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Seven Surefire Strategies for Direct Mail Success

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You don’t belong in the junk mail pile… But how do you avoid having all the absentee landlords on your mail list toss your mailing without a second glance?

Direct mail campaigns can cost you thousands… so whether you’re launching your first mailing or trying to improve your response rates, you want to know you’re sending out a mailing that’s going to get opened, not tossed.

You want the secret sauce that guarantees direct mail success. And today, I’m sharing 7 strategies flavored with that secret sauce.

But before we dive right in, here’s a quick word to help define direct mail success.

Planning for Success

REI direct mailings typically have a 1% response rate.

In other words, if you send out 100 letters, you can expect to get 1 call. (Don’t get discouraged; just set the right expectations.)

Of course you’re targeting for a higher response rate, but even if you get as high as a 5% response, you would still need to send out 2,000 letters to get 100 calls.

Do the math and send out enough letters to make your mailing worth your time.

Your planning isn’t just about the number of addresses on your list, though. And it isn’t over when you’re done writing your letter either. You also need a plan for taking calls—including a script and a list of answers to questions you’re likely to get.

The last thing you want is to invest in a mailing and then lose a deal because you were unprepared on the phone.

Make sure you’re prepared to take the number of calls you’re likely to get from your mailing. You also don’t want to miss out on a potential deal because you’re scrambling to keep up with calls.

Okay… on to our 7 strategies.

1. Follow the Rule of 7

Potential buyers aren’t likely to call you the first time they hear about you and your business. They want to work with someone reliable, someone they trust. You can build that trust by building brand awareness and following the rule of 7.

The rule of 7 says that a client needs to hear about your business 7 times before working with you… of course, 7 isn’t a magic number, and you will get some calls from a first mailing.

But 80% of your deals will come from your 5th, 6th and 7th interactions with a seller.

These interactions don’t all need to be mailings. Sellers can hear about your business through a social media ad, billboard, bandit sign… and several different types of mailings.

The rule of 7 means that you need to commit to (and budget for) multiple mailings to the same list. And you should think about other marketing methods that list is likely to see—including driving for dollars and knocking on doors.

As a rule of thumb, plan for 6 mailings in 6 months (one per month) to your list… and the mailings should tie together. Your message should be the same, but the pieces can build on one another.

For example, you can begin the second letter: “You got a letter from me a few weeks ago. What’s keeping you from calling me about this offer?”

Then remind the seller about the benefits of selling. In the 3rd letter, you can offer to pay for referrals.

“Early to bed, early to rise, advertise, advertise, advertise.”
                                  ~Ray Kroc

2. Set a Budget that Follows the Rules

When you’re planning your direct mailing, you need to decide:

  • How many people to mail to
  • How many mailings to do and when you send them
  • What type of mailing to send (letter, postcard, etc.)
Remember, plan for a 1% response rate and follow the rule of 7 when you decide how many people to contact.

If you’re on a small budget, there’s nothing wrong with starting small, but don’t just send one or two letters and call it quits. If you do, you’ll miss out on that 80% of your possible deals.

And don’t forget to look at bulk discounts and costs for a few different quantities.

3. Contact the Right People

Even more important than what your mailing says is: who it’s being said to. Even if you come up with an incredibly compelling message, it’s not going to mean anything if it’s not sent to the right people.

The best way to make sure your mailing succeeds is to pay for a list from a list serve or pull county data, but you need to make sure you’re using the right filters to get the right target group.

Use filters like these:

  • Location (zip code, city or county)
  • Property value range
  • Percent equity (use 50% as a minimum)
  • Property type (single-family, multi-family)
  • Owner type (in-state absentee, out-of-state absentee, probates, foreclosures)
  • Length of residence (7–12 years is a good start)
  • Age of owner (65+)
You can use more filters to generate a smaller list or use a smaller range (such as a smaller property value range) to limit it. If you’re not sure where to start, target at least 1,000 contacts.

4. Connect with Your Audience

Once you’ve got your list, write a letter the potential seller is sure to respond to. Think about the problems your audience is specifically facing and provide a solution.

Start with your headline or opening. What will make your audience keep reading?

Write 10 headlines or openings and choose the one that’s most likely to keep the people on your list from tossing your letter. Think about the result your potential sellers are really looking for and write an opening focused on that.

In the rest of your mailing, be clear and to the point. What’s in it for the buyer?

Use short, straightforward sentences or bullet points. And keep the mailing simple.

Include a clear call to action. What should the reader do next? Call you? Fill out a form on your website?

Once you’re happy with the message in your mailing, stick with that theme in the rest of your pieces. Again, you’re trying to build brand recognition, so consistency is going to help your potential seller recognize who you are and understand how you can help them specifically.

Make sure your letter is only 1 page and is very straightforward… cut the fluff.

Your goal is to get the seller to call you, and you don’t need to give them every detail of your business in the letter. Less is more here. Give them just enough info to get their attention… and then you’ll discuss the details over the phone.

If you want more content, consider adding a second page with an FAQ focusing on questions that might keep potential sellers from calling:

  • How much will this cost me?
  • Do I have to do any repairs before you will buy?
  • How long before I get paid?
  • What if I change my mind?
  • Are you a real estate agent?
  • What if I live out of state?
  • Do I need a real estate agent?
And once you’ve written your mailing, don’t forget to proofread it several times to make sure it’s error-free. (It’s also a good idea to have someone else proof it too. A second set of eyes may see things you’ve missed by looking it so much.)

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5. Use the Right Media

Do you want to use postcards or letters? Yellow letters or white? What should the envelopes look like?

Following the rule of 7, you could send a few types of mailings. And sending postcards is cheaper than sending letters, but letters tend to get better results.

Talk to other investors in your area to learn more about what works well with your market. If you’re unsure, stick with letters to start.

Remember, you’re trying to get the potential seller’s attention, and you don’t want them to think your mailing is junk mail, so when you’re making these decisions keep your sellers in mind.

6. Send at the Right Time

You should be sending your mailings about once a month. Know when the real estate market in your area is busiest. Most homes are sold between March and September, so your mailings should include those months.

Everyone is distracted around the holidays, so be mindful of holidays as well, since you’re not as likely to get responses.

7. Experiment… Meaningfully

Keep track of your results for every mailing and make changes as you go. But remember to change 1 thing at a time so that you know which changes make a difference.

Try out a few different types of mailings, different openings and even different features such as stamps on the envelope. Don’t overthink things too much, but always keep improving.

Spending money on direct mail doesn’t equal success. Tracking responses to direct mail and tweaking the mailings = success.

“Marketing without data is like driving with your eyes closed.”
                                 ~Dan Zarrella

Stick with It

The most important part of marketing is persistence. Failure is part of the process, and being told “no” is a part of the process.

Be prepared to tweak, improve and keep asking.

And remember that most of your deals are going to come from the last few mailings, so don’t give up after one or two mailings…

Stick to the rule of 7, and if you feel like you’re just throwing money away, remember that you’re building brand awareness and when you hit your fifth mailing to the same contacts, the responses will pick up.

“Consistent action creates consistent results.”
                     ~Christine Kane

Your Take

What works well for you in direct mail campaigns? Which of these 7 strategies are you going to put into place right away? Let me know in the comments below.

The post Seven Surefire Strategies for Direct Mail Success appeared first on REItips.


End Analysis Paralysis: Take Action

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Do you want to get results 3-10x faster?

Who doesn’t?!

Well, Steven Howell here… and in this video post, I’m sharing a concept on how you can do just that.

And, it applies to your business AND your personal life.

I’ll give you a hint… it has to do with taking action, failing forward and pushing fear aside.

We’ve got to get past feeling overwhelmed and scared of the unknown. And, stop letting Shiny Object Syndrome blind and distract us.

Here’s how…

Okay, friends, get in the game. Stay focused and take action. You got this!

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I’m Listening

How do you get past being overwhelmed? Share in the comments section below.

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Scare Tactics: 4 Beginner Investor Fears & How to Overcome Them

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In many ways, starting out as a newbie real estate investor can feel the same as a kid’s first day of school.

You worry, “What if I don’t know what I’m doing? What if other people are better than me? What if I get laughed at?

Well, okay, maybe that last one is a little different for adults. But still, the fear of failure can be just as intimidating for adults as it is for children. In many ways, we have a lot more at stake.

When working with beginner investors, I hear some of the same concerns – over and over again.

So today, I’m addressing those fears. Plus, I want to share my insight for overcoming and moving past those obstacles.

After all, none of us are perfect. Even experienced investors struggle with daily doubts. But once you learn more about how to appropriately handle these fears, that’s when you’ll truly be able to succeed as a real estate investor.

So, let’s dive right into it…

Fear #1: Financial Woes

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1”
~Warren Buffet

Whether it’s the fear of losing money, not making enough money or just money management in general – real estate investing can bring a lot of financial anxiety into your world, if you let it.

If you didn’t grow up being exposed to real estate investing (and, let’s face it – most of us didn’t), learning about the financial aspect of this profession can be daunting.

Your financial fears may include:

  • Miscalculations: When determining your rehab budget or maximum allowable offer (MAO) for a property, it can be scary not knowing if your numbers are on target.
  • Negotiating: As a new investor, especially, negotiating with a seller can be (*gulp*) a bit intimidating. There’s always the fear that they will be more informed, more confident and more unyielding.
  • Losing $$$ big time: Beginner investors often have very little capital to begin with – and the fear of losing that money, due to your inexperience, can be very overwhelming. How do you know if you’ve chosen the right property? How do you decide how much money to put into it? What if it’s a total flop and you lose everything? The list could go on and on.

Right about now, you’re probably thinking, “Well, great. This is just making me feel worse.” But my goal isn’t to scare you more – it’s to point out the fact that your fears are NORMAL. Your fears are not unfounded.

In fact, if you don’t have some sense of fear when it comes to real estate investing, that’s probably cause for concern.

So, let’s continue outlining some of the fears you may be feeling, and then – you’ll turn this thing around and help you feel positive and excited about your future as an investor.

Fear #2: Finding the Right Deals in the Right Markets

This fear is a 2-parter. As an investor, finding property deals is a HUGE contributing factor to your success. At the same time, you can find the best property ever – and if it’s in the middle of the worst market ever – you probably won’t succeed.

When you find the right property in the right market, however, that’s when the magic happens.

So, let’s break down some of the finer details of this fear:

  • Property type: Do you want to invest in single-family homes, multi-unit properties or a combo of both? Not knowing which way to go can cause a lot of anxiety for new investors.
  • Building a pipeline: Even after you determine which property type(s) you want to pursue, it can be challenging to keep a sufficient pipeline of upcoming deals. But this is an essential part of ensuring that your REI business is sustainable.
  • Understanding unfamiliar markets: Sometimes, the best markets are the ones you’re least familiar with. If you don’t understand the ins and outs of those markets, you probably won’t be successful there. Building your knowledge of the area is the key to confronting this fear.
Okay, I want to throw a few helpful tips at you right now. Research is your #1 way to overcome this fear. Here are a few things to look for:
  • Demand – Is this market a place where homes are in high demand? Is population flowing into this community or out of it?
  • Target tenant/buyer – When considering a potential property deal, think about who your target buyer or tenant would be. For instance, if you want to invest in an apartment complex in a college town, is the building within easy walking distance of the college? If your target tenant is a middle-class family, does the property have amenities such as stores, parks and businesses nearby?
  • Market history – Growth in recent years is very important, but also be sure to look at the market’s long-term history, as well as projections about where this market is headed. The “hottest” markets aren’t always necessarily the best choice. Sometimes, it’s the ones that are on the verge of “up and coming” that are the better fit.
Also, know that you will become better at spotting the best deals, with time. In the beginning, it will probably take you several hours to analyze a property and to determine its pros and cons.

But as you start to become more and more familiar with your target market, you will be able to almost instantly identify which properties are (or are not) good deals. The process will become virtually automatic for you.

So, take heart! Practice makes perfect.

Fear #3: Tenants

I could just leave it at that: tenants.

There’s nothing that strikes fear into the heart of a property owner quite like the nightmare of a bad tenant. Whether it’s a needy tenant (cue the “I need a lightbulb changed in the kitchen” phone call at 9 p.m. on a Tuesday) or a destructive tenant (why – just why – would you attempt to mount a TV on the wall without the proper equipment?)

What’s even worse: investors who put up with terrible tenants just to avoid the headache of looking for a replacement tenant. These types of investors are willing to tolerate a tenant’s bad behavior and don’t increase rent with the changing market – for fear of the tenant leaving.

One pearl of wisdom that I want to offer concerning tenants is: It’s not always financially feasible for beginner investors, but one of the best solutions you may find is to hire a property manager or a property management company.

You might be surprised to find how affordable this strategy can be. Plus, the time that you will save (by allowing the property manager to take care of minor tenant needs or complaints) can be entirely worth the investment. That’s valuable time that you can be using to scope out new property deals.

So, hiring an experienced and trustworthy property manager can be an ideal way to minimize your fear of tenants. This is especially essential if you plan to invest in markets that are located outside your community or outside your state.

Fear #4: The Unknown

“Fear of the unknown is the greatest fear of all.”

               ~Yvon Chouinard, founder of Patagonia

This one is pretty obvious. But anything that involves a significant amount of money, risk and the unknown is going to cause fear.

As a beginner investor, you may feel intimidated by experienced investors, and believe that you’ll never be able to have the level of knowledge and expertise that they possess. But you’d be wrong to think that…

None of us came out of the womb ready to invest in real estate. We have all had to build our knowledge from ground zero.

So, the key here is: Don’t let your fear of the unknown rule you. If you let this overpower your mindset, you will never achieve success in this industry.

Even the most prepared, organized and skilled investor in the world is going to have fears when it comes to doing a deal.

The difference between successful and unsuccessful investors is simply their attitude toward those fears.

When you’ve done your research on a potential deal, studied the market and secured the necessary finances, it’s time to take action. Don’t back down. You have to learn to trust yourself and your instincts.

Now that we’ve taken a look at some of the greatest fears for new investors, I want to give you a few more tips for overcoming these concerns, so you can really take charge of your business and achieve the success that you desire.

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Conquering the Fear: As Easy as 1, 2, 3

As an investor, I’ve found that the ability to overcome your fears really comes down to 3 essential practices. If you embrace these, and work on them continuously, you can quickly eliminate the fear that may be holding you back.

1. Be smart about financial risk

1st: never invest with your emotions. Always rationalize every property deal before going through with it. Never give in to greed or fear, because that will just lead you down a bad path.

2nd: research EVERY cost associated with an investment. Consider the vacancy cost, maintenance budget, tenant risk, etc. Also think about how these will impact your cash flow. Prepare for the worst, and you will be ready if it happens.

3rd: always have a backup plan. Don’t place all of your finances into one deal, with the hope that it will work out. Have a safety net and contingencies already in place, so you can rest easy. All of us experience financial failures every once in a while. Just make sure you have the reserves in place to make sure it doesn’t destroy your business.

2. Create a solid support system

I recommend building an emotional support system that includes family and friends, but also other REI professionals. This will give you the resources you need to express your concerns and to receive helpful feedback.

No one is successful on their own. The wealthiest people in the world didn’t reach that point by themselves. If you really want to succeed, you need the emotional support.

“Don’t let anyone rent a space in your head, unless they’re a good tenant.”

          ~Anonymous

It’s also critical to surround yourself with fellow investors whose business models and work ethics you admire. Because you are who you hang out with. By spending time with successful investors, their habits and methods will eventually “rub off” on you.

Long story short: carefully choose the people who will emotionally, mentally and professionally impact your mindset.

3. Be a lifelong learner

Take some time to sit, think and write down the parts of your investing knowledge that you want to improve. Be honest about your shortcomings and areas where you lack expertise. This first step is HUGE for overcoming your fears, because it makes the unknown known.

From here, you can devise a plan of attack…

Join your local REIA, read newly released and popular real estate investing or entrepreneurial-focused books and attend industry-related trainings. Find an experienced REI mentor who is willing to simply give you advice, and make sure you study market history, trends and forecasts in your area.

There is so much to learn… you could spend all day discovering more. Obviously, you want to leave plenty of time for finding property deals and managing your current properties, but this component of self-education is essential to your investing success – so make sure you carve out enough time for it.

The Only Thing to Fear…

…is you.

You have the power to succumb to your fears or to overcome them. Everyone will experience small failures time and time again. But you cannot let these obstacles break your spirit. Learn from them, move on, fall forward.

No matter what you fear most, a positive mindset, a passion for learning, a strong support system and the ability to assess financial risk will go a long way in easing those fears.

