Where to Find the Best Pre-Foreclosure Deals
Issue #2168
- WEALTHY: 6 steps to transforming neglected or boarded-up homes into investment properties (Jeff Adams)
- HEALTHY: 4 ways to beat exercise boredom (Craig Ballantyne)
- WISE: Francis Bacon on opportunity
ALSO IN THIS ISSUE:
- Two acronyms that could save you a lot of money (Wendy Montes de Oca)
- E-book vs. print book - what’s better? (Michael Masterson)
- It’s Fun to Know… about glacier surfing
- Add "numinous" to your vocabulary
Revealed: Probably the Biggest Red Herring in History!
While the world’s been stock watching (and losing!), the elite quietly play a different game with different rules…
Feeling cheated and disillusioned by the stock market? Sure, you may have made a good trade here… but then lost on another. The people dutifully pour their hard-earned cash into investment banks to put into the stock market for them… and those investment banks gladly oblige, for a fat fee… which they invest somewhere else! I’m no conspiracy theorist, but in my opinion the stock market is really a diversion for the masses… a distraction from where the BIG and consistent money is made… in the world’s money mountain. And when I say “Money Mountain,” I speak quite literally… the BIGGEST mountain of money on the planet. Click here to read more…
"A wise man will make more opportunities than he finds."
Francis Bacon
Where to Find the Best Pre-Foreclosure Deals
By Jeff Adams
Not long ago, I closed one of my best deals so far: a five-bedroom, five-bath, 6,500-square-foot home with a retail value of $1.9 million. It had been standing vacant for four years.
I was able to tie up the house for $1.2 million and wholesale it for $1.5 million. In just a few days, the seller was relieved of a crushing financial burden, the buyer was patting himself on the back for getting a great bargain, and I was on my way to the bank with a check for $219,797.58.
I don’t get homeruns like that every day, but I do two to three big deals each month from homeowners who find themselves in some kind of trouble.
Pre-foreclosure is often the most lucrative niche of real estate investing. In case you’re not familiar with it, it’s the period between the time a bank or other lien holder files a suit for foreclosure against a property and the time the issue is resolved or the property is forcibly sold "on the courthouse steps."
This is when you’ll find properties selling at the biggest discounts. And that’s precisely why this is the most competitive area of real estate investing.
For your target market alone, you may find dozens of lists of properties that have just had foreclosure suits filed against them. And you’ll find hundreds, if not thousands, of pre-foreclosure investors. Yet a small percentage of these investors seem to regularly make huge profits despite all the competition. And if you’re an investor already, you may have wondered how they get pre-foreclosure deals that you never even saw listed.
The answer is actually quite simple. They don’t compete for the same houses everyone else is bidding on.
If you’d like to get in on the same deals the super-successful real estate investors find, read on.
Step 1: Pick a neighborhood. Choose a neighborhood that interests you, preferably one that’s in transition and being fixed up, but not in a "war zone."
Step 2: Drive around your target neighborhood … slowly. Write down 20 to 30 addresses of vacant, neglected, or boarded-up houses. They often have signs on them: For Sale, For Sale By Owner, or For Rent.
Step 3: Find out who the owners are. You can start by running property profiles on FastWeb. You can also check the following resources on the Internet: Anywho.com, Reverseaddress.com, Phonenumber.com. If that doesn’t work, try one of the paid search services, including Merlindata.com and FindAnySeller.com. If you still can’t find the owner of a property, try asking the existing tenants (if the property is occupied) or the neighbors.
Remember, the harder the owner is to find, the better the deal is likely to be!
Step 4: Send the owner a letter offering to purchase the house. In your letter, explain the benefits of selling it to you. I’ve found some of my best deals by offering to close in 10 days or less, or by taking the property with the existing tenants.
If the owner responds to your letter, reply in a respectful manner, asking for the lowest amount he would consider taking for the property. Then give him a few different purchase scenarios.
The first scenario would be "all cash." You offer $100,000. At closing, he’s going to receive $100,000 in cash (minus the normal closing costs).
The second scenario could be cash to an existing loan "subject to." This is where you agree to pay him, say, $105,000. But you only give him $15,000 out of your pocket. For the rest, you take over his existing $90,000 loan.
The third scenario would be to put money down and have the seller carry back a second mortgage. Let’s say you agree to pay him $110,000. In this case, you give him maybe $10,000, and he agrees to lend the rest to you. So you pay the other $100,000 in regular installments with an agreed-upon interest rate. No bank and no bank hoops to jump through.
If the seller’s asking price is too high and you can’t negotiate the price any lower, provide him with some low comps for properties that have recently sold in the area. Explain how much it will cost to rehab the property and how much it will cost to sell the property through a realtor (paying six percent commission and the cost of a termite inspection, home warranty, FHA non-allowables, roof certification, etc.). Explain to him that you will buy the house in its present "as is" condition.
Your letter might list the following options:
(a) I will pay $80,000, ALL CASH, closing in as little as 10 days from contract acceptance.
(b) I will pay $90,000 with $5,000 down and assume the existing mortgage of $85,000 with payments of $650 per month "subject to."
