Comprehensive Lead Generation
Is anyone using a comprehensive lead generation plan? This forum seems to discuss many different tactics, but rarely comprehensive strategies. Is that because most people are working with little or no budget? What I am looking for is a long term strategy. Something that you have been using for years. Something that has been working.
What do you mean exactly? Most of the things discussed in this forum are the things that work.
Yes. And you can to if you read and assemble a few smart messages by the top posters in this forum. You will literally get $20K worth of marketing education.
Going beyond your question, but where it seems to be headed as far as a business plan, there are some people who do that for a living so you may find that a challenge to get your hands on somebody elses complete plan or to have someone else draw one up for you.
Good luck.
This is a great forumn!
Stockpro99, I went to a local Marketing Forum about two months ago. Several local real estate investors got together and were suppose to discuss what works for them. It was the funniest thing to be in a room with 15 people all who all wanted to say nothing but wanted to hear everybody else tell it all.
By the way,
StockPro99, I want to get smart on SS. How would you go about it?
Randall,
Thanks for recommendation.
BJB,
I know exactly what you’re saying. I too came out of many years in the marketing and advertising world, with an emphasis in strategic planning. And I have yet to see anything in here about actually creating a true communications plan.
Not that what people are doing doesn’t work – it obviously does. And for some, it works quite well.
But if someone truly addressed things like psychographic profiling, audience segmentation, predisposition matrixes, etc. they would no doubt see a huge increase in their response rates and close rates.
Heck…with your background, maybe you could do a few articles.
Or, maybe I should too.
: )
[ Edited by IBuyHousesInc on Date 04/15/2006 ]
WOW! Thank You!
Exactly. That is what I was looking for. You confirmed my assumption that REI is part time and/or not treated like a business for most people. There is nothing wrong with that. However, I have sold one business and now looking to start another. This is the type of response that I was looking for. Of course, it is your experience that allows you to provide a comprehensive answer and for that I thank you.
Where can I buy your e-book? How is the franchising going?
Thanks again Mike. I really appreciate your answers.
Hey Michael.
Great to see you back! And great response!
This thread seemed empty without you participating.
BTW - I will be in touch in the next couple of days.
This is what I would pay a professional marketing consultant thousands of dollars to tell me.
We are mimicking a large part of what Michael is doing in our own market.
This will go down for me as one of the most informative and best threads that I have read here at TCI.
This alone is well worth the yearly fee <IMG SRC="images/forum/smilies/icon_smile.gif">
_________________
"Chance favors the prepared mind..."
Randall[ Edited by Stockpro99 on Date 03/28/2006 ]
Awesome stuff! Thanks!
Goodness!!!! That rocked! Do you need an apprentice?
BJB,
if it is true that you have develope marketing plans for the top chains, then you should have no problems setting up a marketing plan of your own. You would not be looking for advice from a forum. You would hire some top marketers and let them advise you.
There are very few people that are making millions of dollars sitting on website trading secrets. Very unlikely. For the simple fact time is money. We all have the same amount of time. And is using your time asking stranger for free advice the best use of your time? I think not.
You just have to determine what markets out there that you want to reach.
Do you plan on marketing to geographics or demographics.
If you choose geographics you have to then come up with some of your own research. Just to be brief, target a neighborhood for a specific reason. Such as what neighborhoods, have the most foreclosures, that sell the fastest, for close to retail value.
Being that you ran an ad agency, you should have plenty of ideas. In fact you should be bringing some of your ideas to us. I dont think any of us has done marketing for top hotel chains.
I cant understand the root of your question unless you were trying to see what others have to offer and then hit us all with your magnificent approach.
If that is not the case then i have a hard time believing that you ran any type of profitable business. Because to stay in business you have to have a good marketing plan.
Have you noticed that every business plan software has room for marketing?
Now if you would please enlighten us with your marketing scheme. I have plenty more that will profit your business like you would like.
They consist of geographics and demographic, and sometime a cross referencing of the two. If you want my advice you have to prove that you are credible and capable of following through.
Right your merits are very low.
Marketing is basically the same for any business. You just have to find the market you want to tap into and get started. Bad marketing is better than none whatsoever.
For you to downgrade some of the advice that you have gotten is silly and you dont really deserve any. Besides what good advice have you provided to this forum? Mr Marketing Professional?
