From J.P. Johnson, and J.P. says, “Hello Lou, I’m in Fort Lauderdale, Florida. Purchased your Whole Enchilada Course, and need specific steps on getting started in the pre-foreclosure business. Please advise with the specific types of marketing I should use for my area. Thanks, J. P.
Well, J.P., it depends on your budget. It really starts there. We can do some very, very sophisticated marketing campaigns, but if it is going to depend on how much you have to work with. So, in Jump Start, for example, one of the things we talk about is how to move yourself from where you are to where you want to be. It’s based on energy or money, money or energy. The more money you have, the less energy you have to use to generate leads. The less money you have, the more personal energy you must use to generate leads.
So, I’m going to give you some ideas, here, and then you can let me know what kind of budget you’ve got to work with. For the next call, we could maybe flush this out a little bit deeper.
First of all, when there are foreclosures they have to publish those in the newspaper. So, as cheaply as you getting the newspaper, you’ll be able to see that. Now, in some states, since we are having licensees from all 50 states listening to this call that may vary. In some states they only post it at the courthouse and it is not published in the newspaper. You have to know what’s standard in your area. Now, we do have the foreclosure requirements of all 50 states on the backside of Louis Brown.com. In other words, the members only section of Louisbrown.com. You can go there and type in password is student, and user name, excuse me. I believe its user name is “student” and password is the ID number on your forms disk. So, you’re WJ and then the ID number on that forms disk will open the backside of the web site – without the hyphen in between. That will give you the list of all 50 states. You just click on the state that you’re interested in and then you can open up the foreclosure laws for your state. Okay? That can tell you exactly what is standard in your area. Now, I happen to know that Florida is a judicial foreclosure state, and they do have to be listed with the court, and there has to be a hearing through the court, and what-have-you. That does allow for some time to work on foreclosures in Florida.
In Georgia, for example, we only have four weeks. It is a non-judicial foreclosure state. We don’t have a long time to work through marketing campaigns here. We got to jump right on it and move quickly.
The newspaper is the first source. The second that I’ll suggest to you is a foreclosure service: a service that gathers all these informations. In Florida, for example, foreclosures are filed daily. Every day new foreclosure listings come out, which makes it very difficult for you to follow. I suggest a foreclosure service. You can call our office at 1-800-578-8580 to find out the service that we recommend in your particular area. You’ll want to ask for Helga. That’s 1-800-578-8580; they can tell you what we recommend where you are located.
Now, the third idea is to create a campaign of postcards and letters to folks that are in foreclosures. Once you get the list, now you’ve either got to call them or write them. We’ve got a service, also, that we could recommend, called Mail Whiz. They actually take your list and they’ll do the mailings for you. That can be a very hands-off, effective way of getting responses out to the folks without having to drive yourself nuts trying to get postcard printed, get stamps, get lists that you have to address, and all that sort of thing. We do offer Mail Whiz. Anyone who’s interested in that Mail Whiz service can also call the office at 1-800-578-8580 to get more details on it. This is a very new service that we’ve been offering. Our students are nuts and crazy about this. Definitely, you’ll want to find out more details on that.
The fourth thing, J.P., I’d recommend, is door knocking. Once you get that list, it’s a very effective thing to do to go knock on the doors of the people that are in foreclosure. Now, what you should do is say, not say I saw your name in the paper. A more affective way of handling that is to say, Hi, I’m looking for a house in this neighborhood. Do you know of any that might be for sale? Then, you’ve opened the door, at least, to them saying, well, no, I don’t know of any; or yes, mines for sale. I can’t may my payments. That way, if they say, no, I don’t know of any for sale, say, well, I do look for houses all the time and I offer referral fees to anyone to refers a house to me that we buy. I’d like to offer that to you, as well. Then I’ll be glad to pay you a referral fee on any house you recommend to us. Any time you might have your house for sale, please, do give us a call and we’ll even pay you a referral fee if we buy your house as well. You’ve, in a very nice way, opened the door to them calling you about their particular property.
Okay, J.P., those are four very vital ways that you can approach the pre-foreclosure market in your area. I’ve got a bunch more, but let’s get you started on that and then we’ll create from there.
The next is a deal structuring question from Brian Mussa. Brian says if, through your marketing effort, you receive a good lead, but the house is listed with a realtor, should you and do you bypass the realtor? What do you recommend?