Have confidence in yourself.

Every investor – even the most successful of us – started where you are. If you give it your best effort, you won’t be disappointed.

Taking Charge

What are your top concerns and fears, when it comes to real estate investing? Which strategies have you used to overcome those worries? Let me know in the comments section below.

The post Scare Tactics: 4 Beginner Investor Fears & How to Overcome Them appeared first on REItips.

Owner Financing for the Win

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Looking for a creative financing solution for your next real estate deal? Look no further than the incredibly flexible option of owner financing.

For property owners who want to ultimately realize more profit from a real estate deal or who are looking for regular payments, owner financing is the way to go.

For buyers who might not qualify for a traditional mortgage or who are looking for more flexible financing, owner financing can be a magic bullet.

And if you’re willing to get really creative, using a wrap-around mortgage and a private lender can generate passive income and set up a win-win-win situation for everyone involved.

But let’s start at the beginning and define owner financing.

What Is Owner Financing?

When a buyer and a seller work out an agreement where the buyer pays the seller directly for the property over time, they have worked out an owner-financed deal. These deals do not involve banks, so they don’t require the same inspections and approvals; the terms are very flexible.

As a real estate investor, you might find yourself in a situation where you want to buy a property with owner financing, or you might choose to sell a property this way.

Let’s look at the pros and cons to both the buyer and seller, plus some unique strategies you can use to set up these deals.

A Win for the Seller

Sellers consider owner financing for a variety of reasons:

  • Sell a problem property
  • More potential buyers
  • No fees
  • Monthly income
  • Flexible terms
  • Receive full property value
If a seller is dealing with a problem property, owner financing could be the answer. The seller might not want to deal with an inspection (and the required property updates needed in order to sell).

Or maybe it’s hard to find an agent who will list the property because it’s just not worth that much and won’t bring in much commission, so a traditional sale isn’t a great option.

Since buyers don’t need to jump through the same hoops as they would to qualify for a traditional loan, your pool of buyers for the property is much bigger. If you’re willing to negotiate a deal with no down payment, that attracts buyers as well.

Since owner financing doesn’t involve a real estate agent, there are also no fees. And there’s no cost for an inspection. In other words, no closing costs, and more money in the seller’s pocket.

The seller also starts taking in a steady monthly income. For sellers who don’t need the cash up front, this is a huge benefit.

And because the terms are flexible, sellers can negotiate the sale price and interest rate that works for them. And the seller and buyer could renegotiate as needed down the road.

Sellers can negotiate terms that get them the full property value if they use owner financing. It will take longer to realize the full value, but sellers can receive what the property is worth if they’re able to collect monthly payments rather than a lump sum.

A Win for the Buyer

As a buyer, why work with a seller instead of a bank?

  • Qualify quickly
  • Flexible financing
  • Quick closing
  • Avoid “extra” costs
With owner financing, the buyer doesn’t need to meet the same qualifications as they would for a conventional loan. You’re working with an individual, not an institution, so while a bank requires you to meet certain terms to qualify for a loan, the seller can look at the whole picture.

For both sellers and buyers, the financing is much more flexible. You can negotiate the terms that work for you, including the amount of monthly payments, interest rates and down payments. Keep these 4 costs in mind as you develop your offer:

  • Principal
  • Interest
  • Taxes
  • Insurance (PITI)
One great strategy is to offer the seller a few different deal options:
  1. highest offer: no down payment, highest monthly payments, 0% interest
  2. middle of the road offer: small down payment ($1,500), slightly smaller monthly payments, 0% interest
  3. lowest offer: large down payment with small monthly payments, or purchase the property for cash

These deals typically have a 5- to 15-year term, but you can negotiate whatever terms work best for you.

You can also come up with more creative terms that work for both parties, such as interest-only payments for the first year or a 5-year term with a balloon payment at the end. When making offers, keep the term options straightforward, but don’t be afraid to think creatively.

And don’t be afraid to ask for 0% interest. Just ask for terms where you pay the seller “until paid.” In other words, your payments go toward the principal, not the interest. If they’re not interested, just negotiate a number that works for you.

These deals are also flexible in terms of closing; they can close much more quickly.

Buyers can also avoid extra costs in some situations, such as escrow taxes and insurance, depending on any existing mortgage and the terms of your deal.

What Do I Do with a Seller Financed Property?

Rent-to-own is a great option for a seller-financed property. You can collect a down payment and use the rent to make your own payments, with a difference that makes the deal a good one for you.

You might also want to add the property to your rental portfolio.

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Be Aware

Owner financing does involve a few risks. Before diving in, make sure you understand the potential downsides so you can avoid an ugly situation.

  • Buyer default
  • Missed payments
Be proactive in an owner-financed deal to avoid buyer default. As a seller, run credit checks and background checks to make sure your buyer is the right person to be dealing with. And if you do run into a sticky situation, consider renegotiating your terms to keep your buyer on track.

Keep the transaction professional by hiring a third party to collect payments. Make sure you have a plan in place if the buyer isn’t holding up his end of the deal; you don’t want to get stuck with months of overdue payments and no resolution in sight.

Strategy for Owner Financing

If you’re looking to buy a property using owner financing, target absentee or out-of-state landlords with 50%–100% equity in their properties. They’re used to collecting rent checks and might not be interested in receiving a lump cash payment for the property.

You can also look for both single-family and multi-family properties or apartment buildings. With these criteria, you can easily get a list of property owners to contact and start sending out direct mailings.

If your marketing explains the benefits of owner financing, you’ll start getting calls from sellers ready to discuss the details and set up a deal.

Wrap Arounds and Owner Financing

If the owner has a mortgage the seller can’t pay off, one option that makes the sale a great deal for the seller is to wrap the buyer payments around the existing mortgage.

For example, if Shorty Seller was asking $125,000 for a property that he owed $70,000 for, Ivan Investor could set up a wrap-around mortgage. Ivan would make the payments each month for the current $70,000 mortgage. And when the deal balloons in 5 years, Ivan would pay Shorty the $55,000 difference between that mortgage and the $125,000 Shorty was asking for the property.

Now, Ivan doesn’t actually take on the $70,000 loan in this deal. He’s just making the payments. Shorty gives Ivan a contract for deed, which gives Ivan control of the property. Ivan gets the tax benefits. But as far as the bank is concerned, Shorty is still responsible for the loan. And Shorty keeps the deed for the property; Ivan has just got the contract.

All this changes once Ivan makes the last payment. At that point, the property belongs to Ivan Investor.

Word of Caution: Mortgages sometimes have terms that require the balance to be paid if the property is sold. If you’re considering a wrap-around mortgage situation, get some legal advice.

Consider the possibilities available if you approached owner financing with a private lender. If you purchased a property with funds from a private lender, then sold the property using owner financing, with the right terms everyone would win.

The private lender would earn interest on their investment. You would earn a monthly profit based on the difference between what the buyer is paying you and what you owe your private lender. And the buyer gets all the benefits of an owner-financed deal (easy to qualify, lower down payments, lower closing costs, quick close).

Again, a final word of caution…

Many states regulate deals of this sort and deals that are made based on borrowed money. And your private lender needs to agree to wrapping the mortgage when you sell the property using owner financing.

Always, always, always consult a legal advisor before doing deals like this.

Your Take

What creative deal financing strategies have worked well for you? Let me know below.

The post Owner Financing for the Win appeared first on REItips.

How Low to Go: Are Properties Under $30K Worth It?

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“One man’s trash is another man’s treasure.”
~English proverb

Real estate investing involves a great deal of risk. So what separates the successful investors from the failing ones?

The ability to determine which risks are worth the – well – risk.

Investing in low-priced properties (I’m talkin’ $30K and under) is one area of risk that you may or may not have considered. Depending on the housing prices in your market of choice, investing in these types of properties may not even be a possibility.

But if this sounds interesting to you, make sure you keep one thing in mind: When you invest in ultra-affordable properties under $30K, you are increasing your risk. Plain and simple.

Depending on your area of the country and local market, properties at this price point may:

  • Be located in a neighborhood that’s considered “bad” or dangerous
  • Have a long list of major repairs that could break your budget
  • Be difficult to rent out; which could result in irresponsible tenants

And here’s the big BUT…

BUT, if you handle these super-affordable property deals correctly, you can create steady revenue streams that set you up for success. In the long run, you may even achieve your ultimate financial goals.

Still, this investing strategy in one that requires a lot of research, planning and careful choices before you will see the results you’re hoping for. So, let’s take a look at some aspects of investing in low-priced properties that can make you successful.

Location, Location, Location

If real estate investing is a hyper-local business, then investing in properties less than $30K is a hyper-hyper local business.

Not only is the neighborhood important to consider but you also need to think about how the houses differ from block to block.

This is why I wouldn’t recommend investing in ultra-affordable properties unless you are local to the area and know it WELL. This is usually not the type of investing you want to do from another city or state.

Most likely, the properties you’ll find for less than $30K are going to be in C-class neighborhoods – or worse. Just a few steps across a street can switch you from an “okay” neighborhood to a “bad” one.

So be aware of this as you scout out potential property deals.

On the Lookout: How to Find These Properties

If you’ve made the decision to invest in ultra-cheap properties, you’ll want to have a solid strategy for finding the best ones.

At this price point, properties are often either snatched up immediately or left to sit on the market for months and even years. So, it’s important to find the best ones before other investors do – and to avoid the “duds” that are financial disasters waiting to happen.

It’s critical to network as much as you can. Talk to EVERYONE about the types of homes you invest in – your:

  • doctor
  • dentist
  • UPS delivery guy
  • kids’ teachers
  • barber
  • contractor
  • friends
…you get the idea.

You never know when someone may stumble upon a property deal that might be the perfect fit for you. Make sure you’re the first person they call!

For properties under $30K, I’d also recommend browsing Craigslist daily – if not several times per day. As I mentioned earlier, if you don’t act almost instantly on these properties, you might miss out.

To Buy or Not to Buy…

Once you’ve found a potential deal, obviously you need to do your due diligence and determine if it’s the right fit for you (as you should do with properties at any price point).

The first item on your checklist should be ensuring that the neighborhood and area is safe. No matter how cheap a property is, if it’s in what we call a “war zone,” it’s just not worth the risk.

I’ve gathered a couple of helpful tips from fellow investors that I’d like to share with you. These are insightful pieces of advice that I think every investor should consider.

  • Look for good neighborhoods with bad schools.
    The quality of the local school district will dictate home prices. When searching for homes priced at $30K or less, look for neighborhoods with working-class people and little crime, but that may be in a less desirable school district. In many cases, the people who live in these neighborhoods are looking for a safe place to raise their families, and they consider the local public school to be just fine. These types of communities will be your best bet for finding affordable properties that won’t be high-risk.
  • Call the local police station.
    If you’re unsure about the safety of a particular neighborhood, call the local police department and ask to speak with the chief. Mention that you’re planning to buy a home in the area, give the specific address and ask the officer, “If your loved one were buying this house, would you feel okay about them living in this area?” If he or she says “no,” that’s your answer.
Once you’ve considered the safety of the property’s neighborhood, then it’s time to look at the actual property itself.

First of all, when you look at the sale history of the property, be sure to also consider the tax rates. Plenty of smart investors have screwed themselves over by purchasing a property where the annual tax is the same as 3 months (or more) of rent payments. This is just too high of a risk to take, considering that you’ll also need money for property maintenance throughout the year.

Next, do a thorough – and I mean thorough analysis of the repairs that will be needed to make the property safe, habitable, presentable and desirable to the types of tenants you want. As a general guideline, never plan to spend more than 10% of your purchase price on repairs and renovations.

So, for a $30K property, you’d want to spend no more than $3,000.

If you realize that major repairs are needed – roof, HVAC, foundation, etc. – that’s probably your sign to bow out of the deal. A new HVAC system, for instance, is going to cost roughly the same for a $30K house or a $300K house – it doesn’t matter. Don’t get yourself caught up in major repairs that are going to leave you in the red zone.

If everything checks out, and the property seems like a wise financial decision, you’ll be ready to look for potential tenants.

The Third Degree: Finding Tenants

Now, with any property you plan to rent out, screening tenants is essential. But with these ultra-affordable properties, a very thorough screening is especially crucial.

In fact, you might even want to run test ads on Craigslist before you even make an offer on the property. (Keep in mind, this could cost you valuable time; but it could also spare you from making a bad decision). By running a test ad (“seeking tenants”), you can quickly determine the housing demand and rental rates for the area.

Then, once you’ve received an accepted offer, you can start thoroughly screening your potential tenants. Again, this is not something that you want to rush through. Finding a loyal tenant who respects the property and pays their rent on time is GOLD – it’s a process that deserves time and effort.

One final piece that you want to have in place – before investing in properties under $30K – is a highly reliable team of people (property manager, contractors, etc.) that you can count on.

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Building a Strong Team

No matter how thoroughly you screen your tenants, with properties at this price, you’re probably going to run into difficult people who cause you some grief.

Enter… the experienced and skilled property manager. If you don’t have the ability to manage the tenant and property yourself, this is someone you HAVE to invest in. A good property manager will ease a great deal of your tenant-induced woes.

You also want to have a trustworthy contractor (or several) who you can rely on. Virtually none of the properties at this price point will be move-in ready. Build a solid relationship with a contractor who you know will do high-quality work without charging you an arm and a leg.

It’s also a good idea to form a reliable relationship with a lawyer, as well. (And again, this is the case with any property investment you make – but especially for those that will be rented out to tenants).

Once you have these people “on your side,” it will make the somewhat risky investment in a low-priced property much less hazardous.

Show Me How

While it can seem pretty daunting to venture into the world of investing in ultra-cheap properties, know that you can be successful – you just need to be smart.

I’m always interested to hear stories about real investors who have boldly gone where no other investors have gone before… and succeeded.

So here are a couple of real-life scenarios that I think you might find to be helpful, especially when deciding if investing in inexpensive properties is right for you.

Investor #1 buys homes at a variety of price points in his market, a larger city. His cheapest property yet was purchased for only $3,400. It was owned by the city, and was in a C neighborhood (but not dangerous). The city estimated that the home needed approximately $16K in repairs, minimum, but the investor only put about $10K into the house.

The investor went the Section 8 route, and rented the home for middle $600s/month. In the end, he estimates that he’ll see about $50K-68K minimum return on his investment over the next 10 years.

Now, this is probably a rare example of how a property that cost the investor only about $15K turned into a very profitable decision. But, it’s not impossible!

Check out this other scenario:

Investor #2 bought a HUD property, located in a solid B neighborhood in a small town, for just over $32K. He put $12K into repairs and upgrades (for a total investment of $44K). He was able to find a good tenant immediately, and rented the home out for $700/month. In just over 5 years, he’ll make his money back, and be taking in 100% profit from there on out.

This investing strategy can work well in cities or small towns/rural areas. But keep in mind that – regardless of the town size – the neighborhood has to be the right fit.

Summing it Up

Just like any investing niche, this strategy of purchasing ultra-affordable homes is not for everyone.

If you’re a brand-new investor, for example, you probably don’t want to take this chance. It will probably take several years of experience in your unique market before you’re familiar enough with the industry and the area to make this type of investment.

Also, if you’re not willing to deal with tenants, and don’t want to hire a property manager, this – again – is not a good idea for you.

But, if you know your market well, and are willing and financially able to take somewhat of a risk, this could be a perfect way to branch out. After all, you’re spending less on the property, so the opportunity for financial gain, if the house and tenants are managed properly, is HUGE.

How Low Can You Go?

What was the lowest-priced property you ever bought? What factors went into your decision to make the investment? Let me know in the comments section below.

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Doing Wholesale Deals Grandma Would Be Proud Of

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Wholesaling.

What’s not to love?

So many investors will tell you it’s where they started—and that it’s a great place for any investor to begin.

But how does wholesaling work, really? And how do you do a deal that even Maria would proudly teach her Von Trapp kiddos as the do-re-mi of investing?

Let’s start at the beginning.

What Is Wholesaling?

A wholesaler is like a matchmaker. For a fee, they connect great real estate deals with eager investors.

Sounds easy, right?

Here’s an example…

Whitney Wholesaler puts bandit signs all around her farm area, telling everyone who reads them that she buys houses. Harry Homeowner calls Whitney and tells her he really wants to sell; he’s been getting foreclosure notices.

Now what?

Here’s where different people will tell you different things. Let’s continue with just one scenario for now…

Whitney checks comps, meets with Harry, and tells him she wants to make a deal for $55,000. She writes up a purchase agreement, stating that she (or someone she assigns the agreement to) will buy the property for $55,000 within 30 days.

