Month: October 2006

One of my favorite ways to buy houses when a seller will not immediately deed their home to me is to lease/option it initially and then convert it to a “subject to” later on. Almost none of your competitors are aware of this awesome strategy. This seems to be one of the best kept secrets in the real estate business. Sometimes a seller just doesn’t trust you enough to want to deed you a property immediately while the mortgage is still in their name, but they are willing to lease/option you the property and let you make monthly payments. This gives them a sense of security until you prove yourself.

Let’s define the difference between a lease/option and a “subject to” deal. When you lease/option a property from a seller, you want to do it with no money down if possible. I have a really hard time putting any money down on a property I don’t own from the start. The mortgage and the title stay in the seller’s name until you exercise your option and pay off the mortgage. So you control the property, but you don’t own the property. When you do a long-term lease/option agreement with a seller like I do, you also realize the long-term appreciation of the property as well.

When we get a property “subject to” the existing mortgage, this means the seller simply deeds us the property and we now own it. What that means is that while you now own the property, the mortgage remains in the seller’s name until you pay if off by selling the property. The insurance on the property now converts to you and the seller since you own it and the seller still has a mortgage. But at this point you also have all the tax benefits that go with owning the property. This is always the best way to purchase a property if you can.

While neither strategy is necessarily better, there is certainly a time and place for both strategies to work for you. Usually you are always better off getting the deed, but sometimes this is just not possible for a variety of reasons. At that point, buying on a lease/option is another strategy that can work just as well for you, and you will probably find that in more cases a seller is more willing to lease/option a property to you as opposed to deeding it to you. When you get the deed, you never have to worry about the seller putting additional debt on the property or going bankrupt. One way I protect myself from the seller adding any additional debt on a property is to record my option immediately.

So how do we convert a lease/option deal to a “subject to” deal? This is the way we do it. First of all, we use our own lease/option paperwork so all of the parameters of the deal are exactly as we would want them. The lease and the option are always separate. Additionally, the amount of the monthly payment due is the mortgage payment on the property and we make that payment directly to the mortgage company instead of to the seller. The seller provides us with their payment book or they have the monthly statement sent directly to us.

The way I explain this to my sellers is simple. I let them know that since we have an equity interest in the property, we want to be assured that our payment is indeed going to the mortgage company each month. We also volunteer to send a copy of our check to the seller so they know we made the payment in a timely manner. This lets our seller know that we are doing exactly what we said we would do. Our lease/option is for one year with the right to extend for an additional period of five years. There is no option deposit at the beginning, or at any of the extensions. I will never put money down on a property unless I own it. We also have the seller provide us with a current title search in order to make sure there is no other debt or liens outstanding on the property at the time we lease/option it and we make sure mortgage payments are current. Many times, we are able to lease/option the property for just the mortgage balance or maybe just a few thousand more than the mortgage balance.

Sometimes during the course of our lease/option period the seller will come back to us and ask us if there is any way we can just cash them out now. If that happens, that usually means a discount to me on the price of the property if I owe the seller some cash. Usually I will say to the seller I hadn’t really thought about cashing out you out early, but if I could get a discount on the price of the property, say $10,000, I might be inclined to see what I can do for you. Remember, many times, I lease/option the property for just the balance of the mortgage, even though the home is worth more, so in this scenario we just have the seller wait until the lease/option expires unless there is a way we can cash them out early, like if our tenant/buyer is ready to get refinanced.

The seller is also responsible for any repairs over $200.00 so any major maintenance or repairs are still the seller’s responsibility. If you do discover that there is a major repair needed to the property, say a new roof, this becomes a good time to just have the seller simply deed you the property and allow you to handle the problem.

For example, I simply tell my seller, “We have discovered that the house needs a new roof and it is going to cost $5,000 to replace. I have an estimate here for it. That means you will be responsible for $4,800.00 of the repair. If you will simply deed me the property so that I own it, then I would be more than willing to handle this repair. Is that fair?” Many times this will push the seller into simply deeding you the property. You are trading the deed for the amount of the repair. Once again, I would not pay for a repair of that size without owning the property.

I also have the right within the confines of the contract to rent, lease/option or sell the property as I wish, giving me total control as to what happens with the property. I then have a conversation with my seller to warm them up to the idea of me eventually getting the deed to the property.

