This is an awesome business! You can find private lenders who will change your life and help you take your business to an incredible level of success.
As you prepare to find these lenders, it is practical to stop and consider just who they are and how to reach them. You want to attract people who have the means to step up and take action on your program. When I decided to work with private lenders, I wanted to go beyond just my circle of friends, I wanted to reach others as well. My challenge was to determine common denominators and find a way to effectively reach those people. I knew the kinds of individuals I wanted to reach were financially savvy and could appreciate the generous interest rate I offer. I found out that I could get an extremely targeted list of names of potential lenders from a list broker. You can find the name of a list broker in the phone book or on the Internet. The one I used was Dunhill’s. You can tailor the list almost any way you want. I thought a lot about this then requested the names, addresses, and phone numbers of people who met the following criteria: a.) They were located in our county b.) They owned their own home c.) They bought items through the mail d.) They owned bank Certificates of Deposit (or CD’s) Let’s look at each one on this list for just a moment and I’ll explain the logic behind my target choices. A.) They were located in our county. I wanted to focus on my local market because it was likely they already knew about me from my other marketing efforts: They’d seen the ‘I Buy Houses’ signs for years. I sponsored Little League teams and so they may have seen the t-shirts with ‘I Buy Houses’ and my phone number on the shirts. They may have even read the newspaper articles the local paper had done about my company Integrity Home Buyers, Inc. and me. When I specified this criteria, I believed the lender would be comfortable loaning to one of their neighbors. Also, some of my current lenders seemed to delight in being able to actually drive by the house on which they held the mortgage while I was having my crew do the work. They seemed to feel safe knowing exactly where their money was. They liked being able to tell their friends, ‘My money is in that house right there.’ B.) They owned their own home. People who own their own home, are probably already aware of what a great investment real estate can be. C.) They bought items through the mail. I reasoned that if they bought things through the mail, they would take time to read things sent to them through the mail. And, one of our primary marketing tools was a postcard. D.) They owned bank Certificates of Deposit (or CDs). These people obviously had available money. With the banks paying a pathetically low rate on CDs this made my program that much more attractive. So I got my list of targeted names. I mailed postcards to those names and invited them to the luncheon. They could also request information and we would send them our professional ‘audio business card’. We didn’t have a tremendous crowd - we didn’t need one. It wasn’t the number of guests so much as the number of guests in our targeted market who could take advantage of our program. We targeted our market correctly and have had awesome results. Two luncheons and I had $1 million dollars to go buy houses with. I wish you much success! Do you have realtors whom you know and trust for advice? I have seen a lot of bad advice given out by some realtors. At the same time, I have seen a lot of realtors give excellent advice. Only after working with a realtor over an extended time will you be able to decide if their advice is good or misguided.
One thing to consider when working with realtors is to assess how you motivate the realtor through monetary means. Realtors are generally paid by either helping you buy a house, or helping you sell a house. They are generally paid a portion of the sales price. Because their incentives are structured this way, they are not motivated to find you a property at a huge discount, nor are they motivated to help you sell for a higher price. It is extremely important to note this fact before getting involved with realtors. Realtors are motivated to sell you more houses, and sell more of your houses. If you make nothing, the realtor will generally receive the same commission as if you made $50,000 for the same house. Why do I bring up this point? There are two reasons really. The first is that you should always be aware of what it is that actually motivates what they do. Because they receive generally the same amount regardless of your profit, many realtors will do whatever they can to get you to buy and will do whatever they can to get you to sell. In other words, they will be motivated to get you