Whew! Whitney’s got a great deal. Now all she needs is to make a match with a cash buyer. She’s got a list of buyers, so no problem. Barry Buyer answers Whitney’s call and says he thinks this is a great property for him. He’s definitely willing to buy it for $62,000.

Woohoo! Now Whitney’s made a match. She writes up an assignment contract that gives Barry the right to purchase the property. Barry can’t wait to flip that property.

Then the title company comes in and processes all that paperwork, and Whitney Wholesaler gets a check for $7,000.

What a day for Whitney the Matchmaker.

But Wait…

At this point you might have some questions:

1. What if Whitney can’t find a buyer?

2. What’s all the hype about this scenario? I’ve heard wholesaling is illegal.

3. Well this sounds amazing. How can I make $7,000 in one deal?

Let’s start with the “what ifs.”

No Risky Business

When you do a deal, of course you want it to be one that’s going to make you money and isn’t putting you at risk in any way.

So what if you do a deal like Whitney’s… but you can’t find a cash buyer? Are you stuck with the deal?

If you sign a purchase agreement, then yes, you’ve agreed to purchase the property.

This sounds risky. But it doesn’t have to be, for a couple of reasons.

1. Buyers Wanna Buy

If you’ve got a solid list of cash buyers (or one or two really reliable buyers) and you know what they like, you can be pretty confident that they will want the deal you’re offering.

Not sure? Show them the property. You want to be careful that they don’t cut their matchmaker out of the deal here, so you can give them the relevant property information (condition of the house, bed/bath count, square footage, neighborhood) and the amount they would pay without giving them the property address.

Do this before you sign an agreement with the seller. If your cash buyer is really interested, get everything settled with the seller, and then set up your assignment contract with the buyer. This isn’t a risk-free system, but it will relieve some of your worries.

2.You Set the Terms

If you don’t agree with the price the homeowner wants, to the point that you feel uncomfortable signing a purchase agreement because you don’t think you’ll find a buyer, you don’t have to sign. Refer the buyer to your real estate agent.

No $7,000 check here. But remember not to think only about getting a check…

If this seemed like a bad deal in the first place, you’re saving yourself a headache. You’ve helped the homeowner, so you might get a great referral from them that does turn into a deal. And you’ve helped your agent. You definitely want your agent to love you, so this a huge plus.

If you do feel good about a deal and move forward with a purchase agreement, some wholesalers will tell you to avoid risk by including an escape clause. This clause states that you aren’t under obligation to buy the property. Yes, escape clauses are a good idea—if the property is destroyed in a fire or a flood while under contract you need to be able to walk away.

But here’s where we need to consult grandma…

Grandma’s Rule

When you do a wholesale deal (or any deal), treat the homeowner like you would treat your grandma. If you do your deals that way, everybody wins.

But what does Grandma’s Rule really mean?

1. Be Honest

No matter how you do the deal, be honest with all the people involved. Don’t be afraid to tell the homeowner you’re making money on the deal. You can even tell them how much you make.

Remember, you’re matchmaking, and you’ve got a fee. If the homeowner has a problem with that, they always have the option to walk away.

2. Don’t Hide Your Terms

Go through your contract with the homeowner. Be clear on the steps of the process and, if you do include an escape clause, explain that.

If dragging your grandma into this seems a bit over the top, then think about this as a referral system. You want each person you deal with to be eager to refer you. And they’re much more likely to do that if you’re honest and clear the whole way through the process.

Okay now, thanks, grandma. On to the next question.

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Is This All Legal?

You might have heard about wholesalers getting fines for doing wholesale deals. Or maybe you’ve just heard that wholesaling isn’t an above-board business.

Here’s why some people say you can’t wholesale without a license: A broker must have a license. And the question turns on whether you think a wholesaler is a broker.

Different states have different legal definitions for brokers, but they generally state that a broker is a person who sells or buys real estate for a profit, or who negotiates the sale of real estate for a profit, or who markets a property for profit.

So is the wholesaler a broker?

It depends on whether you think the wholesaler is selling a property or selling the ownership of a real estate contract. And given that marketing a property is often included in the definition of brokering, it depends on how you advertise the deal.

To wholesale properly, you advertise the contract, not the actual property. You’re selling the contract.

Ok, so what does that mean for you?

1. Get a Lawyer Friend

You should always get legal advice before doing a deal. Don’t make decisions based on what I say in this post without talking to someone who knows your state (and federal) laws.

But keep in mind that lawyers will give you different answers on this question of whether a wholesaler is a broker.

2. Be True to Yourself

Make sure that however you do deals and whatever kind of deals they are, you’re comfortable with them. Consider how you would answer someone who asked you to explain how you handled a deal, whether that was a legal authority or a relative of a homeowner you worked with.

Always work with integrity and you can be confident in all your dealings.

3. Use a Double Close

You do have another option to close these wholesale deals: the double close.

If we go back to our example and turn it into a double close, Whitney would buy Harry Homeowner’s property. Then, in the same day or maybe the same hour, Barry Buyer would purchase the property from Whitney.

Now there’s no haggling over whether Whitney was selling Barry a property (one she didn’t own) or selling him a contract. Clearly she’s selling him a property, which clearly she owns.

But what if you don’t have the money for that? There are transactional lenders you can use (for a fee) to get access to one-day funds.

4. Get Licensed

Licensing will probably cost you a couple thousand dollars, but this avoids the whole issue altogether. You’re a broker, so you can advertise as well as buy and sell property, no problem.

Again, talk to your lawyer about the best steps to take at this point.

Your Very Own Paycheck

Okay, all this sounds good. You love the idea of helping out your “grandma,” and you love the idea of getting a $7,000 paycheck. So now what?

It’s time to advertise.

If you’re going to be that wholesaling matchmaker, you need to go out looking for people who need matches. Whether you’re more of a bandit sign person or a direct mail person, start looking for Harry Homeowners who want to work with you.

Cultivate your list of Barry Buyers, too. Make sure you’re ready when you get that first phone call so you can do those wholesale deals with ease.

Your Take

How do you set up your wholesale deals? Share your thoughts and tips below.

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Mobile Home Investing: A Flippin’ Good Idea?

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“Nothing important was ever achieved without someone taking a chance.”
~H. Jackson Brown, Jr., author

In the world of real estate, you don’t often hear about investors who specialize in flipping mobile homes. It’s one of those segments of business that many investors tend to avoid. After all, the margin for error is very thin (much like the opposite end of the spectrum: investing in upscale, luxury homes).

But, like me, you might be curious as to why an investor would choose to flip mobile homes. Maybe there’s something we don’t know, right?

After all, the business would have to be lucrative… otherwise, why would anyone choose it?

So, after doing my research and chatting with some investors who are highly skilled in this area, I wanted to offer you some insight. Even if you decide that flipping mobile homes is definitely not your cup of tea, it can be helpful and interesting to learn about various property types and strategies that other investors pursue.

To start off, you should know that mobile homes tend to lose their value very quickly. As a result, flipping mobile homes is generally a higher-risk investment strategy than flipping what we call a stick-built (non-manufactured) home.

On that same note, increasing the value of a mobile home is also more difficult than improving the value of stick-built homes. Because you are limited in the improvements that can be made to a mobile home, you can only add so much value.

Plus, you need to take into consideration the park or land where the mobile home is located, which can significantly impact its value. Just like other homes, mobile home parks can vary from “desirable” to “avoid-at-all-costs.”

Still, with enough research—and a methodic approach—you can develop and implement a successful strategy for making significant profits from flipping mobile homes.

So, if I’ve piqued your interest, read on to discover some beneficial techniques and tips for flipping mobile homes. (I promise, it’s worth the read.)

Begin at the Beginning…

First, just a few words on understanding your ROI for flipping mobile homes…

Understand that—just like any property—flipping a mobile home requires a great deal of due diligence. Don’t dive headfirst into a deal until you’ve done your research. It’s especially important to understand the market trends in your neighborhood or city of choice.

The Good News: Mobile homes offer square footage prices that are a fraction of what they would be for non-manufactured homes. And, mobile homes can appreciate significantly in value if they are kept up (and especially if they are permanently installed).

And one final tip…

As you consider venturing into this area of investing, you may also want to seriously consider living in the mobile homes while you flip them (if this would work for your life/family). By doing so, you can save a ton of dough, and make a more significant profit.

Doing Your Due Diligence

You might be eager to get started, but you’ll want to spend plenty of time preparing for your investment.

Before you buy, consider these tips:

  • Know your stuff – Spend time browsing Craigslist, online ads and even printed classified ads for mobile homes for sale in your market. Build your knowledge! The more you read these, the more quickly you’ll begin to see patterns in pricing, which means you’ll be able to easily spot a good deal when it pops up.
  • Make connections – It can be extremely beneficial to establish a relationship with the managers of local mobile home parks. These individuals will know when someone is looking to sell. If you’re a trusted connection, you could be one of the first people the manager calls with a property deal lead.
  • Practice your bidding – Property auctions are often grossly underrated by the investing community. Attend auctions to learn more about the mobile home prices in your area. Just make sure that you never purchase a home sight-unseen. This is NOT a good idea, especially in the case of foreclosed mobile home (which can be damaged beyond any feasible repair).
  • Look around – On that same note, make sure you inspect a mobile home thoroughly before committing to any purchase contract. In most cases, any structural damage will ruin your chance of making a decent profit. So, look for homes that require basic cosmetic updates but are structurally sound.
  • Consider the property’s age – You’d think that investing in a fairly new mobile home would be a better idea, but – usually – this isn’t the case. Mobile homes depreciate in value dramatically in their first 5 years of existence; after that, the values tend to even out. So, take this into consideration as you look for properties.
If you’ve done your research and are ready to make a purchase, be prepared to use your sharpest negotiation skills. Come prepared with a list of repairs you’ll need to make, and get the seller to compromise on their asking price. (Obviously, this applies to any property you’d buy; it’s just particularly important for properties where your profit spread could be quite thin.)

Once you’ve scored an awesome deal on a mobile home, you’ll be ready for the fun stuff…

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Rehabbing Like a Boss

When it comes to renovating a mobile home, you’ve got to stick to the budget.

I repeat: Stick. To. The. Budget.

Whatever budget you determine, prior to starting repairs or renovations, don’t exceed it.

Because you’re working on a property that isn’t stick-built, it’s unlikely that exceeding your pre-determined budget would be wise.

It’s also important to do as much of the work yourself (if you can). This will save a boatload of money.

Word of Caution: Make sure you hire a professional to complete any work that’s more specialized. Understanding the balance between “I can do this myself” and “Heck no, I need an expert for that” is essential.

Now, if you’re accustomed to investing in traditional, stick-built properties, your automatic instinct will tell you that higher-quality materials and appliances will add BIG value to your mobile home.

But, in most cases, this isn’t true.

The value of most mobile homes won’t increase much with higher-quality materials. Because this isn’t a permanent property, it’s best to stay with the basics and avoid the high-end stuff.

Really, your main goal is to improve the cosmetic appeal of the mobile home. So, consider these smart, cost-effective options:

  • Wash and repair siding
  • Clean or replace carpeting
  • Paint walls and ceilings
  • Install basic, laminate flooring
  • Replace doors that are in poor condition
  • Make cost-effective updates to countertops
  • Switch out the cabinetry hardware
  • Install new, updated light switches, outlet and vent covers, etc.
  • Re-glaze bathtubs and sinks
  • Make minor repairs to the roof
As a general rule of thumb, you probably want to limit your reno/repair budget to $7-$12 per square foot of the mobile home.

This will give you enough for a basic, cosmetic rehab. If you have any major items that need repairing (such as plumbing, electrical, HVAC, etc.), calculate those costs separately. (And, if at all possible, avoid investing in mobile homes that require those major repairs, in the first place.)

Once you’re satisfied with your rehab work, you’ll be ready for next steps.

Finding Your Ideal Buyer

If you’re planning to list your newly flipped mobile home, it’s important to come up with a conservative asking price.

This is NOT the time to get overly ambitious with the listing price. As I mentioned before, you can only increase the value of a mobile home so much. If you’re asking an outrageous price, buyers will avoid your listing and opt for a brand-new mobile home (which won’t cost much more).

Your target buyers will be:

  • people who are on a budget
  • first-time homebuyers
  • those who want to downsize from their current home
Now, if you only accept cash offers, you’ll find yourself in a tough spot. Most of your interested buyers will NOT have the ability to pay all cash.

Instead, look for buyers who are working-class, financially responsible individuals and who haven’t yet had the income level needed to stop renting and buy a traditional home. Many of these folks would be happy to own their own mobile house, rather than continuing to throw their money at a landlord every month.

If you decide to accept monthly payments from an interested buyer, you will likely find several worthy candidates who are willing to pay your full asking price (if not more) for a newly renovated mobile home.

Structuring a fair repayment plan will allow you to choose from a variety of qualified buyers, rather than struggling to find an all-cash buyer. And, as we all know, more buyers equals a faster sale.

To determine how much to charge, consider comparable apartment rent prices…

For instance, if a mostly updated, nearby 3 bed/2 bath apartment rents for $1,000/month, you’ll want to charge anywhere from $900 to $1,100 (which includes lot rent) for your mobile home.

The pricing is crucial.

If you’re selling the mobile home for a monthly payment that’s comparable to apartment rent prices in your market, you’ll create an attractive and enticing option for people who are eager to buy.

Bringin’ it Home

I would be remiss if I didn’t mention that one of the most important parts of this entire process is overcoming the stereotypes and stigmas associated with mobile homes.

While mobile home parks are often given a bad rap, the reality is: there are many parks throughout the country that are respectable (and even desirable) places that working-class, retired or traveling individuals love to be.

Regardless of whether you invest in stick-built homes, mobile homes or a combination of the two, understanding your local market is KEY.

When it comes down to it, flipping mobile homes can be a smart way to make money and build your business as an investor. If you are informed, prepared and willing to work hard, you can make this a very profitable venture.

Going Mobile

Have you flipped a mobile home (or know of an investor who did)? What challenges and rewards did you (or they) experience?

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Getting the Most Out of Wholesale Deals (And Then Some) with Wholesale Lease Options

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Most investors will tell you that wholesaling is great because it’s hands-off investing. You find the property, you resell the contract for the property. Easy peasy…

But do you ever wish you could make more on a wholesale deal? After all, you’re not doing anything to increase the value of the property, so you’re limited in how much you can really make, right?

Wrong.

And now it’s time for a sandwich.

Welcome to the Sandwich Deal

It is possible to make 4x or 5x what you would make in a typical wholesale deal, if you think outside the box.

Any wholesale deal is like a sandwich: The seller and the buyer are two slices of bread, and you connect them with your sandwich-filling goodness.

Usually, the “sandwich” doesn’t last long… you set up a contract with the seller. You sell the contract to the buyer. The deal is done.

But imagine the possibilities if you formed a more long-term relationship with wholesale leasing.

When you offer a seller a wholesale lease option, it’s still a wholesale deal. You (the investor) don’t own the property, you own the contract. But instead of finding a buyer for the property, you find a rent-to-own tenant for the property.

Why Is This a Good Deal?

Sellers love this option because they can set the price for the deal. This is especially appealing for sellers who don’t have much (or any) equity in the property, because they can get the full value of the property back.

A particular group of buyers also loves this option, and this is where wholesale leasing is most different from traditional wholesaling… but know this: It’s critical that you find the right buyer and that you help them through the whole process in order to make this deal successful.

The best buyers for wholesale lease options are people who don’t quite qualify for a mortgage, but who are on track to qualify soon. If you target the right properties, you’ll have no trouble finding potential buyers, and the price and terms will be a win-win for both the seller and the buyer.

Wholesale leasing is also a win for you. You don’t own the property, so it’s a low-risk deal. It’s a relatively easy investment. Since the seller gets to set the price, you don’t need to negotiate. And you don’t need any funds to do these deals.

Wholesaling this way does involve a bit more long-term work than traditional wholesaling because you need to make sure the buyer is supported through the whole process of renting to own, but given the significant increase in your profit, that little bit of extra work is definitely worth it.

Profit? What Profit?

How does this actually make you more money?

It depends on the deal option the seller chooses…

After you talk with the seller and get the basic information you need, you should make an offer with at least 3 options, showing the seller how much they can make with each option. Your options should look something like this:

Option 1: Cash Offer

The cash offer is a traditional wholesale model. It gives the seller a comparison point for the deal. This is going to be your lowest offer.

In this case, your profit is the difference between your deal with the buyer and your deal with the seller.

