5 Ways to Set Up Foreclosure Deals for Maximum Profit
Issue #2180
- WEALTHY: Know your exit strategy before you buy (Marko Rubel)
- HEALTHY: The one thing you shouldn’t do when your lower back’s on fire (Dr. Bill Stillwell)
- WISE: Brad Geisen on foreclosures
ALSO IN THIS ISSUE:
- Tough love for a small-town brick-and-mortar marketer (Michael Masterson)
- How to sabotage your dream of being your own boss (Jason Holland)
- It’s Fun to Know… about the world’s first spaceport
- Add "nescience" to your vocabulary
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"The ballooning inventory of available foreclosure properties should be an area of concern among lending institutions. This situation is good news, however, for those who track and invest in the foreclosure market."
Brad Geisen
5 Ways to Set Up Foreclosure Deals for Maximum Profit
By Marko Rubel
Investing in foreclosures is one of the best ways to make money in real estate, even when the market is going south. And with the number of foreclosures continuing to rise, you should find plenty of opportunities for good deals.
But steer clear of one of the common mistakes new foreclosure investors make: failing to thoroughly analyze a foreclosure deal. In particular, it’s critical to know the selling or exit strategy you plan to use before you sign on the dotted line.
It’s easy get excited about a deal, especially if you’re getting a good bargain. But don’t forget that expenses begin as soon as you buy a property. That means you have to invest with the end in mind. In fact, how you plan to sell the property will often determine how you should buy it.
Here are the basic exit strategies available to you as a foreclosure investor. You can:
- Flip the property, either wholesale or retail, to a quick buyer or another investor.
- Reinstate the foreclosure (that is, pay off all the back payments, interest, and penalties, and resume the original terms of the loan) and sell the property at retail to a buyer who gets a bank loan.
- Reinstate and sell the property by acting as your own "bank," using owner financing to cover expenses.
- Reinstate and keep the property, then rent it out.
My company uses these four strategies to generate about $1 million in profits each year. But you have to structure your deals carefully, because mistakes can be costly. It’s important to learn as much as you can about each of these strategies. Knowing the risks and benefits will help you determine which exit strategy to use - which, in turn, will impact the way you buy the property. For example, if you plan to reinstate and rent, you’ll look at the deal very differently than if you plan to flip the property wholesale to another investor.
There are five basic ways to construct a deal during the foreclosure process:
1. Acquire an Interest. You can take control of a property by acquiring an equitable interest using a Purchase Contract or Option Agreement. You don’t have to have the legal title to the property, and you can profit by selling your position in the contract. While this method gets you a controlling interest, it doesn’t buy you time. The property is still under threat of foreclosure, so you’ll need to make the deal profitable in a hurry.
2. Acquire Ownership by Bringing the Loans Current. You can buy a property simply by taking over its existing debt (also known as a "subject to" purchase) and stopping the foreclosure process by using cash to pay off any overdue payments, interest, and penalties. The seller signs a deed and you become the legal owner. The earlier you get involved in this process, the less cash you’ll need to reinstate the loan.
3. Acquire Ownership by Paying Off the Loan. You can get full ownership of the property by paying off the existing loan (similar to a conventional purchase). For example, you can get a new loan that includes enough funds to pay off the past-due expenses of the current loan, eliminating the threat and pressure of foreclosure.
4. Acquire Ownership Without Stopping the Foreclosure. This method requires very little cash, but you’ll need to be a strong negotiator. You get the deed and ownership of the property without paying off or reinstating the loan, which means the foreclosure threat is still looming. Then you need to either (a) find a buyer prior to the foreclosure sale, or (b) get the lender(s) to work with you and accept a lower payoff (known as a "short sale"), and give you some time to arrange financing
If you don’t succeed with one of these options, the seller will lose the house. It’s very important that the seller understands the risks of this option and agrees to it in writing.