Brian, here’s what I’d say. It sounds like that the seller has contacted you through your marketing and that it wasn’t the realtor that contacted you, but in fact it was the seller themselves. What I’d do is go back to the seller, and ask if they are satisfied with the service they are receiving from their realtor; if they say yes, then you say, you know what. I’ll be glad to call your realtor and we’ll work through an offer through your realtor. Of course, you’ll be expected to pay the real estate commission, if I’m able to buy your house.
Another way of making this suggestion is to ask them to go back to the realtor and either, number one, de-list the property; just tell the realtor, listen, I can’t wait any longer. I’m behind in payments, I’m desperate to sell, I just can’t wait any longer for this house to sell through the traditional channels. I want to try it on my own. I want to do my own marketing. I want to find my own buyer. I just can’t wait any longer. In most cases the realtor will allow the property de-listed.
The second thing is to ask the realtor to amend the listing agreement to allow the seller to do their own marketing, and exclude from the listing anyone that the seller finds on their own. The realtor can still continue with the listing on the open market, and still continue with the listing right out there in the open, as they traditionally do, through the MLN. However, separately the seller can have their own marketing efforts going and just tell the realtor listen, I found this person on my own, therefore I don’t owe you a commission. I would recommend that the listing agreement be amended to show that this was the agreement entered into, or changed with the realtor.
Hope that made sense. I think a lot of you on the call could benefit from that little conversation and question from Brian.
The next question, also from Brian: I have a lead on a house that Zillow estimates is worth $125,000. The first mortgage is $94,000, with payments of $865 per month, and a fixed interest rate of 5.6 percent. Plus, it’s got a second mortgage of $23,000 with a payment of $202, with a fixed interest rate of 9.5 percent. What buying strategy would work here? Subject to, or short sale, what would you offer the seller?
Brian, first of all, I would sit down with the seller and go through the cost to sell worksheet. I would show the seller that they are upside down on this. Once it is allowed for all the traditional marketing expenses, real estate commission, closing cost, buyers discount, holding time, payments during holding time, all these things, obviously this seller is likely upside down. In fact it sounds like they are, base on the comp that you had discovered.
I would say that cost to sell is going to reveal that we need to get rid of this second mortgage. Therefore, I would work on a short sale of the second mortgage, and a subject to on the first mortgage. We would short sell and get the bank to take considerably less, maybe 500, a 1000, 2000 dollars on that $23,000 second. Then, subject to that first one ’cause that sounds pretty sweet at 5.6 percent interest.
Brian, I’m expecting you to do this deal. This sounds like one you can really work. So, it’s short sale on the second, subject to on the first. Be sure and do your property acquisition worksheet to find out what your true numbers are going to be. Detail it out that way.
I would suggest, also, that you look at your exit strategies and exactly what it’s going to cost you to get rid of this property as quickly as possible. It sounds like it would fit with our rent to own or owner financing plan very, very well.
I would also recommend, Brian that you get yourself registered for Millionaire Deal Maker. That’s coming up in March. March 22 through 25 in Orlando, Florida, and I would highly recommend that you get yourself there because we’re going to spend four days focused on the buying side of the business, all around deal structuring.
There are so many different ways you can structure transactions. I’ve discovered over 35 different ways you can structure a transaction. What I want you to do is bring leads just like this with you, and then we’ll work them in class, and we’ll come up with not one offer, but multiple offers that you can make to a seller. So, you can be prepared when you go in to not just make one offer. This is the mistake that I see so many investors make. They simply do not understand all the different ways you can structure a solution to the seller’s problem. This is highly critical training for any real estate investor. All of you definitely need to get yourselves registered for MDM in Orlando. Call the office, 1-800-578-8580. All of our Group Q and A students are granted a travel allowance of $1000 off of the standard price on MDM. You definitely want to call and find out more details about that and get registered.
Jetty Ruiz says, Hello, Lou. Hope you and the Street Smart staff had a fine weekend.
Yes, we did, Jetty, we were in Austin, Texas. It was fantastic.
I would appreciate your advice on the initial bid that I should offer on the following property. I spoke to the bank and the property is not listed with a realtor at this time. They stated that I will not be able to go inside the house since they do not have the keys.
Well, that’s very standard, Jetty. Banks typically don’t get the keys.
They stated at this time I will not be able to go inside the house since they do not have the keys. The bank will have to wait until the attorney provides the keys before I can look inside.