Option 2: Sandwich Lease Option

With this option, you offer the seller a lease to the perfect tenant—you. You are responsible to pay the rent and cover maintenance and repairs under $500. To do this, you sublease to another tenant-buyer, but you stay in the middle.

Offers like this typically have a term of about 5 years, but the tenant-buyer can always choose to buy more quickly.

This is going to be a higher offer than Option 1. That’s because in this scenario, you have 3 paydays:

  • You make money up front
  • You make a monthly income on the tenant-buyer’s rent
  • When the tenant buys, you get the appreciation of the property

Option 3: Lease Option Assignment

The lease assignment gets the seller the highest price. In this case, they can choose how much they want to ask for the property. Lease option assignments typically have a minimum term, for example, a minimum of 2 years.

This is more like a traditional wholesale deal, except that you look for tenant-buyers instead of other investors to purchase the property. Unlike Option 2, when you do a lease option assignment you do NOT stay in the middle. The seller can make more, but they also take on more risk.

Like a traditional wholesale deal, you make a profit up front, through the 3% option deposit collected from the tenant-buyer when they move in.

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How Does this Actually Work?

Let’s go through the steps of a wholesale lease deal so that all of this is clear…

Step 1: Find a Seller

You’re looking for a property people want to buy. That means you want to find properties in nice neighborhoods in good school districts. They should be in the median price range for the area.

Your ideal seller doesn’t have much equity in the property. The easiest way to find these sellers is to look for them in for rent and for sale by owner ads online. You can look at for sale by owner sites and at sites like Craigslist. You might also try your local newspaper’s website or printed classified ads.

Once you’ve got a list of potential sellers, follow your marketing plan to contact them and send them an offer. You don’t need to spend much time on the phone with them; you just need some basic information in order to make an offer.

Find out about the seller’s situation… Is the seller current on the mortgage? Would they be consider renting the property? If the seller is motivated and interested in renting, it’s time for Step 2.

Step 2: Contract

Remember, with wholesale lease options you don’t need to do any negotiating. Send the seller a simple letter with clear options. You don’t even need to meet the seller in person. Just make sure the seller understands how each option works.

Once the seller chooses one of the options you’ve offered, get the paperwork in place. Work with an attorney to make sure you’ve got all the necessary details in your paperwork.

If you’re not doing this deal in person, you can use a notary to get all your documents signed. Make sure you don’t start making payments until you’ve got a tenant-buyer in place. Then it’s time to move on to Step 3.

Step 3: Find a Buyer

Rely on your marketing plan here. Use whatever methods you’ve found most effective, whether that’s Craigslist, bandit signs or online advertising. For example, you might put a sign on the property that says:

“Rent-to-Own. Only 3% down to move in. Call 555-5555.”

However you market, make sure you’re targeting the right buyer.

Screen potential buyers to make sure they have a realistic chance of being approved for a mortgage within the terms of your agreement. Do a background check. Also, use your 3% option deposit to confirm that the tenant-buyer really is serious about the deal.

Step 4: Final Paperwork

Once you’ve found a buyer, make sure you get all the paperwork in place. Have an attorney take care of or review all your contracts.

Make sure both the seller and the buyer understand how the contract works. If the seller chose the lease assignment option, make sure the seller accepts liability for the deal.

Set up the deal so that a third party collects rent and pays the mortgage. The tenant-buyer will be protected this way, and if the deal is a sandwich deal with you in the middle, you won’t need to worry about this happening each month if you’ve got someone taking care of the rent and payment for you.

Step 5: Follow Up

The goal of this wholesaling method is that the tenant actually buys the house. This goal doesn’t change once all the paperwork has gone through. Make sure the tenant-buyer has support to reach the goal of purchasing the property.

If the tenant-buyer needs to repair their credit, make sure they get into a good credit repair program. And make sure they have the contacts they need, such as a broker who can help them buy the house.

A Final Note

Wholesale lease options do require some extra legwork, but that doesn’t mean you need to break a sweat over every one of these deals.

Find team members who can make each step easy to execute. Establish a relationship with an attorney you trust. Find someone who can collect and distribute payment. Maybe even hire some property scouts to find the kinds of properties you’re looking for.

When you’ve got a solid team in place, you can do even more deals.

Whatcha Think?

Have you done any wholesale lease option deals? What do you wish you would have known before you started? Let me know below.

The post Getting the Most Out of Wholesale Deals (And Then Some) with Wholesale Lease Options appeared first on REItips.


Use These 2 Strategies to Crush Overwhelm

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Are you feeling stressed? The stresses of… life… Work… Family… Investing… Look, friends, I get it.

So many people I know – friends, colleagues, students, clients – are feeling overwhelmed… Steven Howell here letting you know that I’ve been there too. Heck, everyone’s been there. If you’re so overwhelmed that you can’t get past it – I’ve got 2 ways to help you break through. Allow me to explain in more in detail in today’s video post. Enjoy…

So, think things through, be strategic… and don’t be afraid to fail forward. You can do this.

Blinders on. Now focus…

Here’s to simplifying and being proactive.

Talk to Me

Tell me how you simplified things and became proactive. Share in the comments section below.

Steven Howell

He's the owner and CEO of Inner Warrior Consulting LLC, a training and consulting company that helps entrepreneurs build their "inner warrior" and gain the necessary skills to be successful in life and business. He's an accomplished wholesale real estate investor, mentor and coach who teaches business building, mindset, marketing, branding and negotiation to students across the US.

Visit Steve's Youtube channel for more videos like this one.

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Finding a New Market: The Challenges & Rewards of Investing Remotely

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“Real estate is an imperishable asset, ever increasing in value.

It is the most solid security that human ingenuity has devised.

It is the basis of all security and about the only indestructible security.”

                                  ~Russell Sage, American financier and politician

As a real estate investor, you’ve probably chosen this career path for the financial security and success that it can ultimately provide. It takes time to reach the level of financial freedom, but the efforts are completely worth it.

In the beginning, one of the most critical decisions you need to make concerning your real estate investing business is simply… where you want to invest.

It’s a huge “make it or break it” factor that you can’t take lightly.

In fact, when it comes to finding a new market to invest in, you’ll want to put a ton of time and research into your decision before pulling the trigger.

Maybe your current market isn’t ideal for investing and you’re not willing or ready to move. Or, maybe you have built a successful investing business in your own community, and you’re ready to branch out to other cities or states.

Either way, deciding to invest remotely in a new market is a BIG decision.

Luckily, I’m here to help. 😉

So, without further ado, let’s get into my 3-step approach to finding a new market to invest in. I want to give you as many details as possible, because I think this is a topic that warrants going the extra mile.

Step 1: Hitting the Books (Heavy-Duty Research)

For this type of thing, there’s no such thing as doing too much research. It’s time to make your high school science teacher proud.

There are SOOOO many factors that go into choosing a new market to invest in, but here are the first ones you should look in to…

Market Type: You’re only one Google search away from finding the “fastest growing markets in the U.S.” The tricky part is: deciding what to do with that information.

You don’t necessarily want to immediately jump on board with the #1 market. It may be right for you, but chances are that it’s not.

Consider the direction you’d like your investing business to go. Some investors like the hot markets because of appreciation, while others like tapping into undervalued or up-and-coming markets, so they can get ahead of the competition and take advantage of lower property prices.

So, your search results will be a very basic starting point – but there’s a lot more work to do from here.

Growth Factors: Once you have a few cities/areas of interest, dive deep and research the following factors for each one:

  • employment rate
  • median wages
  • employment growth
  • population growth
  • median income
  • crime statistics
  • foreclosures
  • infrastructure
  • future construction
Keep detailed notes on your research, so you can compare and contrast various cities.

Taxes: Some investors prefer to purchase properties in states that don’t have state income tax, because this eliminates one administrative task that will need to be completed each year.

It’s totally up to you. But if this matters to you, you may want to invest in states where there is no income tax, such as Florida, Tennessee or Texas.

Climate: The local weather isn’t simply a preference. If you’re hoping to purchase rental properties in the Midwest or Northeast, consider doing so in the summer months.

It will probably be tricky to find new tenants in the dead of winter, when moving sounds about as thrilling as scraping the ice off your car windows.

Region: It’s also important to consider not only the state where your market is located, but also the overall region.

Many investors steer clear of the east and west coasts, simply because of soaring property prices – but this doesn’t mean that you can’t build successful businesses there.

Still, if you’re looking for a “safer” choice, many investors prefer the Midwest or certain areas in the South. Popular cities for investors right now include:

  • Cleveland
  • Memphis
  • Kansas City
  • Grand Rapids
  • Little Rock
  • Knoxville
  • Atlanta
  • Birmingham
  • Indianapolis
  • Oklahoma City

Step 2: Packing Your Bags

Once you feel confident with your research, narrow your list down to 2-3 potential markets that you think would be the best fits for you and your business.

Now comes the fun part (sorta)… you need to visit those locations.

Yes, this will cost money (between the travel costs, hotel and meals). BUT it’s 100% necessary. If you’re planning to invest in properties remotely, you have to visit the area before making a decision.

Even if you’re confident that you’ve chosen an awesome city where investing opportunities abound, you still need to see it for yourself.

Remember: Neighborhoods can vary greatly from block to block, and choosing a home that is just ONE block in the “wrong” direction can make all the difference in your profit.

In most cases, you probably want to find a B- or C-level neighborhood to invest in.

Stay away from luxury properties (unless you have extensive experience with them), as these types of homes carry a high amount of risk. Also, avoid neighborhoods where safety is a concern – it’s just not worth it.

Being somewhere in person makes a huge difference on your impression of it. There may be things that you never would have discovered, unless you’re there.

For instance, I heard of an investor who visited a city, thinking it was the perfect market… until she met with a local agent who told her that investors would remove the AC units from their vacant properties because those were stolen frequently. Let’s just say… that investor decided to look elsewhere for opportunities.

Another Good Tip: Try to plan your trip for a time when that city/town is having a Real Estate Investor Association (REIA) meeting. This would be an awesome opportunity to meet other investors in that area, so you can get an idea of the types of challenges they face.

If there’s no formal meeting taking place, it could still be helpful to arrange to meet up with an investor or two while you’re in town…

Find a Facebook group (for example, “Memphis real estate investors”) and connect with a few people who seem to be active in the group. Then, when you’re ready to make the trip, ask if you could take them to coffee or lunch and chat about the local market.

Finally, when you’re visiting a potential market that you’d like to invest in, ask yourself a simple question: “Would I enjoy visiting here again?”

If you make a commitment to invest in this area, you’re more than likely going to need to make occasional trips. Make sure it’s a place where you would actually enjoy spending time.

Now that you have a solid idea of what your market of choice has to offer, it’s time to start building a skilled and dependable local team that will be your “go-to” people in the area.

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Step #3: Assembling a Solid Team

When investing remotely in a real estate market, you NEED to have a team of reliable people who are local to the area.

No matter how awesome a deal is – and no matter how perfect the market may seem – you won’t be successful if you don’t have the right people on the ground.

In fact, I’d go so far as to say that your team (or lack of one) will most likely make or break your investment.

Your team of pros should include:

  • Agent(s)
  • Property manager(s)
  • Lender(s)
  • Attorney(s)
  • 3rd party property inspector(s)
Now, obviously, this step will also take a great deal of research, communication and follow-through work. But once you have a reliable team in place, your efforts will be well worth it.

Make sure your team understands the property locations and types that you’re interested in. You might find it beneficial to work with property managers who are also investors or licensed agents. It’s always a plus if they understand the mentality and process of an investor.

I also recommend getting pre-approved with a lender, if that is how you will be financing your deals. Conversations with agents will go much more smoothly if they know you’ve already been pre-approved.

It also might be a good idea to hire a 3rd party property inspector, who can give you a second opinion on the state of the properties you’re interested in purchasing. These professionals will provide a highly detailed report on the condition of the property. If you’re using a bank or other non-private lender, you’ll also need to get an appraisal.

Also, as you already know, it’s essential to get a clear title. A lender will require you to do this; but, if you’re paying cash for your properties, it’s your responsibility to ensure that a clear title is provided.

Overall, you cannot completely eliminate all risk associated with investing in another state, but you can certainly mitigate it – if you have the right people on your team.

One Final Thought: If you are not in the financial spot to hire property managers or other team members in another state, you may need to start working locally in that market (and handling the property management yourself). Or, you can simply wait until you have the financial means to manage those investments remotely.

The Heart of the Matter

Ultimately, the perfect market is the one where you can establish the best cash flow. But it’s not going to be easy. It’s going to take a lot of blood, sweat and tears (figuratively and literally).

Don’t think that remote investing is a passive venture… it’s not.

You need to be 100% engaged and dedicated in order to be successful. Plus, you need to work regularly with your team on the ground – the more time you invest in those relationships, the better your chances of succeeding.

Remember: Investing in other markets (other than your immediate location) is probably not the best idea if you’re a new investor. Wait until you feel you have the skills, expertise and finances needed to expand to another area or state.

In the end, investing in another market is an amazing opportunity

It takes a ton of research, a highly talented and reliable local team, and a lot of time and effort on your part. But the rewards, profits and overall success can be completely worth it.

Go Forth and Invest

Have you considered investing in another area or state? What challenges or questions are holding you back? Let me know in the comments section below.

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Snagging an Awesome Mentor – Plus Other Ways to Build Your REI Knowledge Fast!

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“A truly great mentor is hard to find, difficult to part with, and impossible to forget.”

~ Anonymous

“How can I find a good mentor?”

And: “Why does it cost so much to have one?”

These are simple questions that require a very detailed response. So, to help you peel back the layers of this onion, I want to delve deep into this topic…

Sure, there are plenty of ways to build your real estate investing knowledge on your own, and these can be extremely helpful (so I want to touch on some of these, as well). But there’s something about having a successful mentor that brings a whole new dimension of expertise into your world.

But, for many of us, finding the right mentor isn’t necessarily a piece of cake. And when we do find the right mentor or coaching program, is it really worth our hard-earned dollars to learn from them?

The answer is different for everyone. Luckily, I’m going to give you some insight to (hopefully) help you make the right decision for your situation.

So, let’s get right into it…

Find Yourself

I’m not trying to get all introspective here, but there is something to be said about knowing yourself and your core business values.

If you’re still trying to determine what exactly you want to gain from your investing business (aside from the obvious… money), it might be best to put the mentor search on hold.

First, ask yourself these 4 basic questions:

  • Do you want to invest in one specific market, several local markets or invest in properties in other states entirely?
  • Are you interested in fix & flips, wholesaling, being a landlord/property manager or a combination of these?
  • Do you plan to make this your full-time venture or is it a side gig?
  • What is your ultimate financial goal?

If you don’t have a clear answer for each of these, it’s time to do some soul searching. You can’t find a mentor who will meet your needs if you don’t even know what those needs are.

As you build your business and become more confident in your identity – but still have a long ways to go, in terms of achieving financial freedom – this is the “sweet spot” where finding a mentor can be extremely helpful.

Determine Your Budget

Let’s face it – anything that is worthwhile and valuable in business will probably not be free. You get what you pay for, in most cases.

That being said, there are also ways to expand your investing knowledge and build a foundation for success without ever writing a check.

So, first… determine what your budget for training, education and mentoring will be. If you want to start out with a shoestring budget, that’s totally fine. Just make sure you define a specific amount of money you want to spend… and stick to it.

Find Value in the Free Stuff

If you’re not willing to shell out cash for a top-notch mentor, there are some DIY methods that can be useful.

Consider these options:

  • Attend your local Real Estate Investors Association (REIA) meetings– This is always a good option for meeting local investors in your area; you may not be formally “mentored” here, but that doesn’t mean you can’t gain some truly valuable insight.
  • Join Facebook groups– Search “real estate” or “investor,” along with your city name, and join these groups; these are people you could potentially work with in the future.
  • Go to free trainings– These may be more difficult to find, but it can be worthwhile to research some complimentary REI trainings; even if the information presented isn’t the most mind-blowing insight, you will still have the opportunity to connect with other investors in your area.
  • Read, read, read– This method isn’t completely free; technically, you have to pay for the books. But I think that we often forget the power of educating ourselves through reading. It’s a great way to learn from experts in our industry. A couple of good options you may want to check out are William Nickerson’s How I Turned $1,000 Into a Million in Real Estate — in My Spare Time or Jay P. DeCima’s Investing in Fixer-Uppers.
  • Explore other online resources – Take a look at Meetup.com, where you can find other investors in your area; this is another awesome place to learn about local meetings that you can attend. Also, if your goal is to buy and hold your properties for the rental income, browse online for your local rental association; these meetings are the perfect opportunity to learn tips from other landlords and property managers.