5. Acquire Ownership via "Deed in Lieu." Borrowers sometimes make an arrangement to voluntarily deed the property back to the lender who issued the loan. In effect, the borrower forfeits his investment, but he also avoids the nightmare of having a foreclosure on his credit record. This process is called "Deed in Lieu of Foreclosure." It can be a great backdoor approach to property investing if you assume the role of the lender by purchasing junior liens. By doing so, you effectively step into the junior lender’s shoes and gain the right to start foreclosures yourself. Once you have initiated the foreclosure, you can approach the borrower with a "Deed in Lieu" proposal. If they accept, you reinstate the senior loan and get the property "subject to" its terms.
Knowing the pros and cons of each method I’ve described above will make it easy for you to match the right exit strategy to each deal. Choosing the right strategies will make you a lot of money, creating real wealth for you and your family - often in a very short time. That knowledge is power, so get armed.
[Ed. Note: Marko Rubel is a multimillionaire real estate investor living and investing in the Phoenix, AZ area. Marko will reveal his secrets for finding motivated sellers and putting your real estate business on autopilot at an exclusive gathering of self-made millionaire investors to be held at one of Florida’s most luxurious resorts November 16-18. To learn more about this extraordinary event before it sells out, click here.]
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Dear Michael Masterson: "I’d appreciate your point of view on marketing an independent grocery store."
"I’d appreciate your point of view on marketing an independent grocery store in a small Nevada city of 20,000.
"Half the population are snowbirds and live here only from September through May. In other words, they are wealthy enough to afford two homes. The other half are permanent residents with blue-collar jobs. Further, half of those folks are Hispanic. This unusual mix occurs because there are four large resort casinos in town.
"All these folks need to eat. My job is to influence them to buy their groceries at my market. At the moment, it is being recreated from a worn-out neighborhood market to a newer, more appealing shopping experience. A big new section of gourmet foods (unavailable at the competition) has been installed. The Hispanic food items need to continue to be featured, since that is currently the basis of the business.
"There is one newspaper in town that publishes twice a week and another that publishes once a week. There is a community cable TV station and several movie screens where advertising can be bought. Also, one of the newspapers has a website that offers advertising, but I have doubts about its effectiveness."
- K. P.
Nevada
Dear KP,
This is a tough business to be in. It’s not the kind of thing I’d want to do. The grocery business generally has low margins. If you are in a blue-collar town, those margins will be even tighter.
You are trying to increase business by making your product line more upscale. That may appeal to the snowbirds, but they are not there long enough to make a big enough difference.
If you were in an upscale community, I could suggest dozens of ways to stimulate traffic and raise prices, thus increasing profits. But in your situation, I’d consider closing the business and putting your talents and money into something that has more upside potential.
Sorry. That’s my answer.
- Michael Masterson
[Ed. Note: Have a question for Michael Masterson? Write to him at AskMichael@ETRfeedback.com.]
5 Freelance Foul-Ups
By Jason Holland.
Michael Masterson advocates freelancing as a good way to start your own business. You begin by supplementing your salary, offering your services on a part-time basis to clients who need help with a skill you have mastered. Eventually, you’ll be able to quit your job and devote yourself full-time to your new career. You’ll set your own hours, work from home (or from anywhere in the world), and increase your income significantly - to a lot more than your old salary, that’s for sure.
But if you don’t avoid the hazards that have befallen generations of freelancers, your dreams of being your own boss will soon be over. Here, then, are five things to watch out for so you don’t sabotage your freelance career:
1. Missing deadlines
This could ruin your reputation, which is ultra-important to you as a freelancer.
2. Charging too little
You will probably have to take less than your industry’s standard rate when starting out. But as you become established, you should charge what you are worth.
3. Not doing your preliminary research
Before you contact a potential client, make sure you find out everything you can about the company, especially their market, goals, and needs. In Automatic Wealth. Michael recommended using these questions as a guide for your research:
- What does the client consider the company’s unique selling proposition to be?
- How are the products sold?
- What are the company’s most successful customer acquisition methods?
- What are its most profitable back-end products?
- What’s working best for them right now? What’s not working?