Yeah i called you out because i want to see what you are really about. Shine your light on the dark. Bring light to the newbies. Offer them something that made your business profitable. I am sure you use the same 18 ways to market the different businesses you claimed. And how did you find their markets? Once you found their markets how did you get in the mind of the customers?
Just curious? [ Edited by charlotteinvestor on Date 04/19/2006 ]
Brett you forgot to say how good looking I am and the amazing wit I have J
I took my post down rather selfishly and will put it back up… and leave it up for now… I am days away from opening the gates to my project and felt maybe I should teach there and not here and that was a mistake… For those that don’t know what I am talking about email me and I will let you in on the secret.
Before I repost let me answer the critique Brett received from charlotteinvestor.
I am sure not trying to break my arm patting myself on the back but I think I know more about advertising in our industry then anyone I have met. Mostly because I practice it and more unfortunately have made the mistakes that I hope none of you follow.
When Brett came to see me, which was really odd, I get a ton of calls and welcome everyone of them, I knew he had a back ground in marketing and had done some deals yet I also knew he didn’t want to make the same mistakes I did before he becomes successful. He is a pure seeker of knowledge. He is by no means a stupid or unintelligent person. In fact much the opposite.
There is only one word that you need to hear from someone when they talk with you that will tell you that they truly want to grow their knowledge and are worthy of your time. Michael Gerber, okay that’s two words…
Gerber professes that if you want a true business then you should not work in your business but on your business… he believes that you should be able to systematize your business to the point of success so that you could receive a daily single sheet of paper with the answers to 10 questions on it and know that your business is thriving or failing.
Imagine traveling the world knowing that the “Business” is being run correctly from the numbers on a sheet of paper?
In the process of building a business model you must look at the three keys to success. Most of us don’t, most of us have never thought about it… Most of us believe that because we are great mechanics that we can run a great business.. Most of us are merely working for wages and extra money.. We all have to start there but we don’t have to finish up there.
It is clear, no its crystal clear, that Brett doesn’t want to be like most of us so he is spending the money to obtain the knowledge.. How many of you would have purchased a plane ticket from Alabama to California, driven 4 plus hours each way to view an operation and speak to someone who said that they were doing it but really didn’t know?
Then still wanting to learn more he flies back to Alabama and drives another 8 hours to visit John Locke… He spent the money to purchase Johns Course, Brett is unwilling to stop the learning process… And I admire him for his quest.
So ask yourself why would a guy spend all of this money and time if he already new how to advertise. Simple answer is he doesn’t know the 10 questions that should be on his sheet of paper and how to create systems to manage a REI career…
Now I know I am getting a lot of heads beginning shake right now, but I bet if you could you would rather travel the world then be in the grind of buying houses… Sure buying houses is a lot of fun… So is playing
What would your questions be?
Here are mine…
How many inbound seller calls?
How many inbound buyer calls?
How many showings?
How many offers accepted seller side and their net return
How many offers accepted buyer side and their expected return
Number of houses in inventory unsold and their expected net return
Net Dollar amount of escrow scheduled to close within 30 days and 60 days
Money requirements, purchases against sales next 7 days, 15 day, 30 days and 60 days
Last 30 days overhead and projected 30 day overhead
Money in the bank
These questions tell me how to manage my business… Is the market soft? Do I have enough resources? Do I need to push/cancel an escrow? Can I keep traveling?
Knowledge is power… And People like Brett want that power… And so should you…
I am a person who is driven by numbers I want to know them understand them and live by them… And if used correctly you can train your staff to understand them too… The drive I receive by setting goals and seeing them achieved is enormous… Don’t think for a second that if left up to your staff that your business will succeed however if you work on your business setting in place procedures and systems to follow then you will create a true business model which can be duplicated and profitable…
And this business is driven by advertising… and for those of you who don’t believe in advertising please don’t forget that advertising isn’t just the newspaper or TV commercials. It encompasses all forms of communication to formulate the outcome you desire.
How you dress is a form of advertising, the vehicle you drive to your appointments.
Do you use birddogs? They’re a form of advertising
Do you use the MLS system, which is a big form of advertising whether you’re a buyer or seller?
Even the conversations you have with your Sphere of influence, acquaintances, and unknown people are a form of advertising.
Most of us don’t keep tract of where our business comes from so we don’t know which advertising is working or isn’t working.. I have had people tell me that they get their business from referrals.. Which is outstanding but have you looked at those referrals and determined what caused the referrer to refer you? Think about the conversation which lead up to the referral and duplicate that conversation as many times as possible.