Now, all of these options are fine and dandy… you can learn a ton from these opportunities. But, if you want to go to the next level, and really benefit from some 1-on-1 time with a mentor, you should be willing to pay a nominal consulting fee.

But let’s cover that in the next section…

Understanding the Value of a Mentor

Many financially successful mentors or REI training programs are not willing to give away their services for nothing. That’s just the way it is. If someone has built a profitable business, their time is worth something.

Think about it: you are taking someone’s time that they could be spending on their business. Wouldn’t you want to be paid for that? Or at least have some incentive to help out?

Plus, if you are gaining knowledge and receiving advice that will help you increase your income and build your business, it’s only fair that the person who provides this expertise should be compensated.

After all, you pay for marketing, you pay to renovate or repair the properties you purchase, and you pay any individuals who are doing labor or administrative work for you…

Think of paying a mentor or a coach as another investment in your business. You’re investing in your investing business (yes, I know, that was extremely clever). :-/

One other way to think of it: When you pay a fee for something, you’re more likely to take it seriously. So, when you compensate an investing mentor or coach, you have more incentive to apply your new knowledge and build a successful business.

Now, a word of caution

I’ve heard multiple horror stories of investors who got sucked into those “free” flipping guru seminars where they were pressured to cough up anywhere from $20K-$50K in order to continue with training.

Don’t ever fall for this gimmick. You should never be investing that kind of money unless there’s an actual property deal in the works – and make sure a deed is involved.

Trust me, even the best of us can make foolish decisions when we’re extremely motivated to succeed. Just don’t commit to anything that you’ll financially regret.

“Courting” Your Mentor

If you make the decision to invest in mentoring or coaching services, your next step will be to find the right person for you.

This is where your core business values will come into play. You want to find someone whose ideology and strategies are similar to yours.

Think of this as dating – or even a job interview – in both cases, you want to make sure the other person (or the company) is a good match for you.

“The delicate balance of mentoring someone is not creating them in your own image,
but giving them the opportunity to create themselves.”

~Steven Spielberg

Once you identify someone who may be a good mentor candidate, it’s a great opportunity to invite them out for coffee or lunch. Tell them you’d like to pick their brain about some investing topics, and you’re really just looking to make connections with other investors.

At your first meeting, you might consider asking some of these questions:

  • How did you get into investing? When did you know it was the right career fit for you?
  • What kind of investing do you do?
  • Do you ever partner with other investors on deals?
  • I’m still working on building my business; what advice would you have for me?
  • What are some of the most important things in life, to you?
  • How does real estate investing fit into the life you want to have/or do have? 

Notice that I threw a couple of personal questions in there.. It’s okay to do this – it will help you understand the person’s core values and what motivates them in life.

Remember: You should be looking for a personality match, as well as a business match.

Another imperative idea to keep in mind: a mentor-mentee relationship should be mutually beneficial.

If you give this person the impression that all you’re going to do is “take, take, take,” they may not want to work with you. Regardless of whether they are being compensated or not, a “take, take, take” relationship can be draining.

So, make sure you are clear about the value that you can offer the potential mentor. For instance, ask them if there’s anything you could help with – or if there’s any value you could bring to their business.

If you’re not paying your mentor, it can be beneficial to volunteer to take on small tasks for them – such as occasionally driving for dollars, fielding motivated seller phone calls or scouting out properties online.

You might feel a little strange doing the “tedious” tasks, but this is one of the best ways to learn about your mentor’s business model and investing strategies.

“Mentoring is a two-way street. You get out what you put in.”

~Steve Washington, COO & Co-Founder, Casentric

Just like a spouse-spouse relationship or an employee-employer relationship, the mentor-mentee relationship is about give and take. Don’t take, take, take and expect the mentor to continue giving.

That’s not beneficial or healthy for either of you.

Be a Standout

My final tip, when courting a potential mentor, is to really stand out in terms of scoring property deals.

If you’re able to find a house (or two) that ends up being a major deal for that mentor, you will automatically earn their respect – plus, they’ll be more willing to take you under their wing and teach you their craft.

The bottom line is this: If you want to get on the fast track to learning the art of investing in the most effective way, having a mentor is essential.

Starting the Search

If you’re hesitating to find a mentor, what is holding you back? Let me know your questions and concerns in the comments section below.

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Seven Surefire Strategies for Direct Mail Success

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You don’t belong in the junk mail pile… But how do you avoid having all the absentee landlords on your mail list toss your mailing without a second glance?

Direct mail campaigns can cost you thousands… so whether you’re launching your first mailing or trying to improve your response rates, you want to know you’re sending out a mailing that’s going to get opened, not tossed.

You want the secret sauce that guarantees direct mail success. And today, I’m sharing 7 strategies flavored with that secret sauce.

But before we dive right in, here’s a quick word to help define direct mail success.

Planning for Success

REI direct mailings typically have a 1% response rate.

In other words, if you send out 100 letters, you can expect to get 1 call. (Don’t get discouraged; just set the right expectations.)

Of course you’re targeting for a higher response rate, but even if you get as high as a 5% response, you would still need to send out 2,000 letters to get 100 calls.

Do the math and send out enough letters to make your mailing worth your time.

Your planning isn’t just about the number of addresses on your list, though. And it isn’t over when you’re done writing your letter either. You also need a plan for taking calls—including a script and a list of answers to questions you’re likely to get.

The last thing you want is to invest in a mailing and then lose a deal because you were unprepared on the phone.

Make sure you’re prepared to take the number of calls you’re likely to get from your mailing. You also don’t want to miss out on a potential deal because you’re scrambling to keep up with calls.

Okay… on to our 7 strategies.

1. Follow the Rule of 7

Potential buyers aren’t likely to call you the first time they hear about you and your business. They want to work with someone reliable, someone they trust. You can build that trust by building brand awareness and following the rule of 7.

The rule of 7 says that a client needs to hear about your business 7 times before working with you… of course, 7 isn’t a magic number, and you will get some calls from a first mailing.

But 80% of your deals will come from your 5th, 6th and 7th interactions with a seller.

These interactions don’t all need to be mailings. Sellers can hear about your business through a social media ad, billboard, bandit sign… and several different types of mailings.

The rule of 7 means that you need to commit to (and budget for) multiple mailings to the same list. And you should think about other marketing methods that list is likely to see—including driving for dollars and knocking on doors.

As a rule of thumb, plan for 6 mailings in 6 months (one per month) to your list… and the mailings should tie together. Your message should be the same, but the pieces can build on one another.

For example, you can begin the second letter: “You got a letter from me a few weeks ago. What’s keeping you from calling me about this offer?”

Then remind the seller about the benefits of selling. In the 3rd letter, you can offer to pay for referrals.

“Early to bed, early to rise, advertise, advertise, advertise.”
                                  ~Ray Kroc

2. Set a Budget that Follows the Rules

When you’re planning your direct mailing, you need to decide:

  • How many people to mail to
  • How many mailings to do and when you send them
  • What type of mailing to send (letter, postcard, etc.)
Remember, plan for a 1% response rate and follow the rule of 7 when you decide how many people to contact.

If you’re on a small budget, there’s nothing wrong with starting small, but don’t just send one or two letters and call it quits. If you do, you’ll miss out on that 80% of your possible deals.

And don’t forget to look at bulk discounts and costs for a few different quantities.

3. Contact the Right People

Even more important than what your mailing says is: who it’s being said to. Even if you come up with an incredibly compelling message, it’s not going to mean anything if it’s not sent to the right people.

The best way to make sure your mailing succeeds is to pay for a list from a list serve or pull county data, but you need to make sure you’re using the right filters to get the right target group.

Use filters like these:

  • Location (zip code, city or county)
  • Property value range
  • Percent equity (use 50% as a minimum)
  • Property type (single-family, multi-family)
  • Owner type (in-state absentee, out-of-state absentee, probates, foreclosures)
  • Length of residence (7–12 years is a good start)
  • Age of owner (65+)
You can use more filters to generate a smaller list or use a smaller range (such as a smaller property value range) to limit it. If you’re not sure where to start, target at least 1,000 contacts.

4. Connect with Your Audience

Once you’ve got your list, write a letter the potential seller is sure to respond to. Think about the problems your audience is specifically facing and provide a solution.

Start with your headline or opening. What will make your audience keep reading?

Write 10 headlines or openings and choose the one that’s most likely to keep the people on your list from tossing your letter. Think about the result your potential sellers are really looking for and write an opening focused on that.

In the rest of your mailing, be clear and to the point. What’s in it for the buyer?

Use short, straightforward sentences or bullet points. And keep the mailing simple.

Include a clear call to action. What should the reader do next? Call you? Fill out a form on your website?

Once you’re happy with the message in your mailing, stick with that theme in the rest of your pieces. Again, you’re trying to build brand recognition, so consistency is going to help your potential seller recognize who you are and understand how you can help them specifically.

Make sure your letter is only 1 page and is very straightforward… cut the fluff.

Your goal is to get the seller to call you, and you don’t need to give them every detail of your business in the letter. Less is more here. Give them just enough info to get their attention… and then you’ll discuss the details over the phone.

If you want more content, consider adding a second page with an FAQ focusing on questions that might keep potential sellers from calling:

  • How much will this cost me?
  • Do I have to do any repairs before you will buy?
  • How long before I get paid?
  • What if I change my mind?
  • Are you a real estate agent?
  • What if I live out of state?
  • Do I need a real estate agent?
And once you’ve written your mailing, don’t forget to proofread it several times to make sure it’s error-free. (It’s also a good idea to have someone else proof it too. A second set of eyes may see things you’ve missed by looking it so much.)

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5. Use the Right Media

Do you want to use postcards or letters? Yellow letters or white? What should the envelopes look like?

Following the rule of 7, you could send a few types of mailings. And sending postcards is cheaper than sending letters, but letters tend to get better results.

Talk to other investors in your area to learn more about what works well with your market. If you’re unsure, stick with letters to start.

Remember, you’re trying to get the potential seller’s attention, and you don’t want them to think your mailing is junk mail, so when you’re making these decisions keep your sellers in mind.

6. Send at the Right Time

You should be sending your mailings about once a month. Know when the real estate market in your area is busiest. Most homes are sold between March and September, so your mailings should include those months.

Everyone is distracted around the holidays, so be mindful of holidays as well, since you’re not as likely to get responses.

7. Experiment… Meaningfully

Keep track of your results for every mailing and make changes as you go. But remember to change 1 thing at a time so that you know which changes make a difference.

Try out a few different types of mailings, different openings and even different features such as stamps on the envelope. Don’t overthink things too much, but always keep improving.

Spending money on direct mail doesn’t equal success. Tracking responses to direct mail and tweaking the mailings = success.

“Marketing without data is like driving with your eyes closed.”
                                 ~Dan Zarrella

Stick with It

The most important part of marketing is persistence. Failure is part of the process, and being told “no” is a part of the process.

Be prepared to tweak, improve and keep asking.

And remember that most of your deals are going to come from the last few mailings, so don’t give up after one or two mailings…

Stick to the rule of 7, and if you feel like you’re just throwing money away, remember that you’re building brand awareness and when you hit your fifth mailing to the same contacts, the responses will pick up.

“Consistent action creates consistent results.”
                     ~Christine Kane

Your Take

What works well for you in direct mail campaigns? Which of these 7 strategies are you going to put into place right away? Let me know in the comments below.

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Scare Tactics: 4 Beginner Investor Fears & How to Overcome Them

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In many ways, starting out as a newbie real estate investor can feel the same as a kid’s first day of school.

You worry, “What if I don’t know what I’m doing? What if other people are better than me? What if I get laughed at?

Well, okay, maybe that last one is a little different for adults. But still, the fear of failure can be just as intimidating for adults as it is for children. In many ways, we have a lot more at stake.

When working with beginner investors, I hear some of the same concerns – over and over again.

So today, I’m addressing those fears. Plus, I want to share my insight for overcoming and moving past those obstacles.

After all, none of us are perfect. Even experienced investors struggle with daily doubts. But once you learn more about how to appropriately handle these fears, that’s when you’ll truly be able to succeed as a real estate investor.

So, let’s dive right into it…

Fear #1: Financial Woes

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1”
~Warren Buffet

Whether it’s the fear of losing money, not making enough money or just money management in general – real estate investing can bring a lot of financial anxiety into your world, if you let it.

If you didn’t grow up being exposed to real estate investing (and, let’s face it – most of us didn’t), learning about the financial aspect of this profession can be daunting.

Your financial fears may include:

  • Miscalculations: When determining your rehab budget or maximum allowable offer (MAO) for a property, it can be scary not knowing if your numbers are on target.
  • Negotiating: As a new investor, especially, negotiating with a seller can be (*gulp*) a bit intimidating. There’s always the fear that they will be more informed, more confident and more unyielding.
  • Losing $$$ big time: Beginner investors often have very little capital to begin with – and the fear of losing that money, due to your inexperience, can be very overwhelming. How do you know if you’ve chosen the right property? How do you decide how much money to put into it? What if it’s a total flop and you lose everything? The list could go on and on.

Right about now, you’re probably thinking, “Well, great. This is just making me feel worse.” But my goal isn’t to scare you more – it’s to point out the fact that your fears are NORMAL. Your fears are not unfounded.

In fact, if you don’t have some sense of fear when it comes to real estate investing, that’s probably cause for concern.

So, let’s continue outlining some of the fears you may be feeling, and then – you’ll turn this thing around and help you feel positive and excited about your future as an investor.

Fear #2: Finding the Right Deals in the Right Markets

This fear is a 2-parter. As an investor, finding property deals is a HUGE contributing factor to your success. At the same time, you can find the best property ever – and if it’s in the middle of the worst market ever – you probably won’t succeed.

When you find the right property in the right market, however, that’s when the magic happens.

So, let’s break down some of the finer details of this fear:

  • Property type: Do you want to invest in single-family homes, multi-unit properties or a combo of both? Not knowing which way to go can cause a lot of anxiety for new investors.
  • Building a pipeline: Even after you determine which property type(s) you want to pursue, it can be challenging to keep a sufficient pipeline of upcoming deals. But this is an essential part of ensuring that your REI business is sustainable.
  • Understanding unfamiliar markets: Sometimes, the best markets are the ones you’re least familiar with. If you don’t understand the ins and outs of those markets, you probably won’t be successful there. Building your knowledge of the area is the key to confronting this fear.
Okay, I want to throw a few helpful tips at you right now. Research is your #1 way to overcome this fear. Here are a few things to look for:
  • Demand – Is this market a place where homes are in high demand? Is population flowing into this community or out of it?
  • Target tenant/buyer – When considering a potential property deal, think about who your target buyer or tenant would be. For instance, if you want to invest in an apartment complex in a college town, is the building within easy walking distance of the college? If your target tenant is a middle-class family, does the property have amenities such as stores, parks and businesses nearby?
  • Market history – Growth in recent years is very important, but also be sure to look at the market’s long-term history, as well as projections about where this market is headed. The “hottest” markets aren’t always necessarily the best choice. Sometimes, it’s the ones that are on the verge of “up and coming” that are the better fit.
Also, know that you will become better at spotting the best deals, with time. In the beginning, it will probably take you several hours to analyze a property and to determine its pros and cons.

But as you start to become more and more familiar with your target market, you will be able to almost instantly identify which properties are (or are not) good deals. The process will become virtually automatic for you.

So, take heart! Practice makes perfect.

Fear #3: Tenants

I could just leave it at that: tenants.

There’s nothing that strikes fear into the heart of a property owner quite like the nightmare of a bad tenant. Whether it’s a needy tenant (cue the “I need a lightbulb changed in the kitchen” phone call at 9 p.m. on a Tuesday) or a destructive tenant (why – just why – would you attempt to mount a TV on the wall without the proper equipment?)

What’s even worse: investors who put up with terrible tenants just to avoid the headache of looking for a replacement tenant. These types of investors are willing to tolerate a tenant’s bad behavior and don’t increase rent with the changing market – for fear of the tenant leaving.

One pearl of wisdom that I want to offer concerning tenants is: It’s not always financially feasible for beginner investors, but one of the best solutions you may find is to hire a property manager or a property management company.

You might be surprised to find how affordable this strategy can be. Plus, the time that you will save (by allowing the property manager to take care of minor tenant needs or complaints) can be entirely worth the investment. That’s valuable time that you can be using to scope out new property deals.

So, hiring an experienced and trustworthy property manager can be an ideal way to minimize your fear of tenants. This is especially essential if you plan to invest in markets that are located outside your community or outside your state.

Fear #4: The Unknown

“Fear of the unknown is the greatest fear of all.”