Well, first of all I would say, Jetty, it is highly unlikely that the attorney is going to provide the bank with keys. If this property went through the foreclosure process, it is highly unlikely the attorney got the keys. They’re going to have to order that the house be re-keyed. Or, Jetty, I will tell you that from time to time we use some creative investigation procedures where we kind of try the door knobs, try the windows, try the garage doors, and we just kind of see if we might be able to gain access without having to have the house re-keyed just so we can take a look-see.
In the absence of that, look through all the windows. Look through everything and see what you can see. Take a flashlight with you and flash it around through the windows to see what you can see. It might be that you can at least get a jump start on making an offer to the bank, subject to inspection, of course. You can go ahead and make an offer right away, subject to inspection. Then they’ll have to provide you access to the property.
You went on to say, the bank rep told me to submit a bid for the property which will be reviewed and either approved or disapproved. Then you go on to give me the address of the property, which I’m not going to state on the air for everyone to hear.
Final judgment was $106,867. Since this is a Florida property then it did go through judicial foreclosure and they gave a judgment back to the bank of $106,867. It was listed as a pre-foreclosure at $125,000. You found a comp of $117,000, but it did not sell at the foreclosure sale at $106,000, which should tell you that any investor would have bought it at that price, but they didn’t. Obviously, it’s probably worth even less than that on the foreclosure steps.
Currently owned by the bank, not listed with any realtors. Balance of the mortgage is $98,000, purchased on August of 2002 for $79,000. Tax appraised value: $93,000. Four bedroom, 2-1/2 bath, 1824 square feet. I have not physically looked at the property. Thanks and I will look forward to hearing from you. Semper Fi. Jetty Ruiz.
First of all, Jetty, I would suggest that that sounds like a good lead and sounds like you can work with the bank, and that before they list they will consider your offer. It will make a lot of sense for the bank to do that, of course, because they’ll save the real estate commission. They’ll also save the time delay in getting this done.
I would suggest, when you make your offer to the bank, make it a short time frame to get it closed instead of a long time period. Banks are typically very interested in short time frames.
We want to look at the numbers to make them happy. Once a bank goes REO, they’re looking at the net to them, not the gross figures. We use gross figures when it’s in short sale, we use net figures once it’s gone REO. I would recommend that you, Jetty, get a Comp Whiz on this. This is a service that we provide through Street Smart. You can comp out the property on your Comp Whiz. If you have our web site, you can go right to your web site, click on the Comp Whiz, and get an instant comp report. If you don’t have the web site, we can get you hooked up on Comp Whiz separately.
Those of you listening on the call, if you’re interested in Comp Whiz, we will do a free report for you so you can test it and see if it’s good in your area. It is a nation wide service, but it’s not perfect in all area. We definitely would like to go ahead and do a sample report for you. If you order the service, if it’s not to your liking, you definitely don’t have to pay for it. We just, we think it’s a fantastic service. It’s incredible in its breadth and depth. This is exactly what appraisers use to appraise their property. They don’t use services like Zillow. They use things that are much more sophisticated. We, as real estate investors, should also be. This is our business. Zillow is not for real estate investors. It’s for the public to kind of find out kind of a thumbnail of what their property might be worth. We need to be much more sophisticated in our revue of what the value of what the properties are. Let’s be careful about that, and I would highly recommend that you get a comparable service like Comp Whiz, to make sure that you are really in the business, and you are evaluating the property like you should.
So, your question for me is, I think what you’re asking me is what should your offer be to the bank. You don’t really have a question here after I’ve gotten through all this. It seems like if that’s the case, I would definitely recommend that you do your comparable search before you make any offer. Make sure you know what the numbers are and what your exit strategy is.
As a rule of thumb, I’m usually going to hit the back with a cost to sell worksheet. That’s the cost of sell worksheet that’s built into your seller presentation kit, on the seller presentation CD, which, if you have The Whole Enchilada, Jr., that’s on your Whole Enchilada disk.
You’ll go to the cost of sale worksheet, fill it all the way out, and what I’d recommend, is you put the number at the top that is the lowest comp you could find. That would be the asking price. Then I’d list all of the expenses and come down to a final number, and that would be my first offer to the bank. I would attach the cost to sell worksheet to your standard real estate purchase of sale agreement. I would fill out the agreement with exactly what that bottom number is and fax the whole thing to the bank. Let them see how you arrived at your numbers. Sometimes, if I find a lot of low comp, I’ll even fax the comp report to them as well. Then I’ll cover sheet the whole thing, and explain to them exactly what I’ve done.