I have this conversation with my seller right at the beginning. It goes something like this. “While I understand that you are uncomfortable deeding your home to me at this time, I would like to revisit this issue after I have proved to you that I intend to keep up your payments and make them in a timely manner.” Is that okay with you? They almost always say yes. In fact, there are times that sellers will contact us in the interim and they just want to be done with it, so they will deed us the property at that point. Remember, these are motivated sellers we are dealing with. After about three to four months, I contact the seller again, letting them know that we have indeed made all of our payments on time and that we have a renter or tenant/buyer or whatever in the property. We then ask them again if they are willing to simply deed us the property. We remind them at this point that if they simply deed us the property, they will not have a lot of the closing costs they would otherwise have. Also, if I promised them any money for part of their equity, we usually pay part of that to them at the time they deed us the property. Usually this is a small amount of cash but it is an incentive to the seller. We also let them know that when they deed us the property, they are no longer responsible for any repairs that might arise.

When you get good at using this strategy it will work very well for you. We have converted many of our lease/option purchases to “subject to” deals this way. All it usually takes is a little bit of time to build a relationship with your seller based on trust. This strategy is especially powerful when the seller isn’t expecting any equity out of the property.

At the point that the seller deeds you the property, you need to go down to the courthouse and file a release of the option and then you need to file the new deed on the property. You will also place the property in a land trust at this point if you didn’t take it that way when you did the initial lease/option. You can check all of these matters with your real estate attorney or title agent. You then need to use all the regular paperwork you would anytime you take the deed from a seller.

Taking the effort to convert a lease/option to a “subject to” is an absolutely essential strategy to your business. The extra work involved is absolutely worth the end result which is that you own the property. So be on the lookout for situations where you can convert a lease/option purchase into a “subject to” deal.

For more information on marketing and exit strategies, visit our website at marketingmagiclady.com.

When writing killer copy for an ad, there are several components that need to be addressed. The first of these is to grab the reader’s attention. If you don’t get the reader’s attention immediately, you will lose them. You need to remember that the average person is bombarded with hundreds of advertising pieces per day and yours needs to stand out. The second component is you have to raise their interest. Is the ad going to be something of interest to them? Does it spell out what you can do for them? The third component to a killer ad is desire. This is where you list proven benefits to your seller. And the fourth component to a killer ad is a call to action. You have to tell your seller what you want them to do or they won’t do anything. So let’s address these components one at a time.

The key component for writing any ad to attract motivated sellers is to begin with a killer headline. This headline has to answer the big question “what’s in it for me”? Using a really great headline can mean the difference between your success or failure at attracting motivated sellers using ads. Your headline is the very first thing a prospect sees when looking at your ad, or while scanning a page of ads, so it must deliver a clear and understandable message that makes your seller want to know more. You only have a fraction of a second to grab their attention so your headline needs to be strong and benefit driven or you’ve lost this prospect forever.

On the average five times more people will read just the headline as opposed to the copy, so your headline has to draw the reader in and make them want to read more. No matter how good your ad copy is, if you don’t have a headline that draws their attention immediately, you’ll quickly lose their interest. Your headline has to grab their attention and say, “Hey, I’m talking to you!!” It doesn’t matter how good you are at helping sellers if the sellers don’t know it.

For example, a headline we see a lot in real estate investor ads is “We Buy Houses”. This headline has been used for ages, but you have to admit, it’s not benefit driven and it’s become rather cliché if you ask me. Additionally, it’s all about you, the investor, instead of the prospect whose attention you are trying to get. Your headline should not speak in generalities; it needs to be very specific. I personally use a different headline in my ads. In fact, in a classified ad, it becomes the whole ad. It is:

“Sell your house for a fair price, on the date of your choice, without doing any repairs”

That’s it, that’s the whole headline and in some cases, the whole ad. It tells the reader exactly what they want to know which is “What can you do for me?” This headline is all about the seller and lets them know exactly what you can do for them. It sends a strong, benefit driven message that they can’t miss, which is; that they can sell their home for a fair price, on the date they choose, without having to do any fix up to the property. This ad addresses every concern a seller may have. My headline stands out like a beacon among all the other ads that surround it because it sends a distinct message to potential sellers. It makes them want to read the rest of “the story”, which significantly increases the response rate to the ad. Another sample of a killer headline would be:

“I Can Pay Your Price if You Sell on My Terms”

Getting the seller to read the rest of your ad and respond to it is the whole purpose behind a great headline. When writing headlines for your ads, you need to test new headlines to see which ones bring the best response. Sit down with a piece of paper and write several headlines, the more you think and write, the clearer your intent will become and the more practice you will get at writing grabber headlines. When writing a headline, make sure you use capital letters and lower case letters instead of using all capitals. It makes it much easier for your prospect to read and understand your headline.

Using quotation marks has also been tested and found to significantly increase readership as well. I always say that you should do that which your competition will not to get ahead in your business and creating killer ads is one main way for you to do just that. The most critical impact your headline needs to have is to make the reader want to continue reading, whether it’s an ad, an article, an advertorial or a special report.