to work for less profit. Many of the realtors will not be conscious of their intentions, and they will disagree with my assessment; however, I ask you to think about it logically. Why would a realtor talk you out of taking an offer for $112,000 even if they felt you should get $115,000? They are paid almost the exact same commission. They generally will only make an extra $45 for telling you to hold out. Additionally, they will probably have more than $45 in additional advertising expenses. The longer they have the listing, the less they make and the more time they have to spend on your property. The second reason that I will like to point this out is that real estate commissions are entirely negotiable. You do not have to pay a realtor a set split. You can entice your realtor by offering them more money for finding you a better deal. Additionally you can offer a realtor more for selling your property at a higher price. For example: Let’s say that a realtor wants to list your property for $100,000 at 6%. If that property sold for full price, you would net $94,000 minus the other costs. What if you told the realtor that he or she could have all the commission for anything that netted you more than $94,000? Do you think the realtor would take this arrangement? I don’t know. It depends. Some realtors might not be allowed by their broker to work for this arrangement even though it is entirely legal. Other agents will be so confused by your question that they don’t have an answer at all. Other agents will actually see this as an exiting strategy. It would be interesting to see what the same agent would want to list the property for if their incentives were changed. Investing Tip: You AND the Realtor might net more when you align their incentives with your incentives. Hopefully, realtors will be willing to talk you out of a deal if it is not in your best interest. If you are working with a realtor who tries to talk you into deals that don’t make sense, they will probably hurt you more than help you over time. If you find a realtor who is willing to advise you against a purchase, then this person may provide a great long term service. It’s easy to answer. First and foremost – money. Following next is the guts coupled with the ability to do it. That’s mine, how about yours?
To conduct a business means to also have money. You can’t go on without anything on your hands. It seemed that we can’t move without it. Whether we admit it or not, that’s the role of money in our lives. We need it for our daily sustainance – food, clothing, shelter, education of our kids and others. In conducting a business, it does not always follow like this. If you have the guts, which means you are ready to face any challenges that will come you way , and you have the ability to do it then you are on the right track. When you have these two elements, you can positively penetrate on the things that you want to do. If you have the guts and the ability, you are capable of thinking ways or strategies. By a careful planning and strategizing, you will be able come up a business venture without releasing any amount from your pocket. Sounds impossible? Well, it is understandable. Let me show you how it works. If you have the guts and the ability, it means you have the passion and the drive to do whatever you want. And by this thinking, you are fully aware that you cannot do this alone. Part of strategizing is to communicate with other people that have background on this. Being persistent is needed here. When you are focusing on your goal, you will endure the difficulties that may surface along the way. You may not get it on the first attempt, second or third but as long as you won’t give up, it’s pretty sure, the word SUCCESS will be yours. Favorite sayings like, “No pain, no gain”, “A quitter never wins, a winner never quits” are good reminders to this. Tasting triumph after so many struggles is so blissful. These are the charaters of some known millionaires and successful businessmen from different aspects of the business world, who rose to the top out from nothing. Therefore, if you have the guts and the ability to pursue whatever you want to do even when you don’t have funds, be encouraged and enlightened that it is not impossible for you to reach your dreams. Added to it is your faith to the One who gives us the ability. Trust Him and acknowledge that apart from Him we can do nothing, that’s a fact. Business is personal and relationship do matters. You cannot conduct a business without interacting with other people. It is a must for any person who wants to enter into the business world to be people oriented. Regardless of what personality you have, you will only fail if you don’t know how to deal others.