(c) I will purchase the house for $85,000 and get a first mortgage for $60,000. The seller carries back a second mortgage in the amount of $25,000 at six percent interest for 15 years.
If you want to make this a no-money-down deal, you would purchase the house for $85,000 and have the seller carry back a second mortgage for $25,000. So you’d get $60,000 from the third-party lender and $25,000 from the seller … for a combined total of 100 percent financing.
Your first mortgage in this case will likely have to come from a private-money lender. Most banks no longer allow the CLTV (combined loan to value) to total 100% on investor properties. However, some mortgage brokers can put together 100% CLTV deals through their private money network. Some hard money lenders will allow second mortgages as well. And if you’re in control of getting your own private lenders, that’s ideal because, if you present it to your lenders right and are buying at a big discount to market value, they shouldn’t mind the existence of a second mortgage… since they get paid first before the second (the owner) sees a dollar of his money.
If you have no luck contacting the seller with a letter, then go to the next step.
Step 5: Contact the seller by phone. This is often the most successful way to purchase a property from an "absentee" owner. Explain that you are looking for a house in that neighborhood and are interested in buying his. Try to find out the lowest price he will accept, and give him several options (as described above). Put your offers in writing, and send them by priority mail. Follow up with another phone call immediately.
If you are offered an absolute "steal" on a property over the phone, I recommend jumping into your car, driving to wherever the owner is, and having him sign your purchase contract. If the owner is out of state, jump on a plane! I’ve flown all over the United States to have absentee owners sign a purchase contract.
If the owner isn’t interested in selling, send him a cash offer anyhow. Offer to close in 10 days or less and take the property with the existing tenants. Continue to follow up with him on a weekly, monthly, or semi-monthly basis, whatever you feel comfortable with.
If you are unable to reach the owner by telephone, proceed to the next step.
Step 6: Make a cash offer. Sometimes, no matter how persistent you may be, you won’t be able to find the seller’s telephone number and you won’t get a response from him after sending several letters. But money talks. When all else fails, send a cash offer. Explain that you will take the property "as is" and that you can close in 10 days. You’ll be surprised how fast your phone will ring.
Here’s how I recommend making a cash offer. Go to an office supply store and purchase printable checks and window envelopes. Then you can send your offer in the form of an actual check (without your bank account number and bank routing number on it). Explain to the seller that this check could be his in 10 days or less if he accepts the offer.
If that doesn’t work, don’t give up. Continue to follow up with your prospect. With persistence it will pay off!
[Ed. Note: Jeff Adams is a self-made multi-millionaire who has bought and sold more than 350 properties over the last 12 years. Over the last eight years, he's found and sold his deals using the Internet. In the Real Estate Wealth Builders Summit in November, you can learn exactly how he did it. To find out more about this extraordinary event before it sells out - and collect up to $2,100 in special bonuses - click here.
Correction: Jeff Adams's article, originally published 10/9/2007, read: "Structuring this kind of deal correctly, though, is key. The second mortgage records after you purchase the property. You go to a different escrow company and have them draw up the paperwork for the second mortgage. You then have the first escrow company draw up an irrevocable amendment right before closing, designating the amount of the seller's proceeds that will go to the other escrow company at closing to fund the second mortgage. You'll have to put up your money for a couple of days until the second mortgage funds and records. Then you'll be reimbursed from the seller by the "silent" second mortgage he is carrying."
That section should have read:
"Your first mortgage in this case will likely have to come from a private-money lender. Most banks no longer allow the CLTV (combined loan to value) to total 100% on investor properties. However, some mortgage brokers can put together 100% CLTV deals through their private money network. Some hard money lenders will allow second mortgages as well. And if you're in control of getting your own private lenders, that's ideal because, if you present it to your lenders right and are buying at a big discount to market value, they shouldn't mind the existence of a second mortgage… since they get paid first before the second (the owner) sees a dollar of his money."]
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Cost Per What?, Part 1
You’ve created some ads and you’ve got them situated on search engines and relevant websites. All you have to do now is sit back and wait for customers to find you, right? Wrong! As soon as you’ve started marketing your product, website, or e-newsletter, you need to start measuring your results.
The best way to learn how effective your online marketing campaign is - and to figure out how to improve it - is to set up the proper marketing metrics before you begin. Here are two crucial performance indicators you must measure:
- CPA (Cost Per Acquisition) - the cost of your marketing effort (media buy) divided by the number of orders (sales) you get.
This calculation will help you determine how much money it’s costing you to acquire a customer. The lower the CPA, the better. If one effort gets a $25 CPA and another gets a $6 CPA, the second was more cost-effective. Keep in mind that the quantity and the cost of the efforts need to be the same to really compare effectiveness. The factor that will determine the better CPA will be the number of sales you get for each.
- CPL (Cost Per Lead) - the cost of your marketing effort divided by the number of leads (e-mail addresses) you get.
This calculation will help you determine how much money it’s costing you to acquire the e-mail address of a prospective customer. So you’re measuring name collection (not sales, as with CPA). Typically, you’ll find this pricing model with lead-generation (name-collection) efforts or with co-registration marketing efforts (where your offer comes up on another site - on a thank-you or confirmation page - after a customer has bought that particular website’s product). A good CPL range is $0.30 to $4.