Number one: I’ve included my comp report that shows clearly that the value of the home at this time is this number. Since we have not seen the interior of the property, our offer is subject to the inspection, the interior inspection of the property, and determinations of any additional repairs that have not been made that are not included in this offer. Then I would send them the offer and see what happens.
Now, Jetty, you’ve hit upon something that everybody on the call is going to be really interested in. Yes, some banks don’t list their properties instantly. You could get their REO list, their Real Estate Out list, and actually make a practice of just sitting at home, look up the comps, issuing offers just as I described to you, with the standard purchase of sale agreement. Fax those back to the bank. If they’ll go ahead and accept it then you, now, have the right to inspect the property on the interior. If you find things you don’t like, you revise your offer to include the repairs that you find inside the property.
I usually include at least $1000 in repairs, even on the first offers, even if I haven’t seen the interior of the property, just because we typically do find something that needs to be done. Whether it’s paint, cleaning, repairs, whatever, we find something that needs to be done.
Okay, Jetty, very good question. I think everybody on the call benefited from that.
We’ve got Jose Luis Gara. Jose says, hello Lou. Will you please go over how to pay down a mortgage faster? You briefly coved it on one of your CDs, but I wasn’t able to grasp it all. I think you are talking about prepaid principle. Also, what is the language we have to use to instruct the bank on how to apply our extra payment?
Bruce could you look that up for me in the Borrowing book, what form that is?
All right, for everyone’s benefit on the call, what Jose is talking about is, I have a very unique way of getting the bank to do what we want them to do. Let’s take it this way, when you borrow money, you borrow on what’s called an amortizing loan, in most cases. An amortizing loan means that the interest is front loaded on the 30, or 40, or 50 year loan that you’ve taken out with the bank. That front loaded interest is typically a great amount of the monthly payment in the beginning. Every month a little bit more goes toward principle, a little bit less goes toward interest. That continues that way for the entire term of the loan.
What we need to first do is determine where you’re at in your mortgage. I would say get an amortization schedule. If you don’t have an amortization schedule on your loan, we can provide one to you. In your Borrowing System, Volume 6, there is an amortization schedule. I’ll give you the name of that, also from your Borrowing book.
The next step is to determine how much money you have to put towards paying down your mortgage this month. Let’s say you had an extra $500. What you would do is take the amortization schedule and look at where you’re at right now on there. Let’s say, for example, you’re at payment number 13 on your amortization schedule. Then we would begin adding up the principle for each month until we get to around $500. Let’s say that would move us from payment 13 to payment 23. That would mean we just moved down your amortization schedule ten payments. It also means that all that corresponding interest, which is front loaded in the beginning of the loan, disappears because now the next payment we’ll make is number 24 on the loan. We’ve gotten rid of all that corresponding interest that was already built into the loan. So, that’s a marvelous thing if we can do that.
A lot of you on the call have been doing what is called pre-payments to your mortgage. What typically happens is the bank receives your pre-payment and says, thank you very much. They apply it to the back end of your mortgage because they look at the 30 year amortization schedule. They say, hey, you didn’t tell us where to apply this $1000 that you sent us, so we’re going to apply it at the end of the loan. What does that do? That only disappears the corresponding interest on the back end of the loan, which is, as I just described, is very little interest that’s getting retired and a whole lot of principle. If we apply our principle payment at the early part of the loan, we get rid of all that corresponding interest. It’s very important that we instruct the bank exactly what we want them to do. What we want them to do is apply the enclosed check for $480.53 towards payments number 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, and 23 of my mortgage. Therefore, the balance of the loan is X and my next payment to you will be payment number 24 in the amount of Y.
We describe that in a letter. Those of you with Volume 6, borrowing, will find that letter at SSB, which is the Street Smart Borrowing, SSB, 61402, The Mortgage Accelerator.
What is the name of the calculator also, Bruce? The corresponding calculator we want them to use?
So, you are going to go to SSB 61402, Mortgage Accelerator, and you’re going to print out that letter. Those of you with our web sites, and Jose, I think you have our web site, you can go to the back side of your web site, your administrative side, and click on borrowing, and then click on that form and you can actually fill it out right there on line and print it out.
The loan amortizing calculator that I want you to use is SSB 61401. It’s called Loan Amortizing Calculator with Extra Payments. What this calculator does is it allows you to enter extra payments any time you want to. It tells you exactly what your new balance is, and it also tells you the affect of the savings of the interest that you have. It also gives you, any time you want to, the current balance of your loan.