People nowadays are looking unto businesses that will answer their needs with satisfaction and approval. It doesn’t matter if they will pay higher price as long as the service is worth it. And if it happened you meet their expectations, it is a breakthrough for your business. They will recommend you to their families, friends, acquaintances and soon your business will be a word-of-mouth. And it will lessen your cost on advertisement and your effort to make your services known to others. The satisfied customers will keep on coming and recommending to others because they have confidence that they won’t be put to shame by doing so. Therefore, this is a great opportunity for you to expand your business. The key here is having right relationship with your customers, giving them the give-and-take relationship. You should be aware that in business life, there are four types of people. First, an ally who will back you up no matter what. Then, a supporter who will remain at your side until the going gets tough. Thirdly, a rival who competes with you for promotions, resources, or even the attention of your boss. Lastly, the adversary, either covertly or publicy seek to undermine you. By being aware of these types of people around helps you to strategize and look into valuable ways how to position yourself on a given situation. This may not be easy because sometimes it will cause chaos if you don’t know how to handle it. There is a familiar saying in the business world, “Customer is always right”, but how would you face such occurence if the customer is wrong. If you want your business to earn profit, learn how to deal difficult personality, accept harsh comments and the like. It’s all part of the business, one should know or else you wont last long. And in addition to that, alongside with the ability to deal with other people, and will surely sustain you in the race, it’s your passion. It is your passion that will hold you no matter what. You will be able to accept any criticism with all humility holding the truth that this is part of the business. And you will be able to accept the fact that you need to interact all these kind of people for business is personal and therefore relationship really matters. There are two essential elements how to develop a successful team. First, there must be a common goal and second, the ability to communicate that goal. To bests illustrates this, let us take a look at a basketball team. We will know they are a team because they wear identical uniforms. Their purpose and focus is clear because all eyes and attention are centered on the ball, and all motion swifly moves toward it. But uniformity is not the key to successful teamwork. The glue that holds a team together is unity of purpose. A successful team is characterized by four major features. First of all, a winning team plays to win. The difference between playing to win and playing not to lose is often the difference between success and mediocrity. Team members realize that wins and losses are often determined by attitude alone. Being risk-taker is the second characteristic of a successful team. It is far better to try and fail than to fail to try. To win a success, one must risk a failure. This is part of the game. A winning team continues to try harder to keep them improving. This marks the third characteristic of a successful team. The highest reward for man’s improvement is not what he gets for it; it is what he becomes as a result of it. Fourth characteristic of a successful team is that each member should care about the success of every other member. They should enhance each other. The success of one is a triumph for all. No matter how good a player is, he can’t do it being alone. Thus, he needs the contribution of the rest of his team. The success of your team marks a big step in your development when you realize that other people can help you do a better job than you could do alone. As the saying goes, “Two heads are better than one.” So, to make your team successful, let your purpose and focus be cleared, thus making you move on that direction. I always have question asked of me , such as, I've recently started going to meetings of my local Property Owner's Association, and I think they're great. The problem is, there's so much information that I don't know what to pay attention to! Every month, there's another speaker with another opinion on the "best" strategy for this or that. I'm overwhelmed, and can't seem to get out and actually do anything. Please recommend a course of study that will help a new investor make a nice, simple deal.
Here's my answer. I'll go you one better than that; I'll tell you the absolute best strategy for buying and selling property...or would that be less than helpful? New investors who attend real estate association meetings often come away with the same "paralysis of analysis" that you describe. There's so much information available, and so much of it appears to be contradictory (buy foreclosures...don't bother with foreclosures...buy to hold...buy and sell) that one wonders how anyone ever figures it all out. And adding to the problem, every successful investor is willing to defend to the death their strategy as the best strategy. Although they're trying to be helpful, they often add to the confusion experienced by newbies trying to make sense of it all. In my experience, new investors that don't start making offers in the first 2 to 3 months never get around to doing it at all. The fear of doing deals only fades