Very few business deals are done without some form of advertising… So you must know where the business comes from…
I could go on and on but I will stop ranting….
Here is the repost.
And I wish success to all of you…
Michael Quarles
Excuse me for sneaking back in but I had to try and answer this question…
I hold to the philosophy that a successful marketing campaign should use a various number of methods to numerous types of prospects to attract responses. In the case of real estate investing, the methods can range from billboards to television and newspaper ads to direct mail to getting your name out through promotional items like pens, key chains, business cards... And the top six prospect types (your different audiences) you need to promote to are: FSBO, Expired, Nod’s, Absentee Owners, your Farm and “For Rent” owners).
I just finished my e-book on classified advertising and while doing the research I gathered “I Buy Houses” type ads in EVERY major newspaper published across the country. It was amazing to see the different styles and trigger words that were used… of the nearly 600 ads I found 7 didn’t even put their number in the ad… I wonder if they received any calls? I would have thought that the newspapers would have asked ‘Do you want to include a telephone number?” maybe not…3 of the seven didn’t have either email or a website to go to…. They must gather sellers through osmosis…
A properly constructed marketing plan, although expensive, will reward you handsomely… I am at my home while writing this reply and will try to break down the percentages from memory.
In my experience there are 4 great types of advertising media that the investor can reap rewards from… Remembering that the goal of most advertising is to generate a call to action response or create a brand awareness and I am not so certain the average investor understands the necessity of brand awareness.. Mainly because they are treating this business as a part time endeavor and not a full time profit center…
So here are the types of advertising medias that have proven to me to be outstanding with percentages
NEWSPAPER DISPLAY ADVERTISING 43% of your business will come directly from display ads. Assuming that you create an ad that speaks to the needs of the seller. You will find that Newspaper Display advertising creates an incredible call to action, so make sure you can handle the lead response rate. It is not a great branding media and way too expensive for self-promotion…You can however create a branded image, be careful to understand the difference between an image and an emotion. An example of a branded image would be the Pepsi can… You can see it in your mind right now… An emotion would be Coors Light ads, you’re either seeing hot females dancing on the dance floor or a peaceful steam of water in the mountains. Its very difficult to create emotion in a one dimensional advertisement. Real estate brokers and builders try emotion adverting with pictures of families at the top of their ads.. Basically saying “don’t you want to be happy like these nice people”? And because the reader only has a single sense working their absorption rate is not nearly as good as TV.
If you’re running display ads, when possible buy placement and always buy color… Now I know placement runs on average 25% more and color runs about the same percentage but it is well worth the expense. Black and white ads are really nice but have terrible reader retention and although they’re a call to action type ads you can, through color, build an image… The placement is powerful because it does two things assuming you place correctly… 1) tells people where to go to find your ad next time and 2) positions your ad as a focal point…
Never run an ad under the fold.. The fold is the middle of the newspaper where they fold it and under it is the bottom… You have searched a newspaper for the sections headers like sports before and as you flip through to find one you see ads…. If you were under the fold you would not see these ads.
Try and run full-page ads, never anything smaller than half page and a page killer ad seems to work very well… In fact running a cycle of the three works well.. The problem on half page ads is that you will have competition for viewer ship because the paper will put at least one other ad on the same page and you can’t buy placement. Both the full page and page killer ads are by themselves.. BTW a page killer is a 5 column x 12 inch or so ad. They take up a majority of the page therefore no other ads will be with you…
Only run in the real estate section and on Sundays.. However do not run on the following Sundays:
· New Year’s Eve, if it falls
· New Year’s Day, if it falls
· Super Bowl Sunday
· Valentine’s Day, if it falls
· Mother’s Day
· Easter
· July 4th , if it falls
· Christmas, if it falls
Think seriously about not running between thanksgiving and January 2nd… This time tends to be a down period for real estate..