               ~Yvon Chouinard, founder of Patagonia

This one is pretty obvious. But anything that involves a significant amount of money, risk and the unknown is going to cause fear.

As a beginner investor, you may feel intimidated by experienced investors, and believe that you’ll never be able to have the level of knowledge and expertise that they possess. But you’d be wrong to think that…

None of us came out of the womb ready to invest in real estate. We have all had to build our knowledge from ground zero.

So, the key here is: Don’t let your fear of the unknown rule you. If you let this overpower your mindset, you will never achieve success in this industry.

Even the most prepared, organized and skilled investor in the world is going to have fears when it comes to doing a deal.

The difference between successful and unsuccessful investors is simply their attitude toward those fears.

When you’ve done your research on a potential deal, studied the market and secured the necessary finances, it’s time to take action. Don’t back down. You have to learn to trust yourself and your instincts.

Now that we’ve taken a look at some of the greatest fears for new investors, I want to give you a few more tips for overcoming these concerns, so you can really take charge of your business and achieve the success that you desire.

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Conquering the Fear: As Easy as 1, 2, 3

As an investor, I’ve found that the ability to overcome your fears really comes down to 3 essential practices. If you embrace these, and work on them continuously, you can quickly eliminate the fear that may be holding you back.

1. Be smart about financial risk

1st: never invest with your emotions. Always rationalize every property deal before going through with it. Never give in to greed or fear, because that will just lead you down a bad path.

2nd: research EVERY cost associated with an investment. Consider the vacancy cost, maintenance budget, tenant risk, etc. Also think about how these will impact your cash flow. Prepare for the worst, and you will be ready if it happens.

3rd: always have a backup plan. Don’t place all of your finances into one deal, with the hope that it will work out. Have a safety net and contingencies already in place, so you can rest easy. All of us experience financial failures every once in a while. Just make sure you have the reserves in place to make sure it doesn’t destroy your business.

2. Create a solid support system

I recommend building an emotional support system that includes family and friends, but also other REI professionals. This will give you the resources you need to express your concerns and to receive helpful feedback.

No one is successful on their own. The wealthiest people in the world didn’t reach that point by themselves. If you really want to succeed, you need the emotional support.

“Don’t let anyone rent a space in your head, unless they’re a good tenant.”

          ~Anonymous

It’s also critical to surround yourself with fellow investors whose business models and work ethics you admire. Because you are who you hang out with. By spending time with successful investors, their habits and methods will eventually “rub off” on you.

Long story short: carefully choose the people who will emotionally, mentally and professionally impact your mindset.

3. Be a lifelong learner

Take some time to sit, think and write down the parts of your investing knowledge that you want to improve. Be honest about your shortcomings and areas where you lack expertise. This first step is HUGE for overcoming your fears, because it makes the unknown known.

From here, you can devise a plan of attack…

Join your local REIA, read newly released and popular real estate investing or entrepreneurial-focused books and attend industry-related trainings. Find an experienced REI mentor who is willing to simply give you advice, and make sure you study market history, trends and forecasts in your area.

There is so much to learn… you could spend all day discovering more. Obviously, you want to leave plenty of time for finding property deals and managing your current properties, but this component of self-education is essential to your investing success – so make sure you carve out enough time for it.

The Only Thing to Fear…

…is you.

You have the power to succumb to your fears or to overcome them. Everyone will experience small failures time and time again. But you cannot let these obstacles break your spirit. Learn from them, move on, fall forward.

No matter what you fear most, a positive mindset, a passion for learning, a strong support system and the ability to assess financial risk will go a long way in easing those fears.

Have confidence in yourself.

Every investor – even the most successful of us – started where you are. If you give it your best effort, you won’t be disappointed.

Taking Charge

What are your top concerns and fears, when it comes to real estate investing? Which strategies have you used to overcome those worries? Let me know in the comments section below.

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Owner Financing for the Win

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Looking for a creative financing solution for your next real estate deal? Look no further than the incredibly flexible option of owner financing.

For property owners who want to ultimately realize more profit from a real estate deal or who are looking for regular payments, owner financing is the way to go.

For buyers who might not qualify for a traditional mortgage or who are looking for more flexible financing, owner financing can be a magic bullet.

And if you’re willing to get really creative, using a wrap-around mortgage and a private lender can generate passive income and set up a win-win-win situation for everyone involved.

But let’s start at the beginning and define owner financing.

What Is Owner Financing?

When a buyer and a seller work out an agreement where the buyer pays the seller directly for the property over time, they have worked out an owner-financed deal. These deals do not involve banks, so they don’t require the same inspections and approvals; the terms are very flexible.

As a real estate investor, you might find yourself in a situation where you want to buy a property with owner financing, or you might choose to sell a property this way.

Let’s look at the pros and cons to both the buyer and seller, plus some unique strategies you can use to set up these deals.

A Win for the Seller

Sellers consider owner financing for a variety of reasons:

  • Sell a problem property
  • More potential buyers
  • No fees
  • Monthly income
  • Flexible terms
  • Receive full property value
If a seller is dealing with a problem property, owner financing could be the answer. The seller might not want to deal with an inspection (and the required property updates needed in order to sell).

Or maybe it’s hard to find an agent who will list the property because it’s just not worth that much and won’t bring in much commission, so a traditional sale isn’t a great option.

Since buyers don’t need to jump through the same hoops as they would to qualify for a traditional loan, your pool of buyers for the property is much bigger. If you’re willing to negotiate a deal with no down payment, that attracts buyers as well.

Since owner financing doesn’t involve a real estate agent, there are also no fees. And there’s no cost for an inspection. In other words, no closing costs, and more money in the seller’s pocket.

The seller also starts taking in a steady monthly income. For sellers who don’t need the cash up front, this is a huge benefit.

And because the terms are flexible, sellers can negotiate the sale price and interest rate that works for them. And the seller and buyer could renegotiate as needed down the road.

Sellers can negotiate terms that get them the full property value if they use owner financing. It will take longer to realize the full value, but sellers can receive what the property is worth if they’re able to collect monthly payments rather than a lump sum.

A Win for the Buyer

As a buyer, why work with a seller instead of a bank?

  • Qualify quickly
  • Flexible financing
  • Quick closing
  • Avoid “extra” costs
With owner financing, the buyer doesn’t need to meet the same qualifications as they would for a conventional loan. You’re working with an individual, not an institution, so while a bank requires you to meet certain terms to qualify for a loan, the seller can look at the whole picture.

For both sellers and buyers, the financing is much more flexible. You can negotiate the terms that work for you, including the amount of monthly payments, interest rates and down payments. Keep these 4 costs in mind as you develop your offer:

  • Principal
  • Interest
  • Taxes
  • Insurance (PITI)
One great strategy is to offer the seller a few different deal options:
  1. highest offer: no down payment, highest monthly payments, 0% interest
  2. middle of the road offer: small down payment ($1,500), slightly smaller monthly payments, 0% interest
  3. lowest offer: large down payment with small monthly payments, or purchase the property for cash

These deals typically have a 5- to 15-year term, but you can negotiate whatever terms work best for you.

You can also come up with more creative terms that work for both parties, such as interest-only payments for the first year or a 5-year term with a balloon payment at the end. When making offers, keep the term options straightforward, but don’t be afraid to think creatively.

And don’t be afraid to ask for 0% interest. Just ask for terms where you pay the seller “until paid.” In other words, your payments go toward the principal, not the interest. If they’re not interested, just negotiate a number that works for you.

These deals are also flexible in terms of closing; they can close much more quickly.

Buyers can also avoid extra costs in some situations, such as escrow taxes and insurance, depending on any existing mortgage and the terms of your deal.

What Do I Do with a Seller Financed Property?

Rent-to-own is a great option for a seller-financed property. You can collect a down payment and use the rent to make your own payments, with a difference that makes the deal a good one for you.

You might also want to add the property to your rental portfolio.

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Be Aware

Owner financing does involve a few risks. Before diving in, make sure you understand the potential downsides so you can avoid an ugly situation.

  • Buyer default
  • Missed payments
Be proactive in an owner-financed deal to avoid buyer default. As a seller, run credit checks and background checks to make sure your buyer is the right person to be dealing with. And if you do run into a sticky situation, consider renegotiating your terms to keep your buyer on track.

Keep the transaction professional by hiring a third party to collect payments. Make sure you have a plan in place if the buyer isn’t holding up his end of the deal; you don’t want to get stuck with months of overdue payments and no resolution in sight.

Strategy for Owner Financing

If you’re looking to buy a property using owner financing, target absentee or out-of-state landlords with 50%–100% equity in their properties. They’re used to collecting rent checks and might not be interested in receiving a lump cash payment for the property.

You can also look for both single-family and multi-family properties or apartment buildings. With these criteria, you can easily get a list of property owners to contact and start sending out direct mailings.

If your marketing explains the benefits of owner financing, you’ll start getting calls from sellers ready to discuss the details and set up a deal.

Wrap Arounds and Owner Financing

If the owner has a mortgage the seller can’t pay off, one option that makes the sale a great deal for the seller is to wrap the buyer payments around the existing mortgage.

For example, if Shorty Seller was asking $125,000 for a property that he owed $70,000 for, Ivan Investor could set up a wrap-around mortgage. Ivan would make the payments each month for the current $70,000 mortgage. And when the deal balloons in 5 years, Ivan would pay Shorty the $55,000 difference between that mortgage and the $125,000 Shorty was asking for the property.

Now, Ivan doesn’t actually take on the $70,000 loan in this deal. He’s just making the payments. Shorty gives Ivan a contract for deed, which gives Ivan control of the property. Ivan gets the tax benefits. But as far as the bank is concerned, Shorty is still responsible for the loan. And Shorty keeps the deed for the property; Ivan has just got the contract.

All this changes once Ivan makes the last payment. At that point, the property belongs to Ivan Investor.

Word of Caution: Mortgages sometimes have terms that require the balance to be paid if the property is sold. If you’re considering a wrap-around mortgage situation, get some legal advice.

Consider the possibilities available if you approached owner financing with a private lender. If you purchased a property with funds from a private lender, then sold the property using owner financing, with the right terms everyone would win.

The private lender would earn interest on their investment. You would earn a monthly profit based on the difference between what the buyer is paying you and what you owe your private lender. And the buyer gets all the benefits of an owner-financed deal (easy to qualify, lower down payments, lower closing costs, quick close).

Again, a final word of caution…

Many states regulate deals of this sort and deals that are made based on borrowed money. And your private lender needs to agree to wrapping the mortgage when you sell the property using owner financing.

Always, always, always consult a legal advisor before doing deals like this.

Your Take

What creative deal financing strategies have worked well for you? Let me know below.

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How Low to Go: Are Properties Under $30K Worth It?

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“One man’s trash is another man’s treasure.”
~English proverb

Real estate investing involves a great deal of risk. So what separates the successful investors from the failing ones?

The ability to determine which risks are worth the – well – risk.

Investing in low-priced properties (I’m talkin’ $30K and under) is one area of risk that you may or may not have considered. Depending on the housing prices in your market of choice, investing in these types of properties may not even be a possibility.

But if this sounds interesting to you, make sure you keep one thing in mind: When you invest in ultra-affordable properties under $30K, you are increasing your risk. Plain and simple.

Depending on your area of the country and local market, properties at this price point may:

  • Be located in a neighborhood that’s considered “bad” or dangerous
  • Have a long list of major repairs that could break your budget
  • Be difficult to rent out; which could result in irresponsible tenants

And here’s the big BUT…

BUT, if you handle these super-affordable property deals correctly, you can create steady revenue streams that set you up for success. In the long run, you may even achieve your ultimate financial goals.

Still, this investing strategy in one that requires a lot of research, planning and careful choices before you will see the results you’re hoping for. So, let’s take a look at some aspects of investing in low-priced properties that can make you successful.

Location, Location, Location

If real estate investing is a hyper-local business, then investing in properties less than $30K is a hyper-hyper local business.

Not only is the neighborhood important to consider but you also need to think about how the houses differ from block to block.

This is why I wouldn’t recommend investing in ultra-affordable properties unless you are local to the area and know it WELL. This is usually not the type of investing you want to do from another city or state.

Most likely, the properties you’ll find for less than $30K are going to be in C-class neighborhoods – or worse. Just a few steps across a street can switch you from an “okay” neighborhood to a “bad” one.

So be aware of this as you scout out potential property deals.

On the Lookout: How to Find These Properties

If you’ve made the decision to invest in ultra-cheap properties, you’ll want to have a solid strategy for finding the best ones.

At this price point, properties are often either snatched up immediately or left to sit on the market for months and even years. So, it’s important to find the best ones before other investors do – and to avoid the “duds” that are financial disasters waiting to happen.

It’s critical to network as much as you can. Talk to EVERYONE about the types of homes you invest in – your:

  • doctor
  • dentist
  • UPS delivery guy
  • kids’ teachers
  • barber
  • contractor
  • friends
…you get the idea.

You never know when someone may stumble upon a property deal that might be the perfect fit for you. Make sure you’re the first person they call!

For properties under $30K, I’d also recommend browsing Craigslist daily – if not several times per day. As I mentioned earlier, if you don’t act almost instantly on these properties, you might miss out.

To Buy or Not to Buy…

Once you’ve found a potential deal, obviously you need to do your due diligence and determine if it’s the right fit for you (as you should do with properties at any price point).

The first item on your checklist should be ensuring that the neighborhood and area is safe. No matter how cheap a property is, if it’s in what we call a “war zone,” it’s just not worth the risk.

I’ve gathered a couple of helpful tips from fellow investors that I’d like to share with you. These are insightful pieces of advice that I think every investor should consider.

  • Look for good neighborhoods with bad schools.
    The quality of the local school district will dictate home prices. When searching for homes priced at $30K or less, look for neighborhoods with working-class people and little crime, but that may be in a less desirable school district. In many cases, the people who live in these neighborhoods are looking for a safe place to raise their families, and they consider the local public school to be just fine. These types of communities will be your best bet for finding affordable properties that won’t be high-risk.
  • Call the local police station.
    If you’re unsure about the safety of a particular neighborhood, call the local police department and ask to speak with the chief. Mention that you’re planning to buy a home in the area, give the specific address and ask the officer, “If your loved one were buying this house, would you feel okay about them living in this area?” If he or she says “no,” that’s your answer.
Once you’ve considered the safety of the property’s neighborhood, then it’s time to look at the actual property itself.

First of all, when you look at the sale history of the property, be sure to also consider the tax rates. Plenty of smart investors have screwed themselves over by purchasing a property where the annual tax is the same as 3 months (or more) of rent payments. This is just too high of a risk to take, considering that you’ll also need money for property maintenance throughout the year.

Next, do a thorough – and I mean thorough analysis of the repairs that will be needed to make the property safe, habitable, presentable and desirable to the types of tenants you want. As a general guideline, never plan to spend more than 10% of your purchase price on repairs and renovations.

So, for a $30K property, you’d want to spend no more than $3,000.

If you realize that major repairs are needed – roof, HVAC, foundation, etc. – that’s probably your sign to bow out of the deal. A new HVAC system, for instance, is going to cost roughly the same for a $30K house or a $300K house – it doesn’t matter. Don’t get yourself caught up in major repairs that are going to leave you in the red zone.

If everything checks out, and the property seems like a wise financial decision, you’ll be ready to look for potential tenants.

The Third Degree: Finding Tenants

Now, with any property you plan to rent out, screening tenants is essential. But with these ultra-affordable properties, a very thorough screening is especially crucial.

In fact, you might even want to run test ads on Craigslist before you even make an offer on the property. (Keep in mind, this could cost you valuable time; but it could also spare you from making a bad decision). By running a test ad (“seeking tenants”), you can quickly determine the housing demand and rental rates for the area.

Then, once you’ve received an accepted offer, you can start thoroughly screening your potential tenants. Again, this is not something that you want to rush through. Finding a loyal tenant who respects the property and pays their rent on time is GOLD – it’s a process that deserves time and effort.

One final piece that you want to have in place – before investing in properties under $30K – is a highly reliable team of people (property manager, contractors, etc.) that you can count on.

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Building a Strong Team

No matter how thoroughly you screen your tenants, with properties at this price, you’re probably going to run into difficult people who cause you some grief.

Enter… the experienced and skilled property manager. If you don’t have the ability to manage the tenant and property yourself, this is someone you HAVE to invest in. A good property manager will ease a great deal of your tenant-induced woes.

You also want to have a trustworthy contractor (or several) who you can rely on. Virtually none of the properties at this price point will be move-in ready. Build a solid relationship with a contractor who you know will do high-quality work without charging you an arm and a leg.