Now let’s talk about the second important component which is grabbing their interest; the “what’s in it for me?” This portion sets the stage for the rest of the copy in your ad. Each sentence should make the reader want to read the next one and so on. Keeping your reader’s attention and conveying your message in a way they can understand and respond to in every advertising piece you create is the key ingredient to finding all the motivated sellers you will need for your real estate business. Just learning this one concept for attracting motivated sellers can make you rich. You need to give your seller a reason to keep reading.

Moving on to the third important component in writing a killer ad is the “desire”. This is where you might use bullets for example to provide a full list of stated and proven benefits to the seller. This is where you might say something like:

? I can take over payments and provide debt relief

? I can stop foreclosure and help you repair your credit

? I can close on the date of your choosing so you can close when you need to

? I can buy your house in the condition it’s in so you don’t have to do any repairs

You get the idea. This is where you make your case and you could even back it up with testimonials from satisfied customers if you are doing an advertising piece like an advertorial for example. You can leave it this short or you could expound on each point if you want. You just need to let you seller know why they should want to sell to you and how you can help them solve their problem. After all, that’s the whole point isn’t it? We want to create win-win solutions for ourselves and our sellers.

And last but not least is the “call to action”. What do you want your prospect to do? How do you want them to contact you? You need to let them know this in no uncertain terms. If you don’t tell your seller what you want them to do, don’t expect them to do anything.

For example, putting your phone number at the end of an ad doesn’t tell your seller what you want them to do, but the words “call me now” and then your phone number does. If you are writing an ad and you can give them more than one way to contact you this is even better. For example, you could put “call me now” and your phone number and then also provide the prospect with a website to look at as well. Now they have more than one way to contact you. When you give prospects more than one way to contact you, more of them are going to. You want to make it as comfortable as possible for sellers to contact you.

Now that I have covered for you the four components to writing a killer ad, you have no excuse but to go out there, run some ads in your local newspaper and shopper guide following these guidelines and watch the leads come in. Every ad you write, every advertorial or special report you write needs to meet these guidelines.

For more information on writing killer ads and marketing to find motivated sellers, visit my website at marketingmagiclady.com.

Here are Kathy Kennebrooks event dates between now and the end of the year 2006. Watch for further posting for 2007.

October 12, 2006- Quick Turn Real Estate School-Global Publishing- Baltimore, Maryland
November 11, 2006-Quick Turn Real Estate School-Global Publishing-New Jersey
December 2, 2006-Quick Turn Real Estate School-Global Publishing-Chicago, IL

Hope your holidays are wonderful and we will see you in 2007.

There are several rather unusual ways that I like to use to locate motivated sellers. I’d like to share several of my favorites with you so you can find even more motivated sellers in a non-conventional way.

The first of these is to contact auction houses and work with them to help you find leads on houses for sale. You know the kind of auction I mean. I’m talking about the one you go to on Friday or Saturday night to buy “stuff”. Where do you think they get their merchandise? They get it from homeowners who need to get rid of a bulk of household items for one reason or another. One way to find these auction houses is to look in the yellow pages under “Auctions” and find the ads that say “we consign estates”. These are going to be the ones you will want to work with. Many times an auction house will be contacted by an heir to sell items remaining in a property to settle an estate or to simply get rid of things remaining in the property after they inherit it. They may also be working with a widow or widower who wants to get rid of their excess furnishings, sell the home, and move into an assisted living facility or with a relative. The next item of business is to get the property sold as well. You can make a deal with the owner of the auction house to contact you when these situations arise, and they will give you the information about the sellers. If you offer a fair price and the auction house gets paid a commission, this is a good way to buy houses no one else knows about.

Another unique way to buy houses that no one thinks about is to contact local attorneys in your area who handle estate, probate, family, real estate and business law. Quite often they will have clients come to them with a probate situation, a divorce situation or a bankruptcy situation or other situation that they need handled. Quite often, these clients need to sell a property quickly in order to liquidate assets no matter what condition the property is in. If you are a person of integrity and you do what you say you are going to do and offer a fair price, these attorneys will continue to send you potential deals. Interesting enough, you will find that these attorneys talk to one another and you will find yourself getting referral business from other attorneys. This is one of the ways I use in my own business to bring in new leads.