TV INFOMERCIALS/60SEC/30 SEC. 32% of your business will be generated using this media.. Unlike the newspaper there isn’t a lot of call to action in TV unless you’re selling something, which is why it’s a favorite for car dealers and furniture stores. You can however tell a story and speak directly to a demographic.. Your infomercial should outline the reason the seller should call you over using a real estate agent or refinancing their house. Remember who are customers? They’re distressed sellers… So you have to speak to that aspect…
I believe that you should run your infomercial first, prior to 60/30 sec commercials, and always run it the same time everyday except Sat and Sunday.. I like 6:30 pm; it seems to be the best half hour after news but before primetime… Running it at the same time will give you a calling card the seller can go to… Speaking to the distressed situation will allow you to answer the objections before they ask them… Remember we are known as thieves, your infomercial will deteriorate that image and make what you do mainstream…
Cut your infomercial up in to 60 second and 30 second commercials… Doing this will tie into the brand awareness and the image built by your infomercial… After a viewer watches an infomercial 2 to 3 times and then sees the 30 second commercial they will trigger the entire infomercial in their minds.. The particular commercial may not be the distressed focus but the viewer will recall what specific distress category that they fit in.
Run your 60 s first and then cut down to 30s… You should rotate the programming type. I rotate monthly.. One month will be comedy and Oprah the other it will be CNN and HGTV type shows.. ALWAYS run a 30 second commercial between 7am and 7:30 am morning news highest rated show….
TV will generate calls far after you stop your campaign… The branding is incredible so take advantage of it…
Unless you need to feed your ego or are a beautiful person hire your actors…. You are good at what you do and the same goes for them… Don’t use a well-known spokes person as your lead… They need to be unrecognizable to the public.
Important note: It is important that you obtain a release from the actors in the infomercial/commercial do not rely on the production company to obtain them and don’t take their word for having them…
Never run book ends… Which are two 15 second commercials placed on either side of another commercial.
BILLBOARDS 11% Unless on a freeway rotate your boards every 45-60 days 45 being better.. And always hang them in the area you want to buy houses in… NO exceptions… exception being a well-placed billboard at your local auto mall will work very well…
On your freeway boards make sure they are not too outside of the general traffic… No edge of town boards…If you could get a board by a junctions that would be great…
Your boards should look like your newspaper advertisements … Same color and feel. The only issue is that you cannot display as much information… You only have 3 lines to put information on so pick your trigger words wisely… When designing a board cut it into 3 sections and place your pitch within them… At 80 miles an hour your message needs to be read and retained…
Always use a vanity number on your boards… I took a survey with one of our boards to find out which vanity number worked better… Here is what the board looked like
Both numbers pulled almost equally…
NEVER use the color blue in your board…. The sky is blue and you don’t want travelers to miss your board in the skyline… The best color for us was our red and yellow… But black letters on a yellow board stand out for a mile…
MAIL 9%… Hands down the best advertising method for the beginning investor…
If you have a limited advertising/promotion budget it might be wise to start with direct mail activities. I see direct mail, if done right, to show the most effective response in ratio to promotional dollars spent.
Direct mail is simply promoting to your audiences through the mail.
Depending on you’re budget, you may want to advertise to one or all of the six prospect types mentioned above. If you decide to limit your prospect mailing to just a few prospect types, the list below shows the prospects you should promote to and their position of importance from top to bottom. (This list is prioritized in the order of importance that you should follow. For instance, if you only plan to promote to three prospect types, then send to Foreclosure/NOD, Expired and FSBO, as they are the top three on the prioritized list.)
PRIORITIZED LIST PROMOTE TO:
Foreclosure/NOD
Expired
FSBO
For Rent
Absentee
Farm
Imagine for a moment that you walked into a convenience store to buy a fountain soda. If there were only two choices of soda brands, it would be easy to decide which one to choose from, and the competing vendors would have a 50 percent chance that you would decide on their product if everything were equal.
But what if when you got to the soda fountain machine there were 24 product choices to choose from? How then would those vendors capture the largest market share possible? We could get very complex and crafty about this, but the fact is, the answer is very simple. The smart venders would own as many of the choices as possible.
In terms of marketing to different types of prospects, in order to be successful, your message will need to be different with each type. This is because you have to reach the mindset of each of your prospect types. In other words, you have to connect with them by saying what they want to hear.
Different people respond to different messages, especially when they need something and you’re offering a solution. The familiar saying, “misery loves company,” is accurate in that if you’re willing to talk to someone about a problem they have, you’ll likely make a new friend who will often go from a speechless frown to a very interested chatterbox.
When it comes to marketing to others and getting them interested enough to call you, it boils down to talking about things that are on their mind, being interested and letting them know that there’s a solution. This can be accomplished in writing through direct mail activities. And the odds of getting a response can be increased through a series of mailings using letters and postcards will increase the likelihood that the prospect will call you.