Once you have these numbers in hand and you’ve run a few tests, look for trends. You want to continue marketing where your CPA and CPL are lower, and reduce or discontinue marketing where your CPA and CPL are higher.
[Ed. Note: Wendy Montes de Oca, ETR's Vice President of Marketing and Business Development, has led the marketing efforts for several global leaders, including Chase Manhattan Bank, General Electric, ADP, and Salomon Smith Barney/CitiGroup, as well as consulted for entrepreneurial companies. She is a core contributor to ETR's new Internet business-building program, designed to show you how to take an online business from concept to execution and beyond. If you're interested in profiting from all the benefits of starting an online business, click here to join our priority notification list.]
Dear Michael Masterson: "Why not sell your manuscripts as e-books?"
"First, thanks for the great work at ETR. I’ve been a subscriber for a couple of years now, and look forward to it every morning.
"I especially appreciate your columns. In fact, your article ‘Catching the Upswing on Men’s Underwear‘ really resonated, since I recently launched You-Version 2, a website (Y-V2.com) and forthcoming e-zine that advise men on grooming, style, and social skills. (Check out the site when you have a chance.)
"But that’s not why I’m writing today. I’m a big fan of your books and I’m looking forward to Ready, Fire, Aim. Yet I note that you publish with John Wiley & Sons instead of selling your works as e-books. Given your large group of dedicated readers and, as has been described in ETR, the benefits of e-book publishing, that surprises me. But I know you’ve got a good reason. So here’s my question: Why did you decide to work with a publishing house instead of selling your manuscripts as e-books?"
- MP
San Francisco, CA
Dear MP,
I’m sending you a copy of my next book free, because you are the first person to ask this very smart question. Why would I publish my books through a conventional publisher rather than go directly to the market via the Internet?
You are right in your basic assumptions. I would make lots more money publishing my books myself. Even if I went to the trouble of printing them and mailing them out to buyers instead of making them available digitally - because I wouldn’t have to split the revenue with anyone else. The deal I have with Wiley is a decent deal, as these deals go, but I get only about $2 per $20 book sold. If I were selling these books directly, I’d probably get at least five times that amount.
The answer to your question is this: We use these books to generate new customers. We view our relationship with Wiley as a recruiting tool - using these books to get our name out and bring in readers to our ETR website.
To make the deal work well for Wiley, we promote these books to our own 200,000 readers. These sales are obviously not recruitment sales. They are back-end sales that are profiting Wiley, Amazon.com, and the bookstores.
But that’s the price we are willing to pay to promote our e-zine.
- Michael Masterson
[Ed. Note: Have a question for Michael Masterson? Write to him at AskMichael@ETRfeedback.com.]
Add Some Variety to Your Day-to-Day
You probably already know that traditional cardio exercise is not going to get you fit. To burn fat, you should be exercising in short, intense intervals. Unfortunately, even interval training can get a little boring. So before you’re tempted to give up out of boredom, you need to switch it up and add a little variety to your program.
During the week, alternate between two different interval-training workouts, rather than doing the same workout each time. And change those workouts every four weeks.
Here are some suggestions:
- Switch exercise methods (even using bodyweight exercises for intervals)
- Increase/decrease the length of the interval (while decreasing/increasing the intensity)
- Increase or decrease the number of intervals per workout
- Increase or decrease the rest time between intervals
[Ed. Note: Fitness expert Craig Ballantyne is the creator of the Turbulence Training for Fat Loss system. If you want a free online source of information, motivation, and social support to help you improve your health, lose weight, and get fit, sign up for ETR's FREE natural health e-letter.]
It’s Fun to Know: Glacier Surfing
Alaskan enthusiasts of extreme sports have found a new way to get an adrenaline rush - surfing on the huge waves created when a big chunk of glacial ice drops into the water. The waves can be up to 30 feet tall, and move so fast (about 40 miles per hour) that the surfers must be towed by jet skis in order to catch them. The challenge, say the surfers, is trying to correctly guess where the next ice fall will be and putting themselves in a position to catch the wave but not be crushed by the falling material.
(Source: Discovery Channel)
Give Yourself a Nice Pay Raise - And A Three Day Weekend, Every Weekend
By the end of this week, you can give yourself a pay raise. How does an extra $20/hr sound… and schedule a few days vacation while you’re at it!
After a month or two, how about another raise… to $2,000 a week.
It’s happening everywhere. Ordinary people — including folks who never finished school — starting their own businesses… and making side incomes in the neighborhood of $40,000… $60,000… even $100,000 or more a year.
They’re living the American Dream. Now it’s time for you to start living it too. Click here to continue…
- Charlie Byrne
Word to the Wise: Numinous
"Numinous" - from the Latin for "a nod of the head" - suggests the presence of a supernatural being. In other words, it pertains to something that is spiritual or beyond understanding.
Example (as used by Judith Pascoe in The New York Times): "When Keats died, his hair took on the numinous appeal of a religious artifact."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007