Another way to find motivated sellers is to contact mortgage brokers who deal with private lenders. I have personally purchased several foreclosure properties this way. A private lender would just as soon sell a property they have had to foreclose on to you as they would rehab it themselves or sell it conventionally. This is an excellent way for you to get leads coming into your business, especially if you are just getting started. Very often the same private lender who had to foreclose will finance the same property for you if they see that you are going to get it sold and get them paid off. In addition, this is a good way for you to bring new private lenders into your own business. This is another technique that most of your competitors just don’t think about.

The fourth unique way I use to find motivated sellers is to check various types of ads in the newspapers. For example, you can check the marriage notices to find out who is getting married. If you see older couples, you can pretty much assume that they both already own homes and want to sell one or both to buy a home of their own. You can also check the death notices. When someone dies, there may be an heir who now has a house they need to sell. Tread lightly when following up on these leads, you don’t want to offend a potential seller. Send them a generic type of letter explaining that you are interested in buying some houses in their neighborhood. DO NOT refer to the fact that you know the person has died. You can also watch the paper for public auctions, bank foreclosures, and divorce filings. In divorce cases, you will have situations arise where neither spouse wants the property; therefore they are anxious to sell.

Another way I like to locate potential deals is to locate vacant houses. I simply drive around and look for them. I will tell you, the more difficult it is to find the owner of these vacant houses, the better a deal you are likely to make. These houses are sitting empty for a reason. It may a divorce situation where both parties just walk away, or an estate, or perhaps a pre-foreclosure. These are all good lead possibilities and vacant houses are some of the easiest potential leads to locate.

Another unconventional way to find a bargain is to make a friend of someone who owns a junk or disposal service. These folks are an excellent source of leads for you. Think about it? Who do people call when they have just inherited a house loaded with junk? Or maybe a widow or widower who needs to have the attic or basement cleaned out? In these scenarios the junk hauler is often the first person to be aware that a sale of the property is imminent based on their conversation with the owner. I will offer the hauler money for the lead and another fee if I actually purchase the property. This keeps him very interested in finding more properties for me to buy. And, once again these are leads your competition knows nothing about.

Speaking of unconventional ways to find deals, how about working with the owners of storage units? Think about it, if someone is putting things in storage, most likely it’s because they are moving. The owner or office manager of the storage unit is going to know it before anyone else and this is a very good source of leads for you. In addition, inside the offices of storage units there is usually a public board where you can post your business cards or a flyer with pull-tabs. When the person comes in to pay their bill, they will see your information. We have purchased properties using this very strategy.

Another great way to find excellent leads is by going to estate sales and yard sales. I know many of you like to do this on the weekend anyway, so here’s a great opportunity to mix business with pleasure. When you arrive at one of these sales, ask the person running it why they are selling their stuff. It’s that simple. I once bought a house where the owners were trying to sell enough “stuff” to make up a past due mortgage payment and they were in pre-foreclosure. If you see a sign that says “everything must go” this is also a pretty good indicator that they might be selling the house as well. Sometimes in estate situations you will see a sign that says “estate sale”, another good indicator that the home might be for sale. If they don’t want to talk to you just then, leave your business card with them and also try to get a phone number to contact them later as well. These sales can be a very good source of leads for you and another idea that your competitors are simply not thinking of.

And last, but certainly not least are your tenants. What an incredible source of leads for you if you are a landlord. We have a tenant referral program where we offer our tenants a credit of one hundred dollars toward the following month’s rent if they give us a lead and we buy the property. We have purchased multi-houses on the same street using this technique. Your tenants are hearing about situations while talking to their neighbors that you would never know about otherwise. When the tenant knows they can make money from it, they will refer these people to you.

We also put signs in the yard of every rental property that we own which helps our tenants start a conversation with a potential seller. They will give the potential seller our contact information as well as getting their information for us. We have some tenants who are fairly greedy and send us lots of potential leads.

As a real estate investor, you always want to be finding new ways to locate properties no one else knows about, and to have between three and five marketing strategies in place at all times. For all you marketing solutions, visit us at marketingmagiclady.com.

Despite the obviously important role information gathering plays in the art of negotiations, very few people actually spend much time analyzing their seller’s situations or needs before jumping into the negotiating process. Even logical individuals who wouldn’t jump into a dangerous sport before learning more about it often jump into a deal where they could possibly lose thousands without first getting the information they needed in order to protect themselves from a disastrous result.

I always remind my students that they need to listen, ask appropriate questions, do their due dilligence and determine what the seller’s real underlying needs are. Don’t be afraid to ask questions of your sellers in order to get the information you need to make the best deal possible. If you need clarification on some part of the negotiation, ask!