4. Becoming angry with a client
Handle all conflicts with your client in a professional manner. Never become visibly angry or frustrated.
5. Lacking a back-up plan
Never rely on one or two clients. What if your main client (and the source of most of your income) goes bankrupt? You need a back-up plan - a large network of possible clients, another side business, advertising revenue from your website, etc. And when you are just starting out as a freelancer, you certainly want to hang on to your day job until you’re sure you can make it on your own.
Freelancing will help you get free of the 9-to-5 corporate world, but it’s not without its challenges. You’re your own boss now, so the buck stops with you. Keep that in mind.
(Source: FreelanceSwitch.com)
A "Cure" for Acute Low-Back Pain
Regardless of the cause, severe low-back pain can feel like a knife in the kidneys. Fortunately, most cases are due to minor sprains or strains of the spinal ligaments or muscles that will heal with time. But that first episode can be really disabling, as well as agonizing.
Here are a few simple tips to help you cope during that acute period.
First, lie down on your back or side. Getting most of your bodyweight off the spine and its supporting muscles is the first step in getting relief.
When you lie on your back, the supporting muscles pulling across the arch of the lower back apply a force equivalent to one-quarter of your total bodyweight. To eliminate this force, flex your hips and knees slightly by putting two or three pillows under your knees and calves. This flattens your lower spinal curvature and the applied force drops to zero, allowing the muscles to relax.
You may also lie on either side, with your hips slightly flexed and your knees pulled up toward your chest. This position, too, flattens the lower spine.
Above all, do not lie on your stomach. If you do, you will exaggerate the lower spinal curvature and make the spasms worse.
A folded bath towel under the small of the back can provide extra support, and a heating pad can provide gentle warmth to ease tense muscles and bring blood to the area.
These measures usually reduce the pain and spasm enough for a couple of Tylenols to relieve the remainder of the symptoms. But if pain and spasm persist beyond a couple of days… or if you also have burning pain shooting down one or both of your legs… or if you have sudden numbness or weakness of your feet and ankles… or the inability to urinate… get to the nearest emergency room by ambulance. These may all be symptoms of nerve injury and need immediate medical attention.
[Ed. Note: Dr. Bill is the online handle for William Thomas Stillwell, MD, an orthopaedic surgical specialist who was Chairman of Orthopaedic Surgery at his hospital and Associate Professor of Clinical Orthopaedic Surgery at SUNY, Stony Brook. He is currently founder and CEO of Dr. Bill’s Clinic Inc., and is the author of Dr. Bill’s Little Green Book for Eliminating Knee Pain. To sign up for his free Pain Relief Secrets, go to his website, www.drbillsclinic.com.]
It’s Fun to Know: The World’s First Spaceport
It’s tourism meets Star Trek. Architects have started preliminary work on the design of Spaceport America’s 100,000-square-foot terminal and hangar facility in New Mexico. It will be the primary base of the Virgin Galactic spaceliner, which, starting in 2009, will whisk travelers into space for a short trip into orbit if they pony up for a $200,000 ticket. The spaceport, expected to reach completion by early 2010, will also be the headquarters of the New Mexico Spaceport Authority.
(Source: Space.com)
How a “Dumb Blonde Moment” Led to a Secret Golden Backdoor That Earned Me $3,012 in Only 48 Hours… I Tripped Over This by Mistake!
I thought I was following the DVD down to a tee. But I guess I was having another “blonde” moment.
I did the exact opposite… Hey, what did I know? Oops!
Then it happened: $3,012.00 in 48 hours doing the opposite of what everyone else is doing.
Read on to learn how you can have your own “blonde” moment.
Word to the Wise: Nescience
"Nescience" (NESH-unts) - from the Latin for "not to know" - is ignorance, a lack of knowledge or awareness.
Example (as used by Hugh Kenner in a New York Times article about James Joyce): "He fought on our behalf in the war that finally matters: against nescience, against inadvertence, against the supposition that anything is anything else."
[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