It’s a really neat feature of the Street Smart Borrowing, which is chunk- a-block full of all kinds of great little calculators that solve any question you have at any time, rather than having to go to your HB 12C, your 10B, and trying to figure out how to calculate something. It’s already got calculators that do that for you. All you have to do is pull up the calculator, enter the data, the actual numbers, and it does all the calculations for you. Not only that, you can see it right before your eyes. Not only that, you can print the whole thing out and keep it in a file folder relative to that particular property. It’s a really handy thing to have.
There’s a whole bunch of other things at Street Smart Borrowing, such as how I borrow money. The script I use to borrow money with private money lenders, not five points at 15 percent, but zero point and six percent and no payments – interest accruing. I definitely want you to get this Street Smart Borrowing System. Call the office, 1-800-578-8580, and they can give that to you. Like I said, the forms disk also has all those great calculators that you can use.
Just to complete that thought, Jose, when you include that check, always write a cover letter that explains exactly what and how you want them to apply the amount of money that you’re sending them. That’s what that letter was all about that I just mentioned to you.
Okay, very good question. I think everybody on the call benefited from that one.
Jeff Landis has a question. Hi, Lou. I have a few loans in my name only and I have to get permission for my wife to access info with the lender. Whenever the loan is sold we have to go through the same process again. If I buy subject to and take over the loan, do I have to contact the seller again, and again, every time the loan is sold? Thanks, Jeff.
Well, a few answers to that one, Jeff. First of all, I don’t think you should be talking to the lender. You should be getting access on line to the mortgage information. If you’ve changed the address with the lender, they’ll be mailing information to you when they transfer the mortgage to somebody else. You’ll be able to take a look at the loan on line and communicate with them on line because you’ve got the ID code.
By the way, everyone on the call should always get whatever pass code that the seller has with the bank, and also the seller’s social security number. You’re going to have the seller fill out an authorization to release information on every subject to that you deal with. So, Jeff, whenever you have a problem down the line, all you have to do is re-fax the authorization to release information, and that gives the bank the authority to talk with you about that particular loan.
That authorization to release is form LT, that’s L, as in Larry, T, as in Tom, 2144. That is in Volume 4, Land Trusts. It’s also in your short sale kit. The form number under the short sale kit is BSH 1903. That’s a critical piece of getting a short sale as well, is getting the authorization to release information.
The other trick that we have up our sleeve, Jeff, is not only do we have access code on line to change anything we want to, such as addresses and communication with the bank, number two answer that I gave you was the authorization to release information and number three solution is the limited power of attorney.
Whenever you buy property subject to, I also have the seller sign a limited power of attorney. That is in your Land Trust book, LT 2151. That’s in Volume 4, LT 2151. That power of attorney then would give you authority to work with the bank to release information if the authorization to release was not enough.
Okay, that should solve the problem for you, Jeff.
By the way, that’s an important one for everybody on the call, too. You’re definitely going to run into these. These are the little nitty gritty details that you just can’t get answered out there in the real world. These are the kind of thing that Group Q and A is designed for so that we can really solve your problems as we go, and get you past any road blocks that you have. We do go into a lot of detail on subject to at MDM, at Millionaire Deal Maker that’s coming up in March, teaching you the words to say, how to say it, how to get people to do it, the paper work, things like that that are very important when you are setting up a subject to deal. We all know that’s the greatest thing in the world when you can take over somebody else’s loan, in somebody else’s name, on somebody else’s credit report, that somebody else paid the closing cost for. All we have to do is step in and take over the payments on that loan.
That’s a beautiful, beautiful thing, so I definitely want you to learn the skills to be able to do that, and prevent the lender from calling the loan dude. You must use particular paperwork for that. In your Land Trust book, there is a section four, which is buying property subject to the existing loan safely. That’s all the paperwork to do your subject to’s. That’s where you’ll find it.
Brian Mesas has a question on subject to. When buying a property subject to, do you get title insurance or just have the title run?
First of all, Brian, we always get a title search, we always get a title search done before you buy. So, that’s critical. You can go ahead and put the property under contract, or you could even get a deed to the property, but before you record that deed, you want to do a title search to make sure you want that deed.