The two key components when prospecting via the mail is to get the prospect to read your message and cause them to take the action that you dictate. When sending letters, there’s a third component: getting them to first open it.
Large companies have gone to expensive methods to trick us into opening their mail. When we do we find out we’ve won nothing or it wasn’t a real check inside the envelope. They will use every trick in the book and so should you.
Having your mail opened and your message read is the key to successful marketing! Without it you cannot obtain your Key Objective: GETTING A PROSPECT TO CALL YOU.
Today’s competitive market has house sellers being bombarded with many offers from Realtors, lenders and investors, so you must use every resource available in order to survive. And the more effective you are than your competition, the greater piece of the pie you will hold.
When you attend a presentation boot camp you will learn terms like “mimicking” and “embedded” commands. These are examples of powerful techniques you can use to persuade a seller to take the actions you want them to.
Your letters and postcards need to enforce those same techniques. it can take years to perfect these techniques and a lot of wasted income trying them out with your mailings. By the way, an embedded command is a fancy word for putting a “call to action” within the body of the letter.
In recap I like mailing a series of professional letters a series of postcards and a series of “Mary Letters”
FOR SALE SIGNS, MAGIZINES, GORILLA ADVERTSING, TRAILERS, ETC… round out the balance… with that said, and although we ask every caller how they have heard about us, don’t believe for a moment that just because of the limited response rate that you shouldn’t market this way… I have been out on calls where the seller told my money line operator that they saw my TV commercial only to get out to the house and see one of our postcards… There is a tremendous linkage in advertising assuming you follow a routine and system..
Medias I don’t like or do… Radio and bandit signs…
Radio is too hit and miss from an audience standpoint and too image building for what we do… I tried it and it failed…
Bandit signs work great for us… I have never put one up but have bought houses from sellers who told me that they found us off a bandit sign… I love that we have created a presence so powerful that our competition is paying for part of our advertising budget…
Now if I were starting out I would definitely put bandit signs up… If you do make sure you is the same premise as the billboards and design a sign that can be read and retained instantly… Cute shapes and figures on a sign are too confusing …. Limit it to trigger words. And a VANITY number…
WEBSITES
As you are well aware the Internet is becoming the place to start for many consumers searching for inforamtion, and the Internet has flourished in the real estate industry. Consumers who are looking for housing have made the Internet their first choice for viewing and finding information about housing and you should take full advantage of this.
The Internet is a great place for those sellers to find additional information about you and your company without the burden of calling you. You should have a professionally designed Web site made as soon as possible.
Sorry I got long winded…. I have a passion for advertising as well as helping… Good Luck….
_________________
Michael Quarles
"Marketing is the key to Successful Investing"
Mike,
Keep tellinem what a great guy I am... I can quit reading all of these PMA books.
I love it. I love to mix things up. Mike that was outstanding. I dont usually read messages that long nor do i feel like i will ever get that deep typing on a keyboard. My fingers are not yet trained.
I just love to get the juices flowing. And i am glad that you posted your opinion on marketing again. It just reiterates that i am on the right track.
Thanks.
It is good to get advice from others, but the best way to market is not to use what works for others but what will work for you.
I can t remember how many courses that i have bought just to find the right marketing message. Which lead to me saying no more courses and just designed my own message.
Now my messages have homeowner calling me saying that they were praying for someone like me to come around. I cant tell you how many times ive heard that same response. My goal is to get into the mind of my prospects.
You were never be as successful as you want too unless you understand the mind of the people that you want business from. Other wise like Mike said "hit and miss"
Thank you Mike!
This time, not wanting to feel like a fool again, I saved it. But guess what? I had it in my files already, I had just forgotten I had saved it!
But now, it is even better...
Look out Mike; incoming E-mail!
Chris
As usual Michael, you have given a great deal of good marketing info.
Looking forward to the Universe, which I assume is still in the pre-launch.
Bearded Jim
(Also a big E-Myth fan)[ Edited by jimandlacy on Date 04/20/2006 ]
Great point Loon…
A properly set up infrastructure is a key element in buying in bulk or for that matter on purpose… In the beginning of my career the only thing on purpose that I did was get dressed… I look much better in clothes… After I made some mistakes and even more mistakes I soon realized that instilling a team atmosphere in those around me was going to become a great value.
You pointed out that one needs “rehab/birddog/mentor/legal/$$ team”.