So why are investors so reluctant to ask questions? Part of it is fear and part of it is the unwillingness to admit they don’t know or don’t understand something. It used to cause me a great deal of discomfort to ask certain questions of sellers such as “how much is your mortgage balance?” That one question used to really make me choke. The main reason for this was uncertainty as to how the seller would react to my question. Even when a seller refuses to answer your question, you are still gathering important information about that seller, namely that they are not particularly motivated. Usually a truly motivated seller will answer whatever questions you have.

Sometimes asking certain questions of a seller will cause them discomfort or put pressure on them and they will just blurt out something they didn’t necessarily mean to tell you. This is another information gathering tool. Just judging the person’s reaction to the question you asked will often tell you a great deal.

If you really want to learn about a seller’s situation so you can determine the strategy that will work the best, don’t be afraid to ask direct questions. In most cases they will be willing to give you the information you need in order to help them, especially if you are dealing with a motivated seller. Don’t be afraid of offending your seller, they will let you know if they don’t want to answer a particular question. Sometimes we refrain from asking important questions because we are afraid to hear the seller say “that’s none of you business.” You may also want to take the time to explain to them why you are asking or redirect the question to them in another way. When you are afraid of a response to a question you may be thinking of asking your seller, take a moment to think about how you might respond to that same question. Very often, this takes some of the fear out of the asking.

A good negotiator will also think about ways to phrase questions to get a better result. For example, instead of just asking a seller “how much are you asking for your property?” or “why are you selling?” you might want to phrase these questions a slightly different way to get a different result. Here is the way I like to phrase that particular question. I say something like “if I bought your house for all cash and I put a big pile of cash right in front of you, what would you do with the money?” You’d be amazed at how much more information you will ascertain from just changing the way you asked the question. Try it sometime and see for yourself. Another way to ask that question might be “what are you trying to accomplish with the sale of your property?’ What is your plan once you sell? You see, there are different ways to ask the same question to get a different result.

When you become a powerful negotiator, you will very quickly learn the art of asking questions and learning how to get the information you need. For example, if you really need to know the answer to a “why” sort of question, don’t just ask “why did you do that?” Sandwich the same question in a way that makes it’s more palatable to the person hearing it, for example, you could say “I know you must have had a reason for doing that, can you tell me what it was?” You are just asking the question in a different way that will get you a different result and that is what powerful negotiating is all about.

You will get even more information when you learn how to ask open-ended questions. Most people will ask a question that needs only a yes or no type of answer.
For example, you could ask a seller “when do you need to close” This answer will usually net you an answer like “by the 15th of next month”. A more open-ended question that will get a better result would be “What time limitations do you have regarding the closing? This type of question invites more discussion and will get you a much more direct answer with regard to what the seller’s needs really are. Once again these are all negotiation strategies you need to learn in order to become a successful investor.

When you become a powerful negotiator you will also learn that where you ask questions is as important as the questions themselves. It needs to be a place that is within the seller’s comfort zone, like the kitchen table. The more comfortable the seller is, the more likely they are to answer the questions you ask them. If you have them come to your corporate office for example, and you are standing above them dressed in a suit, you are going to make them very uncomfortable and they will not be nearly as easy to work with. So the place is very important. You must create an atmosphere of comfort and safety for you sellers during the negotiation process.

Make sure you do your homework before going to see a potential seller. Sometimes they won’t be as upfront with you as you would like them to be until you prove to them that you are “on your game”. So do the research on the property before speaking to the seller. Find out what the mortgage amount is, how long they have had it and whether or not a notice of default has been filed. Find out what date they purchased the property or if it was quit claimed to them as part of an estate or a divorce settlement for example. This is all part of public record and you need to check out this information before you go see the seller. The more armed you are with information, the better deal you can construct with you seller based on what you already know and what the seller tells you. Once again, be sure to listen to what your seller is telling you and learn to “read between the lines”.

Another good rule of thumb to follow in the negotiation process is this, don’t be the first person to name a price. I have personally learned this lesson the hard way. The standard is “he who speaks first loses”. Very often we will ask a seller how much they want for their property and they will say something like-make me an offer. Then you end up going round and round in circles with your seller. This is another good reason to use the strategy I mentioned above regarding the pile of money. Very often asking this question in a different way will net the result you want, which is finding out how much the seller really wants for the property and why.

Someone who has truly learned the art of negotiation will always accept responsibility for the outcome of a deal because they know they have done their best. A poor negotiator will always blame the seller for a poor result. There is no such thing as a “bad seller”; there is only a seller whose situation you didn’t know enough about. You need to use negotiation skills to determine whether or not there is a deal to be made, and if there is, use your skills to make the very best deal possible that creates a win-win solution for both sides.

For more information on negotiating with motivated sellers, visit our website at marketingmagiclady.com.