with the actual doing of deals; no amount of "book-larnin" will ever give you the confidence you want. So stop trying to learn everything, and focus on what you need to make the first offers. Those things are: 1) Some idea of what you want your real estate to do for you. Know this, and you'll have a good idea of the exit strategy and the type, condition, areas, and price range of properties you should be looking at. Want quick cash? You'll need to wholesale properties. Looking at anything other than 1-family junkers is a waste of time. Eliminate other properties and from your thinking and move on. 2) A working knowledge of how your one exit strategy works. Building on the last example, once you know that wholesale deals are sold to cash buyers for 60%-70% of as-is value, you know a) how to calculate an offer and b) that you need to start finding buyers now. 3) Two or three strategies for finding the types of properties you want. Whatever your chosen strategy, finding the good deals will consume most of your time and energy. So try 2-3 methods all at once for a few weeks. Discard those that fail and amplify those that work, but always use more than one way at a time. 4) The ability to evaluate the properties you're viewing. In the case of junkers, you'll need to know how to find the after-repaired value and the cost of the repairs. Don't worry about figuring out what the property will rent for; it's not important to your plan. Conversely, if your plan is to buy and hold multis, you'll need to learn how to calculate the return on investment. 5) A team and a contract that will keep you out of trouble. Why do you need to know how to do a title search when there are folks who do it for a living? Sure, it might be good to know later, but it isn't crucial for you to know right now. And if you have a well-written purchase contract that allows you to get out of a bad deal before it closes and an experienced mentor that will help you through your first few deals, how can you lose? There. Now instead of a billion things to learn, you have 5. Now get out there and make some deals. Q: I recently rejected a potential tenant’s application to rent because her previous landlord told me that she had people in her apartment at all hours of the day and night and he was constantly getting complaints from the other residents. When I told the applicant she couldn’t have the unit, she threatened to sue me for discriminating against her because she had 5 kids. Am I in danger, and what should I have done? P.S., Seattle, Washington
A: Fair housing law was put in place with the goal of ending discrimination in housing, and to assure equal access to housing for members of “protected classes.” What fair housing law basically says is that your willingness to rent or sell housing to a particular person cannot be based, even in part, on that person’s race, religion, color, sex, handicap, nationality, or familial status. Lately, I’ve seen an unfortunate trend in applicants threatening to file discrimination suits against landlords who refuse their applications for any reason. It’s unfortunate both because these applicants are abusing the laws put in place to protect them, and because landlords are becoming more and more fearful of dealing with people in protected classes. However, the fact that someone threatens you with a suit or complaint doesn’t mean they will actually follow through, and the fact that they do file a suit doesn’t mean they’ll win. The key to staying safe is to have clear criteria for renting (or selling) to an applicant, and then sticking to them. These criteria should be objective, easy to quantify, and unrelated to the applicant’s membership (or non-membership) in a protected class. You should use criteria that you have found to be good predictors of the tenant’s ability to fulfill the requirements of the lease—that is, to pay the rent on time every month and keep the unit in good condition. The criteria don’t need to count equally; you can choose to give some more weight than others. Examples of criteria that I’ve seen used include: whether the applicant earns at least 3 times (or in some cases, 4 times) the amount of the rent or rent plus utilities; whether the applicant has ever been evicted; whether the applicant has any unpaid judgments; whether the applicant has a dog; how long the applicant has been on the job; how many places of residence the applicant has had in the last 2 years; and whether the applicant lied about rental history, employment or income. These are all safe criteria, because they can be independently verified through sources like courthouse records, credit services, and so on. Slightly dicier are criteria that depend on opinion, such as reports by previous landlords. I ask previous landlords 4 simple yes/no questions: “Did they pay $xxx in rent?” (based on what the applicant has told me), “Were they always on time with rent payments?”, “Did they leave the unit in good condition?” and “Would you rent to them again?” You can select any criteria you like, as long as it is not discriminatory. For instance, one landlord I know will not rent to smokers. Whatever your criteria, it’s crucial that they be in writing, that they be applied equally to all applicants, and that rejected (and accepted) applications be kept on file for at least 5 years with the details of why the application was disposed of in the way that it was. Furthermore, you should be certain that you investigate each applicant to the same extent, and not go