Now, do I get title insurance? Well, it depends. If I’m putting any real money at risk, or real equity at risk, then I’m definitely going to get title insurance. If I’m not putting much at risk, then I don’t have to worry about title insurance.
If the former owner had title insurance before I bought, how are you going to find that out? We’re going to look at their HUD I closing statement. Their HUD I closing statement has an entry there on title insurance. You want to look to see, over on the right hand column, if they were actually charged for it. If so, then they probably have title insurance. If there was a title flaw before their purchase, then you could go back through their insurance and get that solved.
The period of time between their purchase and your purchase is what we’ve got to worry about. Anything could have happened to that title. That’s what the title search is all about.
The next question is Jim Dishien, and Jim has a question. I have a property under contract subject to. The existing mortgage and that’s it. The sellers are not expecting any money at closing. They are bringing money to pay half the closing cost.
Beautiful deal Jim. There you proved it. Sellers will pay to sell their property.
Rehabbed nicely, this property would be worth $92,000. Existing mortgage balance is $57,300. House needs $15,000 to fix for retail or $8,000 or so to fix up for rental market. Existing mortgage is 7.5 percent fixed interest. Payments are $577 per month BITI.
I’m loving this deal so far, Jim.
I don’t know the remaining term of the note.
Well, I want you to find that out. By the way, that’s something you can find on Comp Whiz as well. When you pull up the details about that existing property, it also shows the existing loan. When it was taken out. What the term of the loan was. What the interest rate is and all kinds of other great things. So, you might be able to do it through that, Jim.
This is a two bedroom, one bath property so I think it would make a better rental than a sale. I believe I should flip this to a landlord/investor. My question is how do I use a security deed to protect my seller from my buyer? Should my buyer stop making payments when there is zero dollars owed to my sellers?
Let’s stop there and answer that part of your question. That’s agreement for deed. What I want you to do is put the property under agreement for deed. That way you will be able to control the underlying financing. You’ll be able to control continuing to pay that, and you’re going to pay that with the payment that comes from the landlord/investor paying you. You’ll receive, let’s say, for kicks and giggles, you’ll receive $1000 from that investor, and you’ll use that to pay the $577 underlying mortgage.
The AFD also allows for principle, interest, taxes, and insurance as well. As it adjusts annually on your underlying loan, you will also be able to adjust annually for your buyer. That means, you’ll be able to make, as a spread in between, and you’ll be able to maintain your spread in between. Any time that your new buyer comes along with a new loan and pays off you and that underlying loan, then the agreement for deed disappears and you receive the balance of your money. Whatever other equity you have coming to you on that not will be paid off when they come to the table with a new loan.
They don’t have to do that. You can determine how long the loan is for, whether it has a prepayment penalty in it or not, whether it has a right to pay you off in a certain period of time or not. All those things can be controlled by you in your agreement for deed.
Where is this keen good old thing? This is in your Selling book, your Volume 2, Selling. It’s got some information on agreement for deed, and it’s got one form in there. If you want the calculators and all kinds of other goodies that we’ve got for you, that is Volume 10, Owner Financing. It covers both buying on Agreement for Deed and Selling on Agreement for Deed, and a lot more of the detailed paperwork on it. If you’re going to make a habit of doing this you are going to want to go ahead and get Volume 10, Owner Financing. It’s designed to protect you, and, of course, solve problems before they occur.
You go on to say, I don’t have the $15,000 to fix it up. I am thinking that if I borrow the $15,000 I would be upside down each month. If you believe this would be a good one to keep and lease option, please explain how I would work that considering I would have to borrow the $15,000 fix-up money.
I’ve got several more answers for you, Jim. First of all, we would offer this out on work for equity. I want you to work, just do my Work for Equity program.
By the way, for everyone on the call, that is a separate kit that we’ve got called Work for Equity. It’s got its own advertising in it. It tells you exactly how to run the ad in the newspaper, all the paperwork to support not having the buyer or the renter call housing code and get you in trouble. We’ve got all the paperwork to solve those problems before they occur. I absolutely, positively love Work for Equity. Even on houses that don’t need much. People will come in, they’ll do the work, and you give them credit towards their down payment when they complete the work.
When they come in to do the work, you have a scope of work already filled out detailing exactly what you expect to be done to the property as part of their deal with you. They’ll do some, or all of that based on your negotiations. They will sign a promissory note for all of the money that you’ve agreed to credit them towards purchase of home. As soon as they complete all of the work, you will satisfy the promissory note.