It’s also a good idea to form a reliable relationship with a lawyer, as well. (And again, this is the case with any property investment you make – but especially for those that will be rented out to tenants).

Once you have these people “on your side,” it will make the somewhat risky investment in a low-priced property much less hazardous.

Show Me How

While it can seem pretty daunting to venture into the world of investing in ultra-cheap properties, know that you can be successful – you just need to be smart.

I’m always interested to hear stories about real investors who have boldly gone where no other investors have gone before… and succeeded.

So here are a couple of real-life scenarios that I think you might find to be helpful, especially when deciding if investing in inexpensive properties is right for you.

Investor #1 buys homes at a variety of price points in his market, a larger city. His cheapest property yet was purchased for only $3,400. It was owned by the city, and was in a C neighborhood (but not dangerous). The city estimated that the home needed approximately $16K in repairs, minimum, but the investor only put about $10K into the house.

The investor went the Section 8 route, and rented the home for middle $600s/month. In the end, he estimates that he’ll see about $50K-68K minimum return on his investment over the next 10 years.

Now, this is probably a rare example of how a property that cost the investor only about $15K turned into a very profitable decision. But, it’s not impossible!

Check out this other scenario:

Investor #2 bought a HUD property, located in a solid B neighborhood in a small town, for just over $32K. He put $12K into repairs and upgrades (for a total investment of $44K). He was able to find a good tenant immediately, and rented the home out for $700/month. In just over 5 years, he’ll make his money back, and be taking in 100% profit from there on out.

This investing strategy can work well in cities or small towns/rural areas. But keep in mind that – regardless of the town size – the neighborhood has to be the right fit.

Summing it Up

Just like any investing niche, this strategy of purchasing ultra-affordable homes is not for everyone.

If you’re a brand-new investor, for example, you probably don’t want to take this chance. It will probably take several years of experience in your unique market before you’re familiar enough with the industry and the area to make this type of investment.

Also, if you’re not willing to deal with tenants, and don’t want to hire a property manager, this – again – is not a good idea for you.

But, if you know your market well, and are willing and financially able to take somewhat of a risk, this could be a perfect way to branch out. After all, you’re spending less on the property, so the opportunity for financial gain, if the house and tenants are managed properly, is HUGE.

How Low Can You Go?

What was the lowest-priced property you ever bought? What factors went into your decision to make the investment? Let me know in the comments section below.

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Doing Wholesale Deals Grandma Would Be Proud Of

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Wholesaling. What’s not to love? So many investors will tell you it’s where they started—and that it’s a great place for any investor to begin.

But how does wholesaling work, really? And how do you do a deal that even Maria would proudly teach her Von Trapp kiddos as the do-re-mi of investing?

Let’s start at the beginning.

What Is Wholesaling?

A wholesaler is like a matchmaker. For a fee, they connect great real estate deals with eager investors.

Sounds easy, right?

Here’s an example…

Whitney Wholesaler puts bandit signs all around her farm area, telling everyone who reads them that she buys houses. Harry Homeowner calls Whitney and tells her he really wants to sell; he’s been getting foreclosure notices.

Now what?

Here’s where different people will tell you different things. Let’s continue with just one scenario for now…

Whitney checks comps, meets with Harry, and tells him she wants to make a deal for $55,000. She writes up a purchase agreement, stating that she (or someone she assigns the agreement to) will buy the property for $55,000 within 30 days.

Whew! Whitney’s got a great deal. Now all she needs is to make a match with a cash buyer. She’s got a list of buyers, so no problem. Barry Buyer answers Whitney’s call and says he thinks this is a great property for him. He’s definitely willing to buy it for $62,000.

Woohoo! Now Whitney’s made a match. She writes up an assignment contract that gives Barry the right to purchase the property. Barry can’t wait to flip that property.

Then the title company comes in and processes all that paperwork, and Whitney Wholesaler gets a check for $7,000.

What a day for Whitney the Matchmaker.

But Wait…

At this point you might have some questions:

1. What if Whitney can’t find a buyer?

2. What’s all the hype about this scenario? I’ve heard wholesaling is illegal.

3. Well this sounds amazing. How can I make $7,000 in one deal?

Let’s start with the “what ifs.”

No Risky Business

When you do a deal, of course you want it to be one that’s going to make you money and isn’t putting you at risk in any way.

So what if you do a deal like Whitney’s… but you can’t find a cash buyer? Are you stuck with the deal?

If you sign a purchase agreement, then yes, you’ve agreed to purchase the property.

This sounds risky. But it doesn’t have to be, for a couple of reasons.

1. Buyers Wanna Buy

If you’ve got a solid list of cash buyers (or one or two really reliable buyers) and you know what they like, you can be pretty confident that they will want the deal you’re offering.

Not sure? Show them the property. You want to be careful that they don’t cut their matchmaker out of the deal here, so you can give them the relevant property information (condition of the house, bed/bath count, square footage, neighborhood) and the amount they would pay without giving them the property address.

Do this before you sign an agreement with the seller. If your cash buyer is really interested, get everything settled with the seller, and then set up your assignment contract with the buyer. This isn’t a risk-free system, but it will relieve some of your worries.

2.You Set the Terms

If you don’t agree with the price the homeowner wants, to the point that you feel uncomfortable signing a purchase agreement because you don’t think you’ll find a buyer, you don’t have to sign. Refer the buyer to your real estate agent.

No $7,000 check here. But remember not to think only about getting a check…

If this seemed like a bad deal in the first place, you’re saving yourself a headache. You’ve helped the homeowner, so you might get a great referral from them that does turn into a deal. And you’ve helped your agent. You definitely want your agent to love you, so this a huge plus.

If you do feel good about a deal and move forward with a purchase agreement, some wholesalers will tell you to avoid risk by including an escape clause. This clause states that you aren’t under obligation to buy the property. Yes, escape clauses are a good idea—if the property is destroyed in a fire or a flood while under contract you need to be able to walk away.

But here’s where we need to consult grandma…

Grandma’s Rule

When you do a wholesale deal (or any deal), treat the homeowner like you would treat your grandma. If you do your deals that way, everybody wins.

But what does Grandma’s Rule really mean?

1. Be Honest

No matter how you do the deal, be honest with all the people involved. Don’t be afraid to tell the homeowner you’re making money on the deal. You can even tell them how much you make.

Remember, you’re matchmaking, and you’ve got a fee. If the homeowner has a problem with that, they always have the option to walk away.

2. Don’t Hide Your Terms

Go through your contract with the homeowner. Be clear on the steps of the process and, if you do include an escape clause, explain that.

If dragging your grandma into this seems a bit over the top, then think about this as a referral system. You want each person you deal with to be eager to refer you. And they’re much more likely to do that if you’re honest and clear the whole way through the process.

Okay now, thanks, grandma. On to the next question.

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Is This All Legal?

You might have heard about wholesalers getting fines for doing wholesale deals. Or maybe you’ve just heard that wholesaling isn’t an above-board business.

Here’s why some people say you can’t wholesale without a license: A broker must have a license. And the question turns on whether you think a wholesaler is a broker.

Different states have different legal definitions for brokers, but they generally state that a broker is a person who sells or buys real estate for a profit, or who negotiates the sale of real estate for a profit, or who markets a property for profit.

So is the wholesaler a broker?

It depends on whether you think the wholesaler is selling a property or selling the ownership of a real estate contract. And given that marketing a property is often included in the definition of brokering, it depends on how you advertise the deal.

To wholesale properly, you advertise the contract, not the actual property. You’re selling the contract.

Ok, so what does that mean for you?

1. Get a Lawyer Friend

You should always get legal advice before doing a deal. Don’t make decisions based on what I say in this post without talking to someone who knows your state (and federal) laws.

But keep in mind that lawyers will give you different answers on this question of whether a wholesaler is a broker.

2. Be True to Yourself

Make sure that however you do deals and whatever kind of deals they are, you’re comfortable with them. Consider how you would answer someone who asked you to explain how you handled a deal, whether that was a legal authority or a relative of a homeowner you worked with.

Always work with integrity and you can be confident in all your dealings.

3. Use a Double Close

You do have another option to close these wholesale deals: the double close.

If we go back to our example and turn it into a double close, Whitney would buy Harry Homeowner’s property. Then, in the same day or maybe the same hour, Barry Buyer would purchase the property from Whitney.

Now there’s no haggling over whether Whitney was selling Barry a property (one she didn’t own) or selling him a contract. Clearly she’s selling him a property, which clearly she owns.

But what if you don’t have the money for that? There are transactional lenders you can use (for a fee) to get access to one-day funds.

4. Get Licensed

Licensing will probably cost you a couple thousand dollars, but this avoids the whole issue altogether. You’re a broker, so you can advertise as well as buy and sell property, no problem.

Again, talk to your lawyer about the best steps to take at this point.

Your Very Own Paycheck

Okay, all this sounds good. You love the idea of helping out your “grandma,” and you love the idea of getting a $7,000 paycheck. So now what?

It’s time to advertise.

If you’re going to be that wholesaling matchmaker, you need to go out looking for people who need matches. Whether you’re more of a bandit sign person or a direct mail person, start looking for Harry Homeowners who want to work with you.

Cultivate your list of Barry Buyers, too. Make sure you’re ready when you get that first phone call so you can do those wholesale deals with ease.

Your Take

How do you set up your wholesale deals? Share your thoughts and tips below.

The post Doing Wholesale Deals Grandma Would Be Proud Of appeared first on REItips.

Mobile Home Investing: A Flippin’ Good Idea?

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“Nothing important was ever achieved without someone taking a chance.”
~H. Jackson Brown, Jr., author

In the world of real estate, you don’t often hear about investors who specialize in flipping mobile homes. It’s one of those segments of business that many investors tend to avoid. After all, the margin for error is very thin (much like the opposite end of the spectrum: investing in upscale, luxury homes).

But, like me, you might be curious as to why an investor would choose to flip mobile homes. Maybe there’s something we don’t know, right?

After all, the business would have to be lucrative… otherwise, why would anyone choose it?

So, after doing my research and chatting with some investors who are highly skilled in this area, I wanted to offer you some insight. Even if you decide that flipping mobile homes is definitely not your cup of tea, it can be helpful and interesting to learn about various property types and strategies that other investors pursue.

To start off, you should know that mobile homes tend to lose their value very quickly. As a result, flipping mobile homes is generally a higher-risk investment strategy than flipping what we call a stick-built (non-manufactured) home.

On that same note, increasing the value of a mobile home is also more difficult than improving the value of stick-built homes. Because you are limited in the improvements that can be made to a mobile home, you can only add so much value.

Plus, you need to take into consideration the park or land where the mobile home is located, which can significantly impact its value. Just like other homes, mobile home parks can vary from “desirable” to “avoid-at-all-costs.”

Still, with enough research—and a methodic approach—you can develop and implement a successful strategy for making significant profits from flipping mobile homes.

So, if I’ve piqued your interest, read on to discover some beneficial techniques and tips for flipping mobile homes. (I promise, it’s worth the read.)

Begin at the Beginning…

First, just a few words on understanding your ROI for flipping mobile homes…

Understand that—just like any property—flipping a mobile home requires a great deal of due diligence. Don’t dive headfirst into a deal until you’ve done your research. It’s especially important to understand the market trends in your neighborhood or city of choice.

The Good News: Mobile homes offer square footage prices that are a fraction of what they would be for non-manufactured homes. And, mobile homes can appreciate significantly in value if they are kept up (and especially if they are permanently installed).

And one final tip…

As you consider venturing into this area of investing, you may also want to seriously consider living in the mobile homes while you flip them (if this would work for your life/family). By doing so, you can save a ton of dough, and make a more significant profit.

Doing Your Due Diligence

You might be eager to get started, but you’ll want to spend plenty of time preparing for your investment.

Before you buy, consider these tips:

  • Know your stuff – Spend time browsing Craigslist, online ads and even printed classified ads for mobile homes for sale in your market. Build your knowledge! The more you read these, the more quickly you’ll begin to see patterns in pricing, which means you’ll be able to easily spot a good deal when it pops up.
  • Make connections – It can be extremely beneficial to establish a relationship with the managers of local mobile home parks. These individuals will know when someone is looking to sell. If you’re a trusted connection, you could be one of the first people the manager calls with a property deal lead.
  • Practice your bidding – Property auctions are often grossly underrated by the investing community. Attend auctions to learn more about the mobile home prices in your area. Just make sure that you never purchase a home sight-unseen. This is NOT a good idea, especially in the case of foreclosed mobile home (which can be damaged beyond any feasible repair).
  • Look around – On that same note, make sure you inspect a mobile home thoroughly before committing to any purchase contract. In most cases, any structural damage will ruin your chance of making a decent profit. So, look for homes that require basic cosmetic updates but are structurally sound.
  • Consider the property’s age – You’d think that investing in a fairly new mobile home would be a better idea, but – usually – this isn’t the case. Mobile homes depreciate in value dramatically in their first 5 years of existence; after that, the values tend to even out. So, take this into consideration as you look for properties.
If you’ve done your research and are ready to make a purchase, be prepared to use your sharpest negotiation skills. Come prepared with a list of repairs you’ll need to make, and get the seller to compromise on their asking price. (Obviously, this applies to any property you’d buy; it’s just particularly important for properties where your profit spread could be quite thin.)

Once you’ve scored an awesome deal on a mobile home, you’ll be ready for the fun stuff…

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Rehabbing Like a Boss

When it comes to renovating a mobile home, you’ve got to stick to the budget.

I repeat: Stick. To. The. Budget.

Whatever budget you determine, prior to starting repairs or renovations, don’t exceed it.

Because you’re working on a property that isn’t stick-built, it’s unlikely that exceeding your pre-determined budget would be wise.

It’s also important to do as much of the work yourself (if you can). This will save a boatload of money.

Word of Caution: Make sure you hire a professional to complete any work that’s more specialized. Understanding the balance between “I can do this myself” and “Heck no, I need an expert for that” is essential.

Now, if you’re accustomed to investing in traditional, stick-built properties, your automatic instinct will tell you that higher-quality materials and appliances will add BIG value to your mobile home.

But, in most cases, this isn’t true.

The value of most mobile homes won’t increase much with higher-quality materials. Because this isn’t a permanent property, it’s best to stay with the basics and avoid the high-end stuff.

Really, your main goal is to improve the cosmetic appeal of the mobile home. So, consider these smart, cost-effective options:

  • Wash and repair siding
  • Clean or replace carpeting
  • Paint walls and ceilings
  • Install basic, laminate flooring
  • Replace doors that are in poor condition
  • Make cost-effective updates to countertops
  • Switch out the cabinetry hardware
  • Install new, updated light switches, outlet and vent covers, etc.
  • Re-glaze bathtubs and sinks
  • Make minor repairs to the roof
As a general rule of thumb, you probably want to limit your reno/repair budget to $7-$12 per square foot of the mobile home.

This will give you enough for a basic, cosmetic rehab. If you have any major items that need repairing (such as plumbing, electrical, HVAC, etc.), calculate those costs separately. (And, if at all possible, avoid investing in mobile homes that require those major repairs, in the first place.)

Once you’re satisfied with your rehab work, you’ll be ready for next steps.

Finding Your Ideal Buyer

If you’re planning to list your newly flipped mobile home, it’s important to come up with a conservative asking price.

This is NOT the time to get overly ambitious with the listing price. As I mentioned before, you can only increase the value of a mobile home so much. If you’re asking an outrageous price, buyers will avoid your listing and opt for a brand-new mobile home (which won’t cost much more).

Your target buyers will be:

  • people who are on a budget
  • first-time homebuyers
  • those who want to downsize from their current home
Now, if you only accept cash offers, you’ll find yourself in a tough spot. Most of your interested buyers will NOT have the ability to pay all cash.

Instead, look for buyers who are working-class, financially responsible individuals and who haven’t yet had the income level needed to stop renting and buy a traditional home. Many of these folks would be happy to own their own mobile house, rather than continuing to throw their money at a landlord every month.

If you decide to accept monthly payments from an interested buyer, you will likely find several worthy candidates who are willing to pay your full asking price (if not more) for a newly renovated mobile home.

Structuring a fair repayment plan will allow you to choose from a variety of qualified buyers, rather than struggling to find an all-cash buyer. And, as we all know, more buyers equals a faster sale.

To determine how much to charge, consider comparable apartment rent prices…

For instance, if a mostly updated, nearby 3 bed/2 bath apartment rents for $1,000/month, you’ll want to charge anywhere from $900 to $1,100 (which includes lot rent) for your mobile home.