One of the members on this site indicated to me yesterday that they could buy a ton of houses if they just had the money to buy them with…I agree and would say money holds me back at times too.
Lets look at where money comes from. And I know most of you know this already but maybe someone could use this help.. If not let me know and I will remove the post.
Hard money lenders/Equity lenders
Typically hard money lenders are private lenders who loan money based on value of property. Most will loan up to 65% of the value of the property not the purchase price. Some will even loan up to 70% once you have established a relationship.
You can usually find these lenders in the telephone book under real estate loans and they will advertise ‘Loans based on equity” or “Equity Lending”. Their ads will be mixed amongst all of the traditional lenders and if you’re not sure if an ad is that of a hard money lender just call and ask ‘ Are you a hard money lender”. You will also be able to find hard money lenders in the classified section of the newspaper under real estate loans.
Hard money lenders charge a premium to use their money, however without their money you may not be able to finance your deal.. Keep in mind that if it costs you 5k to finance a project that will return to you 27k so what. Hard money lender typically charge 12-18 % and 4-10 points. The hard money lender I use allows me for no points or interest to borrow funds if those funds are returned with in 21 days… A very nice reward when reselling houses.
Private sources
Private sources are typically people who invest their money in real estate but don’t advertise that they do. So how do you go about finding these people? I have found the easiest method is to run an ad in the Sunday section of the business section which advertises for money. I know advertise for money. Yes… Private sources for funding is the least expensive method for capital..
A hard money lender is usually a Broker and being a broker can charge any interest that they and you agree to however in California the legal limit someone can charge to loan money who isn’t a broker is 10%. In California that is our usury limit, verify in your state what the usury limit is. So why would someone invest in real estate with you?
First they understand real estate and they consider it a safe investment.
They believe they are in a good equity position in case they have to foreclose. By the way never over encumber a piece of property with 3rds, 4ths and fifths. Because I always see 25% equity in the deals my private investors have a great deal of security.
The amount of return although only 10% is much higher than they would receive in a regular savings account.
Real estate has always been more secure than the stock market and the demographic on the private lender is one in which they no longer what to “gamble” with heir money.
They are afraid to be ‘true’ real estate investors and being a lender makes them feel like they are REIing
This ad has produced over a million dollars in investment capital and cost less than 300.00 to run….
Family and friends
I always caution people not to borrow from family and friends until they ‘know” what they are doing…We have all heard the saying not to mix business with friends… With that said once you have your systems down and you’re confident that you will make solid investments and those around you start seeing your individual paradigm shift they will want to jump on board and help..
There are two ways that you can allow them to help you.
As an Equity partners
An equity partner is someone who is taking the risk along with you and reaping the rewards as well. I caution you not to make anyone an equal equity partner as someone has to be in charge of the decision and your knowledge is worth more than their money.
If you choose this method I would always use a TIC. Tenants in common agreement that will outline duties, roles and percentages of ownership.
As a Lender
Their return is not based on the outcome of the property. It is determined up front and their investment is secured by a promissory note, which is secured by a Deed of Trust.
Credit cards
Depending on your level of motivation and credit worthiness credit cards may be your only means to capital. I know a hard money lender who started out loaning money that he could get off his credit cards and now has over 8 million in assets. A true form of using other peoples money.
The downside is that if you’re are not a good money manager when these cards start coming due and you have spent the resource on living expense then you will be robbing Peter to pay Paul.
Sellers
A lot of the time we don’t know how to ask the seller to help us finance the transaction.. Or maybe it’s just that we don’t have the confidence to ask them. I offer the seller more money if they finance the deal for me. I give them 4 options for a sales price, the one that affords them the most amount of money is 100% seller financing.
When dealing with seller during you presentation you will find out if they need all of their money or if they can take some now and some later.
Assignment of contract
Assignment of contract is the act of taking a signed contract that you have with a seller that includes the following Phrase. “ASSIGNABILITY: Buyer may assign this Contract’
And sell that contract to an investor who will follow thru with the transaction. The assignment money can be as little 500.00 or if the resulting transaction will result in a large profit than 10% of the profit is not unheard of. When you do assign the contract it is important to have all parties release you from any known or unknown liability.
Partner with an Investor
Before you decide to give away your great deal for 500.00 you may want to establish relationships with your fellow investors and enter into agreements to buy the property together.