All of this is carefully spelled out in your lease, which is your standard rental agreement. It’s separately spelled out in your option. It’s separately spelled out on your independent contractor’s services agreement, and it’s separately spelled out on the promissory note; so, each one of these little critical pieces of the puzzle fit together beautifully on your Work for Equity. Then, Jim, you wouldn’t have to spend the $15,000, or even $8,000. In fact, many times we only give one, to two, to three thousand dollars credit, even though there may be more significant work to do.
Work for equity is a great way to get rid of a property. In fact, Jim, I would recommend at least a ten day add on, work for equity first, before you look at selling it to a landlord.
Now, also, you can run your ad in the for rent section or the for sale section of the newspaper because it’s likely you’ll pick up two different markets when you do that; that way you can actually get someone that’s got more money down in the for sale section of the newspaper.
I’ve just given, I hope every one on the call, a heads up on some real great exit strategies we’ve got to solve problems before they occur. We always know what we’re going to do with the property. When we acquire it we always know what our exits are, so I’ve gone over some of those with you.
Blake Matusek has a great question on short sales. Do you record the deed before closing on a short sale? I have been told that you should never record the deed because if the lending bank discovers that they will nix the deal.
Usually I don’t record the deed, but be careful. Any other lien can attach between the time that you’ve taken title for the property and the time that it’s actually recorded on public record. I want you to be very careful about that one. Only record, and report at least, a memorandum and affidavit of interest that you’ve got in your Volume 1, Buying, Affidavit, Memorandum of Purchase, and Sale Agreement. That way, if anybody comes looking; they’ll see that you have an interest, but not, necessarily, that you’ve purchased the property. In some states that can get in the way of any other attachments. By the way, the form number for the Affidavit, Memorandum is BSH 1307.
My second thing that I want to comment on this, though, is how would the bank discover that you have recorded the deed? Typically they don’t do a title search unless there’s going to be a sale, or there’s going to be a foreclosure. If they were already in the foreclosure process they’ve probably already done a title search. Therefore, they’ve already determined that the title is in the name of the seller. I you come along and record your deed, it’s unlikely they would find it unless they do a title search after you record your deed.
You go on to say, I assume attempt to work out option with the bank before you provide the short sale purchase agreement showing you as the buyer. Is that correct?
No. The purchase and sale agreement will be shown as me as agent. I explain that as the financial advisor for the Joneses, I’m working with them. I have found a buyer for the property but I don’t want to disclose the buyer’s name at this time. I’m just going to go ahead and submit the offer with me as agent, then I will assign the contract to the new buyer when we have acceptance from the bank.
I’m showing the bank, look, I’m going to make sure I get paid here. I’m not going to allow, even the bank to know who my ultimate buyer is on the property. That’s how I explain that.
Try to work out, before doing the short sale, can you get them at the same time?
This question is he’s saying do you try the work out and the short sale at the same time.
The answer is no. If we like the interest rate, if we like the terms of the existing loan, we’re going to try the work out first. If we can’t get the work out, that’s when we’re going to come in with the short sale. Initially, then, I’d be representing my clients, Joe and Sally Lostit, or Joe and Sally Seller. They have the problem. I’m representing them.
I’m going to the bank as their financial advisor. We have some funds to work with here, but not enough to take care of all the problem, all the arrearage that we’ve got. Can we do a work out? If so, they will be able to keep their home. If not, they will have to sell. So, first we work through that work out. If, and once, we get that done, then if the bank says no we’re not going to do the work out, or it doesn’t make sense to do it, then we go ahead and do the short sale offer to the bank.
Hopefully, that makes sense. That should benefit everybody on the call. Great short sale question, Blake.
Brian Mussa has a question. When working a short sale, do you always have a title search run to ensure the only liens on the property are those that have been disclosed by the seller, or can the short sale automatically resolve all liens?
Brian, no, it can’t. It’s likely that if there is a problem there is a problem when working on the short sale, the short sale will not automatically resolve all liens. It’s only going to resolve the bank’s liens. If there are other liens behind that, such as a credit union, or another loan, or an unresolved lien that they’ve got, those go with the property. You’ve got to make sure that those are disclosed. The way you’re going to find that out is through a title search. That title search will reveal everything.
But I don’t want to spend any money. Brian, and everybody on the call, don’t spend money on a possibility. You only spend money on a probability. Once the bank has given you the green light that they will do the deal, then you’ve got something to work with. Definitely we’ve got a deal we can work with when we’ve got the short sale approved by the bank. We definitely want to have approval first. Then we go spend money for a title search.