The pricing is crucial.

If you’re selling the mobile home for a monthly payment that’s comparable to apartment rent prices in your market, you’ll create an attractive and enticing option for people who are eager to buy.

Bringin’ it Home

I would be remiss if I didn’t mention that one of the most important parts of this entire process is overcoming the stereotypes and stigmas associated with mobile homes.

While mobile home parks are often given a bad rap, the reality is: there are many parks throughout the country that are respectable (and even desirable) places that working-class, retired or traveling individuals love to be.

Regardless of whether you invest in stick-built homes, mobile homes or a combination of the two, understanding your local market is KEY.

When it comes down to it, flipping mobile homes can be a smart way to make money and build your business as an investor. If you are informed, prepared and willing to work hard, you can make this a very profitable venture.

Going Mobile

Have you flipped a mobile home (or know of an investor who did)? What challenges and rewards did you (or they) experience?

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Getting the Most Out of Wholesale Deals (And Then Some) with Wholesale Lease Options

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Most investors will tell you that wholesaling is great because it’s hands-off investing. You find the property, you resell the contract for the property. Easy peasy…

But do you ever wish you could make more on a wholesale deal? After all, you’re not doing anything to increase the value of the property, so you’re limited in how much you can really make, right?

Wrong.

And now it’s time for a sandwich.

Welcome to the Sandwich Deal

It is possible to make 4x or 5x what you would make in a typical wholesale deal, if you think outside the box.

Any wholesale deal is like a sandwich: The seller and the buyer are two slices of bread, and you connect them with your sandwich-filling goodness.

Usually, the “sandwich” doesn’t last long… you set up a contract with the seller. You sell the contract to the buyer. The deal is done.

But imagine the possibilities if you formed a more long-term relationship with wholesale leasing.

When you offer a seller a wholesale lease option, it’s still a wholesale deal. You (the investor) don’t own the property, you own the contract. But instead of finding a buyer for the property, you find a rent-to-own tenant for the property.

Why Is This a Good Deal?

Sellers love this option because they can set the price for the deal. This is especially appealing for sellers who don’t have much (or any) equity in the property, because they can get the full value of the property back.

A particular group of buyers also loves this option, and this is where wholesale leasing is most different from traditional wholesaling… but know this: It’s critical that you find the right buyer and that you help them through the whole process in order to make this deal successful.

The best buyers for wholesale lease options are people who don’t quite qualify for a mortgage, but who are on track to qualify soon. If you target the right properties, you’ll have no trouble finding potential buyers, and the price and terms will be a win-win for both the seller and the buyer.

Wholesale leasing is also a win for you. You don’t own the property, so it’s a low-risk deal. It’s a relatively easy investment. Since the seller gets to set the price, you don’t need to negotiate. And you don’t need any funds to do these deals.

Wholesaling this way does involve a bit more long-term work than traditional wholesaling because you need to make sure the buyer is supported through the whole process of renting to own, but given the significant increase in your profit, that little bit of extra work is definitely worth it.

Profit? What Profit?

How does this actually make you more money?

It depends on the deal option the seller chooses…

After you talk with the seller and get the basic information you need, you should make an offer with at least 3 options, showing the seller how much they can make with each option. Your options should look something like this:

Option 1: Cash Offer

The cash offer is a traditional wholesale model. It gives the seller a comparison point for the deal. This is going to be your lowest offer.

In this case, your profit is the difference between your deal with the buyer and your deal with the seller.

Option 2: Sandwich Lease Option

With this option, you offer the seller a lease to the perfect tenant—you. You are responsible to pay the rent and cover maintenance and repairs under $500. To do this, you sublease to another tenant-buyer, but you stay in the middle.

Offers like this typically have a term of about 5 years, but the tenant-buyer can always choose to buy more quickly.

This is going to be a higher offer than Option 1. That’s because in this scenario, you have 3 paydays:

  • You make money up front
  • You make a monthly income on the tenant-buyer’s rent
  • When the tenant buys, you get the appreciation of the property

Option 3: Lease Option Assignment

The lease assignment gets the seller the highest price. In this case, they can choose how much they want to ask for the property. Lease option assignments typically have a minimum term, for example, a minimum of 2 years.

This is more like a traditional wholesale deal, except that you look for tenant-buyers instead of other investors to purchase the property. Unlike Option 2, when you do a lease option assignment you do NOT stay in the middle. The seller can make more, but they also take on more risk.

Like a traditional wholesale deal, you make a profit up front, through the 3% option deposit collected from the tenant-buyer when they move in.

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How Does this Actually Work?

Let’s go through the steps of a wholesale lease deal so that all of this is clear…

Step 1: Find a Seller

You’re looking for a property people want to buy. That means you want to find properties in nice neighborhoods in good school districts. They should be in the median price range for the area.

Your ideal seller doesn’t have much equity in the property. The easiest way to find these sellers is to look for them in for rent and for sale by owner ads online. You can look at for sale by owner sites and at sites like Craigslist. You might also try your local newspaper’s website or printed classified ads.

Once you’ve got a list of potential sellers, follow your marketing plan to contact them and send them an offer. You don’t need to spend much time on the phone with them; you just need some basic information in order to make an offer.

Find out about the seller’s situation… Is the seller current on the mortgage? Would they be consider renting the property? If the seller is motivated and interested in renting, it’s time for Step 2.

Step 2: Contract

Remember, with wholesale lease options you don’t need to do any negotiating. Send the seller a simple letter with clear options. You don’t even need to meet the seller in person. Just make sure the seller understands how each option works.

Once the seller chooses one of the options you’ve offered, get the paperwork in place. Work with an attorney to make sure you’ve got all the necessary details in your paperwork.

If you’re not doing this deal in person, you can use a notary to get all your documents signed. Make sure you don’t start making payments until you’ve got a tenant-buyer in place. Then it’s time to move on to Step 3.

Step 3: Find a Buyer

Rely on your marketing plan here. Use whatever methods you’ve found most effective, whether that’s Craigslist, bandit signs or online advertising. For example, you might put a sign on the property that says:

“Rent-to-Own. Only 3% down to move in. Call 555-5555.”

However you market, make sure you’re targeting the right buyer.

Screen potential buyers to make sure they have a realistic chance of being approved for a mortgage within the terms of your agreement. Do a background check. Also, use your 3% option deposit to confirm that the tenant-buyer really is serious about the deal.

Step 4: Final Paperwork

Once you’ve found a buyer, make sure you get all the paperwork in place. Have an attorney take care of or review all your contracts.

Make sure both the seller and the buyer understand how the contract works. If the seller chose the lease assignment option, make sure the seller accepts liability for the deal.

Set up the deal so that a third party collects rent and pays the mortgage. The tenant-buyer will be protected this way, and if the deal is a sandwich deal with you in the middle, you won’t need to worry about this happening each month if you’ve got someone taking care of the rent and payment for you.

Step 5: Follow Up

The goal of this wholesaling method is that the tenant actually buys the house. This goal doesn’t change once all the paperwork has gone through. Make sure the tenant-buyer has support to reach the goal of purchasing the property.

If the tenant-buyer needs to repair their credit, make sure they get into a good credit repair program. And make sure they have the contacts they need, such as a broker who can help them buy the house.

A Final Note

Wholesale lease options do require some extra legwork, but that doesn’t mean you need to break a sweat over every one of these deals.

Find team members who can make each step easy to execute. Establish a relationship with an attorney you trust. Find someone who can collect and distribute payment. Maybe even hire some property scouts to find the kinds of properties you’re looking for.

When you’ve got a solid team in place, you can do even more deals.

Whatcha Think?

Have you done any wholesale lease option deals? What do you wish you would have known before you started? Let me know below.

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Use These 2 Strategies to Crush Overwhelm

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Are you feeling stressed? The stresses of… life… Work… Family… Investing… Look, friends, I get it.

So many people I know – friends, colleagues, students, clients – are feeling overwhelmed… Steven Howell here letting you know that I’ve been there too. Heck, everyone’s been there. If you’re so overwhelmed that you can’t get past it – I’ve got 2 ways to help you break through. Allow me to explain in more in detail in today’s video post. Enjoy…

So, think things through, be strategic… and don’t be afraid to fail forward. You can do this.

Blinders on. Now focus…

Here’s to simplifying and being proactive.

Talk to Me

Tell me how you simplified things and became proactive. Share in the comments section below.

Steven Howell

He's the owner and CEO of Inner Warrior Consulting LLC, a training and consulting company that helps entrepreneurs build their "inner warrior" and gain the necessary skills to be successful in life and business. He's an accomplished wholesale real estate investor, mentor and coach who teaches business building, mindset, marketing, branding and negotiation to students across the US.

Visit Steve's Youtube channel for more videos like this one.

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Finding a New Market: The Challenges & Rewards of Investing Remotely

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“Real estate is an imperishable asset, ever increasing in value.

It is the most solid security that human ingenuity has devised.

It is the basis of all security and about the only indestructible security.”

                                  ~Russell Sage, American financier and politician

As a real estate investor, you’ve probably chosen this career path for the financial security and success that it can ultimately provide. It takes time to reach the level of financial freedom, but the efforts are completely worth it.

In the beginning, one of the most critical decisions you need to make concerning your real estate investing business is simply… where you want to invest.

It’s a huge “make it or break it” factor that you can’t take lightly.

In fact, when it comes to finding a new market to invest in, you’ll want to put a ton of time and research into your decision before pulling the trigger.

Maybe your current market isn’t ideal for investing and you’re not willing or ready to move. Or, maybe you have built a successful investing business in your own community, and you’re ready to branch out to other cities or states.

Either way, deciding to invest remotely in a new market is a BIG decision.

Luckily, I’m here to help. 😉

So, without further ado, let’s get into my 3-step approach to finding a new market to invest in. I want to give you as many details as possible, because I think this is a topic that warrants going the extra mile.

Step 1: Hitting the Books (Heavy-Duty Research)

For this type of thing, there’s no such thing as doing too much research. It’s time to make your high school science teacher proud.

There are SOOOO many factors that go into choosing a new market to invest in, but here are the first ones you should look in to…

Market Type: You’re only one Google search away from finding the “fastest growing markets in the U.S.” The tricky part is: deciding what to do with that information.

You don’t necessarily want to immediately jump on board with the #1 market. It may be right for you, but chances are that it’s not.

Consider the direction you’d like your investing business to go. Some investors like the hot markets because of appreciation, while others like tapping into undervalued or up-and-coming markets, so they can get ahead of the competition and take advantage of lower property prices.

So, your search results will be a very basic starting point – but there’s a lot more work to do from here.

Growth Factors: Once you have a few cities/areas of interest, dive deep and research the following factors for each one:

  • employment rate
  • median wages
  • employment growth
  • population growth
  • median income
  • crime statistics
  • foreclosures
  • infrastructure
  • future construction
Keep detailed notes on your research, so you can compare and contrast various cities.

Taxes: Some investors prefer to purchase properties in states that don’t have state income tax, because this eliminates one administrative task that will need to be completed each year.

It’s totally up to you. But if this matters to you, you may want to invest in states where there is no income tax, such as Florida, Tennessee or Texas.

Climate: The local weather isn’t simply a preference. If you’re hoping to purchase rental properties in the Midwest or Northeast, consider doing so in the summer months.

It will probably be tricky to find new tenants in the dead of winter, when moving sounds about as thrilling as scraping the ice off your car windows.

Region: It’s also important to consider not only the state where your market is located, but also the overall region.

Many investors steer clear of the east and west coasts, simply because of soaring property prices – but this doesn’t mean that you can’t build successful businesses there.

Still, if you’re looking for a “safer” choice, many investors prefer the Midwest or certain areas in the South. Popular cities for investors right now include:

  • Cleveland
  • Memphis
  • Kansas City
  • Grand Rapids
  • Little Rock
  • Knoxville
  • Atlanta
  • Birmingham
  • Indianapolis
  • Oklahoma City

Step 2: Packing Your Bags

Once you feel confident with your research, narrow your list down to 2-3 potential markets that you think would be the best fits for you and your business.

Now comes the fun part (sorta)… you need to visit those locations.

Yes, this will cost money (between the travel costs, hotel and meals). BUT it’s 100% necessary. If you’re planning to invest in properties remotely, you have to visit the area before making a decision.

Even if you’re confident that you’ve chosen an awesome city where investing opportunities abound, you still need to see it for yourself.

Remember: Neighborhoods can vary greatly from block to block, and choosing a home that is just ONE block in the “wrong” direction can make all the difference in your profit.

In most cases, you probably want to find a B- or C-level neighborhood to invest in.

Stay away from luxury properties (unless you have extensive experience with them), as these types of homes carry a high amount of risk. Also, avoid neighborhoods where safety is a concern – it’s just not worth it.

Being somewhere in person makes a huge difference on your impression of it. There may be things that you never would have discovered, unless you’re there.

For instance, I heard of an investor who visited a city, thinking it was the perfect market… until she met with a local agent who told her that investors would remove the AC units from their vacant properties because those were stolen frequently. Let’s just say… that investor decided to look elsewhere for opportunities.

Another Good Tip: Try to plan your trip for a time when that city/town is having a Real Estate Investor Association (REIA) meeting. This would be an awesome opportunity to meet other investors in that area, so you can get an idea of the types of challenges they face.

If there’s no formal meeting taking place, it could still be helpful to arrange to meet up with an investor or two while you’re in town…

Find a Facebook group (for example, “Memphis real estate investors”) and connect with a few people who seem to be active in the group. Then, when you’re ready to make the trip, ask if you could take them to coffee or lunch and chat about the local market.

Finally, when you’re visiting a potential market that you’d like to invest in, ask yourself a simple question: “Would I enjoy visiting here again?”

If you make a commitment to invest in this area, you’re more than likely going to need to make occasional trips. Make sure it’s a place where you would actually enjoy spending time.

Now that you have a solid idea of what your market of choice has to offer, it’s time to start building a skilled and dependable local team that will be your “go-to” people in the area.

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Step #3: Assembling a Solid Team

When investing remotely in a real estate market, you NEED to have a team of reliable people who are local to the area.

No matter how awesome a deal is – and no matter how perfect the market may seem – you won’t be successful if you don’t have the right people on the ground.

In fact, I’d go so far as to say that your team (or lack of one) will most likely make or break your investment.

Your team of pros should include:

  • Agent(s)
  • Property manager(s)
  • Lender(s)
  • Attorney(s)
  • 3rd party property inspector(s)
Now, obviously, this step will also take a great deal of research, communication and follow-through work. But once you have a reliable team in place, your efforts will be well worth it.

Make sure your team understands the property locations and types that you’re interested in. You might find it beneficial to work with property managers who are also investors or licensed agents. It’s always a plus if they understand the mentality and process of an investor.

I also recommend getting pre-approved with a lender, if that is how you will be financing your deals. Conversations with agents will go much more smoothly if they know you’ve already been pre-approved.

It also might be a good idea to hire a 3rd party property inspector, who can give you a second opinion on the state of the properties you’re interested in purchasing. These professionals will provide a highly detailed report on the condition of the property. If you’re using a bank or other non-private lender, you’ll also need to get an appraisal.

Also, as you already know, it’s essential to get a clear title. A lender will require you to do this; but, if you’re paying cash for your properties, it’s your responsibility to ensure that a clear title is provided.

Overall, you cannot completely eliminate all risk associated with investing in another state, but you can certainly mitigate it – if you have the right people on your team.

One Final Thought: If you are not in the financial spot to hire property managers or other team members in another state, you may need to start working locally in that market (and handling the property management yourself). Or, you can simply wait until you have the financial means to manage those investments remotely.

The Heart of the Matter

Ultimately, the perfect market is the one where you can establish the best cash flow. But it’s not going to be easy. It’s going to take a lot of blood, sweat and tears (figuratively and literally).

Don’t think that remote investing is a passive venture… it’s not.

You need to be 100% engaged and dedicated in order to be successful. Plus, you need to work regularly with your team on the ground – the more time you invest in those relationships, the better your chances of succeeding.

Remember: Investing in other markets (other than your immediate location) is probably not the best idea if you’re a new investor. Wait until you feel you have the skills, expertise and finances needed to expand to another area or state.

In the end, investing in another market is an amazing opportunity

It takes a ton of research, a highly talented and reliable local team, and a lot of time and effort on your part. But the rewards, profits and overall success can be completely worth it.

Go Forth and Invest

Have you considered investing in another area or state? What challenges or questions are holding you back? Let me know in the comments section below.

The post Finding a New Market: The Challenges & Rewards of Investing Remotely appeared first on REItips.

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