further in digging up dirt on one applicant vs. another. Assuming that you do not in fact discriminate against members of protected classes, most fair housing suits will go away when “testers” employed by your local fair housing agency find that you treat everyone equally and when your written records back up this fact. So write down your reasons for rejecting this applicant, put together some criteria for the next one, call your local fair housing agency for additional advice, and don’t be cowed by people who try to use the law as a bludgeon . I read something in an association newsletter a few months back that sort of shocked me. It was an article reprinted from author John T. Reed’s Website which reads in part, "They [the nothing-down gurus] claim to love seller financing because sellers are 'flexible'. But in that context, 'flexible' is just a euphemism for stupid. The seller-financing aspect of nothing down is generally unethical ...because it takes unconscionable advantage of an unsophisticated person." Reed wraps up with the interesting statement that "...the nothing-down movement consists mainly of a bunch of slime balls running around trying to find unsophisticated homeowners, typically little old ladies, and bamboozling them into trading valuable real estate equity for a near worthless piece of paper." What surprised me about this article was not that Reed wrote it, but that it was published without comment. I thought, “Is the reputation of real estate investors is so pathetically tarnished that we've just started accepting that we're slime balls?”. Which got me thinking about a code of ethics for real estate investors, which scared me, because it sounds like the first step toward a slippery slope of regulation, licensing, and government intervention that none of us want. So the answer has to be deciding on a code of ethics for our businesses, and then sticking to it even when it costs us money. The Definition of "Ethics" Webster's defines Ethics as "1) a system of moral principals. 2) the rules of conduct governing a particular group, culture, etc..." Most people think of ethics as relating to fairness, which is only a partial understanding and leads to the kind of thinking that Mr. Reed has engaged in. The basic fallacy of his argument is that it assumes that the world is a fair place in which everyone has time and options. People in the investing business know that nothing-down deals are done not when sellers don't understand their options, but when they understand them all too well. I am dealing this week with two sellers who will lose their houses within the month unless they find someone to take make their payments; neither has 90 days to look for a buyer, and even if they did, it's unlikely they’d find one who could pay cash for these junkers. Did I create the events in these seller's lives that led them to this situation? No. Is it "fair" that bad things happen to people? No. Is it unethical of me to use my expertise to make money solving their problem, when their other "choice" is foreclosure? You decide. Although I disagree with Mr. Reed’s assessment that nothing-down deals are unethical, there are a number of things that investors do–unthinkingly, rather than maliciously, I hope–that do fit the definition of unethical. Here are a few. Lying to Lenders In recent years, it has become common for mortgage brokers to make risky loans happen by getting appraisals that reflect a value higher than the true market value of the property. Out-of-town lenders accept these appraisals at face value, and make loans at 80% or so of the appraised value to borrowers with marginal credit. As a result, many lenders have been unknowingly making loans on properties with no equity to homeowners who don’t have the credit to support such a mortgage. We’ve all seen the results of this in the huge increase in the number of foreclosures in the last 12 months, not to mention the number of sellers we can’t help because they’re over-leveraged on loans with sky-high interest rates. In these deals, the lender loses and the borrower loses. The only “winners” are the mortgage brokers who were paid to put the deals together and the sellers who sold their properties for top price plus–many of whom, unfortunately, were investors. Thanks to the problems this has caused, a new laws are being passed to “control” the parties involved. Throughout the country, newspapers are writing “expose” stories on poor homeowners who’ve lost their homes thanks to unscrupulous brokers and investors. Lenders have tightened their standards, and honest appraisers are so afraid of being accused of fraud that they’re hesitant to appraise a property for more than its most recent purchase price. The result? Those of us who are doing legitimate repair and resell deals are having a difficult time getting loans for our buyers. Investors who have engaged in or cooperated with this scam have cost lenders hundreds of millions of dollars, cost thousands of buyers the American dream and cost the industry it’s reputation. So when my fellow investors tell me that they aren’t doing anything “wrong” by helping make these deals happen, I just have to wonder. Buyer Beware One of the most heinous–and common–things I’ve witnessed is the "wholesaling" of properties based on false figures. Apparently, these folks have forgotten what wholesaling is. Wholesalers are supposed to leave a lot of profit in a deal for the buyer, not sell properties at a price where the buyer can’t make any money! I