You can do, kind of like, a short version of a title search on your own with the Comp Whiz. It’s kind of sort of like a title search. At least, it tells you who has title to the property at this point, and that you’re dealing with the proper people to sign the deed and sign the real estate agreement. That’s another real benefit to having the Comp Whiz. It will not reveal all the other liens that are on the property.
We’ve got a selling property question. This is from Stu Banks. I’ve rehabbed and flipped. It’s been a good business, but the real estate slow down has hurt. How do you expand you’re buyers list to reach more investors?
There’s two different kinds of lists, first of all, I want to answer this. We build a buyers list for retail buyers we also build our lists, and when I say retail buyers I’m including people with bad credit, people with horrible credit, people with so-so credit, and people with good credit.
We build a separate buyers list, which are wholesale buyers. We build through a REA. Now, some REAs will allow you to have a list of all of their members. Put them on your buyers list. Other REA will allow you to become what’s called an associate member, or business member of the REA. In that case, they may give you the list. If not, they’ll allow you to set up shop, so to speak, at the monthly meeting. You can set up a table; you can put out a clip board and gather names that way, because that’s a pretty ripe crop of people. That’s a pretty great market if people are interested in being on your list, that’s a good one.
Another list that you might want to cultivate, also, is just having somebody call all the doctors in town, all the lawyers in town, and all the CPAs in town and say, hey. I wholesale properties. Are you interested in owning any real estate? From time to time I run across really good deals and I’d be glad to include you on my wholesale list. So now we can expand that. This makes your wholesale list a lot more valuable.
Now, another thing we do is, hey, some houses don’t need much work. I mentioned earlier on the call about our Work for Equity program that becomes a great way to market these properties. So, that’s another list that we build. When we advertise Work for Equity we take all those contractors and everybody that responds and we put them on a separate list. Every time a Work for Equity comes up, they get an instant e-mail. By the way, on your web site it has a bulk e-mail feature. One of our platinum students was so thrilled, just last week; they discovered that it had this bulk e-mail feature. So you can literally go down your buyers list, click off all the ones that this particular property can apply to, and it will bulk e-mail out to the entire list that you’ve checked off, which is so neat. One click -boom- everything goes out.
The other thing I’d suggest to you is building a buyers list of the area that you’re interested in. For example, if you are farming a particular area, let’s find out all the address of the apartment buildings in that area. Then let’s send out postcards to those specifically to build your buyers list. Our Mail Whiz service can do that for you. They will actually find the lists for you and they will actually mail the postcards for you. They’ll address, mail, do everything. That can help you to build a list as well.
Stu that is a fantastic question. A whole bunch answers to your question on building lists. Everybody on the call should be making notes on that one. Building lists is a critical factor in getting your properties sold before you buy them.
Maria DeGange has a question. Lou, in all your marketing samples you use “we are not realtors”. What if we are an agent? How do we handle that?
You just have to adjust it, Maria. Our web sites do this. If you have our web site, or you want to get our web site, they have a special feature. You click on one button and it says, “We are realtors”, and all of a sudden all of the language on the site changes to “we are realtors; however, we do not want to list your property. We want to buy your property for our own account.” Just change my materials to say that. We are realtors but we do not want to list your house. We want to buy your house. Please give us a call. So, that should help you with that realtor question.
So many great questions but I’ve had long answers to these great questions today. We’ve gotten through quite a few. We’re just about to the end here. Let me see if I can take one more quick question.
From Rodney Hatton, on Trusts. Lou, in your grand scheme of asset protection, should 401K, profit sharing, IRAs and ROTH IRA be place into trust as well? I have placed, or am placing all my other assets into trusts. As always, thank a million.
Rodney, what I’d recommend is that trusts avoid probate. So, it makes sense to put your 401K, your profit sharing, your IRA and your ROTH IRAs all in trust. Now, you can have the beneficiary of each one of those accounts be your living trust, and then your living trust can then disperse that out to you heirs after you’re gone.
The other benefit of a living trust is it allows your trustee to invade the corpus of the trust during your lifetime to take care of your health and welfare. If, for example, you’re in the hospital and you have not signed a living will giving them instructions to cut the machine off, then this gives your trustee access to the funds to do that. If you leave them in your name, they won’t have that access. That makes it harder on your family and everyone else.