who would be buying the mortgage to pull her credit and review her information. If the investor sees a high credit score on the report and OKs buying the note with no down then we could do the deal. It would take a day or so but I would get back with her when I got word. She sounded even excited when she said, "OK, call me as soon as you know."
Before I called the note buyer, I drew up the deal on a piece of paper so I had some hard numbers to work with. I decided the purchase price would be $105,000 so this would be the new value. A year earlier the house had appraised for $97,500. Allowing for appreciation, $105,000 was on the high side but reasonable. It was a nice property. I knew this particular notebuyer went up to 82% ITV (Investment To Value) with their note purchases, and that their minimum discount was two percent. This was a solid borrower so I figured 3% to be on the safe side. What I was trying to do was find out what would be the note amount that when discounted two percent would leave me with the 82% ITV maximum that the notebuyer would pay. Well, 82% of $105,000 is $86,100. And if I divide $86,100 by .97 I get $88,762.89. I decided to make it $88,500 to stay with round numbers
So my deal was: 1st Mtg: $88,500 at 9.9% for 30 years, fully amortized 2nd Mtg: $14,500 at 10% for 15 years, fully amortized 3rd Mtg: $ 2,000 Down payment ($200 per month for 10 months).
I filled out a Paper Worksheet with all the relevant details about the transaction and faxed it along with the 1003 Standard Loan Application I had filled out for Candy and Charlie to the notebuyer, with a note saying that it was the 1st Mortgage that I wanted to sell. She called me back the next day with her quote. It was 97.5%. They would purchase the note for 97.5% of the face amount. Boy! That was even better than I had expected. No problem with the lack of down payment, the borrowers had good credit. 97.5% of $88,500 was $86,287.50. My immediate thoughts were that I would be clearing about $15,000 cash at closing, after closing costs. Gee. Gee Whiz! That's a nice profit.
With the quote in hand I called Candy to give her the good news and made an appointment for her and Charlie to see the inside of the house the next day. I was cautious about being too optimistic as no money had changed hands and they hadn't signed a contract yet. Meeting them at the house, I showed them through pointing out all the good things and telling them what I knew about the house. We moved on to the yard showing them the property lines and eventually got back to my truck.
I asked them, "Well, what do you think?"
I wasn't sure, but I think I made some sales mistake by asking them that. At any rate, this question seemed to bring to light the fact that Candy was having a bit of trouble taking the step and committing to the deal. Charlie was saying it looked fine let's sign, but Candy was umming and ahh-ing and looking very uncomfortable, looking around, and giving these furtive looks to Charlie as if to say, "save me." She started to say "well I don't know" kinds of things and then asked if they could think about it. I hated to break the easy-going mood that had existed up until now but the time had come for us to get a little more serious. About this, I knew there were some sales rules to follow.
I told them, "Well, maybe on another house you could, but on this one I'm going to have to know what you want to do today. Because I've got another three buyers lined up, on hold, pending the outcome of what you guys decide to do today. It's OK if you don't want to buy. But I just need to know it today. I promised I would give these other buyers an answer by tomorrow. The house is available, and it's yours today. What would you like to do?"
I think that's the Now Or Never Close. If it's not, it should be, because it worked. They looked at each other for a long time. I can't imagine the fireworks going on in their brains, but after nearly a full minute of silence Charlie said, "let's just buy the damn house!" Candy looked at him a little longer and said, "Yeah, OK Charlie, OK". We then OK'd the paperwork, and I took a $500 check from them to bind the agreement.
From here, I gave the closing agent both the option contract I had with the sellers and the Purchase and Sale Agreement I had with the buyers and told her I was creating three owner financed mortgages and selling the First to a notebuyer, and I wanted to do a simultaneous closing, using the funds from the note sale to close on my cash purchase with the sellers. She said, "no problem."
I must admit I heaved a sigh of relief. I gathered the documentation from Candy and Charlie that I needed for the notebuyer (tax returns, pay stubs, the purchase and sale agreement), ordered the appraisal, title report, and stood by. The appraisal came in dead on $105,000. Candy called me "every" day and after three weeks she was a nervous wreck.
Finally, we scheduled a day for the closing, to execute the documents. We closed the transaction with the sellers first. Understandably Leanne and Greg were a little somber about having to part with their home, but they signed the documents, we shook hands and they left. On the other end of the spectrum, Candy's smile was a mile wide as she and Charlie bounded into the room. We chatted and I watched as they signed the mortgages that obligated them to pay me $15,500 cash now, $155 a month for the next fifteen years, and the Third that was $200 a month for ten months. Ten minutes later it was over. They gave me a lift down the road to my car, and on the way Charlie said, "Thanks Ben. We don't know how you did it, but thanks." We shook hands and they dropped me off.
The next day I got a call from the closing agent telling me that the wire from the notebuyer had come through and that I could come in and pick up my check. I drove in, signed a few more things and she slid the check across the table to me. I looked at it. $15,551. Being the professional, she proceeded to tell me that I should present my Land Trust to the bank when depositing the check, they'll want to see the paper trail. But then she let slip that, "Hey that was a pretty good deal. You put in $5, held title for ten minutes and got $15,500 back. That's not bad." I agreed and said, "It's a reaction to blocked up toilets and bouncing rent checks." We chatted a bit and I went to the bank.
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