A simple TIC agreement may be all of the legal paperwork you need and I would always advise that you seek council to confirm the agreements you use are sufficient to accomplish the task.
Concurrent Transactions
A concurrent transaction is where you put the property under contract and offer it for sale, enter into a contract to sell and close moments after you take title.
On your sale contract it is extremely important to include the phrase. ‘Subject to the seller obtaining title” . If you do not include this phrase and subsequently do not purchase the property therefore not being able to sell it to the buyer you may be liable for damages to the buyer.
The major issue with concurrent closing is that you are not on the Preliminary title report. The lender of the borrower requests from escrow a title report which show them the chain of title.
Chain of title is important to the lender to see if there are seasoning issues. Seasoning issues deal with the length of ownership and since you don’t own the property and not on the prelim there could be a seasoning issue.
It has been my experience that seasoning is mainly a concern of the lender when the borrower is marginal from a credit or income point of view. “A” paper lenders don’t seem to like loaning on unseasoned property, in fact FHA requires a seasoning period before they loan.
However there are many lenders who will. You will want to find those lenders in the beginning of your REI career and build a solid working relationship..
Lease option purchases
The use of a lease option can be a very profitable and the ease the requirement of money.
So what is a lease option? Actually it is a ‘lease with an Option” which is a contract to purchase and a contract to lease a property. In most cases a lease with option is for a period of time between 12 months and 4 years. During that time the Tenant/optionee can exercise their right to purchase the property at a predetermined price by giving notice. The purchase guidelines are specified in the purchase contract.
The parties’ involved typically specify the purchase price or the method for determining the purchase price. An example of a method to determine purchase price would be to construct the lease to acknowledge the use of a licensed appraiser to appraise the subject property. However, for residential property, it very common to have named the purchase price in advance.
As you buy using a lease option you will want to make sure that you are not overvaluing the property like you will when you sell the property.
Just a note on lease option selling
Be careful not to over price the property as there may not be incentive for the buyer to follow through with the purchase prior to the end of the lease and option period. It is also a great idea to have a portion of the monthly rent collected to go towards the reduction of the purchase price in the case of the option being exercised. The amount should be between 20 –30% of the monthly amount collected in rent. So if you are collecting 1200.00 per month you may want to give a credit to the buyer of 240.00 to 360.00 per month. This credit is not refundable if they do not exercise their option. however it affords you some confidence that over a 4 year lease of 240.00 per month credit that they are not likely going to walk away and in fact exercise. They would be walking away from their NON-refundable option consideration and in this example 11520.00. You will mitigate this by calculating the proper amount of value in the future.
It is important when creating your lease option to specify a date that the optionee must notify you of their intention to exercise their option. You do not want to allow the optionee to wait until the last day of the lease to tell you that they are not going to exercise their option, if you do you will have little time to find a new tenant/optionee.
Retirement accounts, self-directed IRA, 1031 Exchanges, and PAT accounts round out the remaining sources of money.
With all of this said I still believe that a good marketing campaign will produce enough leads that your requirement for capital will diminish greatly.
One last note.
There has been a ton of dialog about Trusts vs. Subject to investing vs. lease option investing.
At the end of the day you have to invest in the method that you understand and feel comfortable with. Each one of these methods of investing have their place and are worthy strategies and for any of us to ridicule another form of investing is self ridicule for sure..
All of the talk about the DOSC being accelerated is over zealous hype. I believe we all agree that buying property Subject to is a risk and could a trust eliminate that risk? Maybe so…
I look at subject to investing as a rather simple way to create a portfolio of property that I can create enormous wealth from and if a lender ever calls one of the loans my solution will be to pay that lender off. I like subject to investing. So to me there isn’t a risk…
With that said the house which I live in is in a trust and financed conventionally.. So I do see and understand the values of a trust.
As a community of investors we need to get along and learn from one another instead of this bantering going on…but heck what do I know…
[ Edited by IBuyHousesInc on Date 04/21/2006 ]
Also guys if you advertise for local investors to lend you money, make sure that you know that you could possibly violating the local security laws. Always consult with an attorney before you advertise to use someone elses money. One way around it may be to make sure they understand everything about the property. Have them review all contracts with their attorney.
Advertising for money is sort of risky. Be expecting calls from local security officials. You want to have an attorneys advice so you can have an answer for them if they do.
Thank you IBuyHousesInc
Your suggestions/ideas are greatly appreciated.
Thank You