know too many wholesalers who prey on inexperienced investors by "proving" (through fake appraisals or by using those high-end comps created by those deals I outlined above) that the property is worth more than it actually is. In fact, some wholesalers I know won’t work with experienced investors anymore, because they've discovered that they can charge newbies thousands of dollars more for the same properties! When you can convince someone who's new in the business that you're a good guy and an expert, it’s not hard to convince them to overpay. But when you prey on the trust of people who don’t know any better to sell them deals that can’t be profitable, you're scum who doesn't deserve the name wholesaler. The buyer should not have to beware of you. Ethics in Landlording Every month or so, I receive a call from a concerned citizen asking what he can do about a neighborhood landlord. These questions generally fall into one of two categories: 1) How can I get a landlord to control/evict/ talk to his horrible tenant, and 2) How can I get a landlord to repair/maintain his horrible property. A few years ago, I would have responded to these callers by saying that a bad tenant isn't a landlord's responsibility, that problems between neighbors are part of life, and that it was horribly unfair that landlords are held to a different standard than homeowners in terms of the condition of their properties. Years of hearing horror stories (I can't sell my home because the renters next door keep throwing bottles and yelling obscenities at the potential buyers; landlord tells me to !?#@ myself when I complain to him) and seeing the havoc that one rundown rental property with nightmare tenants can wreak on a neighborhood, I have changed my tune about a landlord's ethical responsibilities. Like it or not, landlords do have an obligation to the neighborhoods in which they purchase properties. Just as you wouldn't want a noisy, destructive, violent, drug-dealing neighbor to move in next to your family, you shouldn't inflict such a tenant on somebody else's neighborhood. And yet, landlords rarely take tenant screening seriously–or look only at an applicant’s ability to pay the deposit and the monthly rent, ignoring that he is a terrible person to live next door to. Beyond this, I think there's another obligation to keep properties maintained at least to the level of the rest of the neighborhood. Now, let me emphasize that I am a BIG fan of private property rights, and don't believe that the government (or anyone else, for that matter) has the right to enter into, tell me what to do with, or otherwise control my property. I think that most "building codes" are meant to raise money for the city, not to protect the health, welfare, or property values of the citizenry. Nonetheless, whether the legal obligation is there or not, I think that there is an ethical obligation on the part of landlords (and all other property owners, for that matter) to avoid interfering with the property values of their neighbors by owning eyesores. I honestly don't believe that the majority of "slumlords" set out to be that way. In fact, I think that the problem is that too many rental property owners get into the business without the proper education, skills, or connections to solve problems as they arise, and that too many are "undercapitalized"—they don't put aside enough money to cover inevitable repairs to their properties. I suspect that unpreparedness and lack of ready cash cause 99% of the friction between landlords and neighborhoods. But whether the owners of trouble properties set out to be the bad guys or not, they hurt the neighborhoods where they invest, and ultimately hurt the rest of us by causing our cities and states to pass inspection, licensing, and occupancy laws to "control" landlords. The message comes down to this: housing providers have enough of an image problem to overcome without adding to it by taking advantage of people. There's enough money to be made in this business when you're taking care to do right by everyone you deal with. If you're cheating or lying to your customers, or if neighborhoods cringe when you buy properties there, something's not right. Please, reevaluate your business before the government does it for you. Vena Jones-CoxVena Jones-Cox is a past president of the Real Estate Investor’s Association of Cincinnati, the Ohio Real Estate Investor’s Association, and the National Real Estate Investor’s Association. Vena has been featured in publications such as The Cincinnati Enquirer, Smart Money Magazine, Money Magazine and Reader’s Digest in articles about successful real estate entrepreneurs. Vena Jones-Cox’s real estate business focuses on finding great deals on 1-3 family homes, and then lease/optioning them to homeowners or wholesaling them to investors and renovators. All told, she buys and sells about 50 properties per year. Vena is a frequent guest lecturer at real estate investment groups throughout the country, and particularly enjoys working with new investors. Vena frequently authors articles on real estate investment and the regulatory environment for various newsletters and publications, including her own monthly newsletter. She has been a guest speaker at the Cato Institute in Washington, D.C., lecturing on the effects of lead-based paint regulation on small investors. And in her spare time, Vena Jones-Cox hosts a popular weekly call-in radio program on public radio. |
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