For Sale by Owner Ads
If people try to sell their properties and don’t want to get a Realtor involved, they have strong motivation to sell. Maybe they don’t want to pay a real estate agent’s commission, or they don’t have time to get an agent. These ads can lead to finding a good deal quickly, because you can negotiate directly with the decision maker.
Lease with Option to Buy Ads
These involve real estate investors doing lease options. They may be motivated.
They may be willing to do owner’s terms. It’s definitely worthwhile to find the other players in the market who are doing lease options.
When you’re calling For Sale by Owner and Lease Option ads, here are the three questions you should ask. (1) Are they motivated sellers? (2) Are they buy-ers? (3) Do they have any money? By probing for answers to these three questions, you’ve tripled your rate of success with every call.
For Rent Ads
For Rent ads are among my favorites to call on. I’m not saying this is the only way or the best way to find deals, but in every major city where my students have said no deals exist, I can call from 50 to 100 For Rent ads and find deals.
Who’s on the other end of a For Rent ad? Either a landlord or property man-ager. The property must be empty because they’re running a For Rent ad. Likely, the tenants left it in poor condition, and they aren’t collecting rent on it. They just may be motivated.
Additionally, if they’re landlords, they probably bought the property years ago, paying half of what it’s worth now. Even though they’ve heard its value has in-creased, in their mind, it’s still worth what they paid for it. Therefore, they might be willing to sell it for less than current market value.
Let’s say a house worth $150,000, and the rent is $1,000 a month. Does that mean the landlord is making $1,000 a month? No. He’s spending a lot of time and
effort to take care of the property. He’s managing it, or paying a manager. He’s spending a lot of money on repairs. Currently, it’s empty. So run the numbers, and ask the following questions:
■ How long has it been empty?
■ How much have you spent on repairs in the last two or three years?
■ How much time do you spend going back and forth?
■ How much time do you spend worrying about it?
■ How much time do you spend trying to rent it?
■ How much time do you spend with paperwork and phone calls?
■ Are you free? Can you travel?
■ What is your hour worth?
Then run the numbers with the landlord. He’s not collecting $1,000 a month because it’s been empty two months this year, so he’s only collecting $833 a month.
He has all of these expenses and headaches. Point out, for example, that in the last three years, he spent $3,000 fixing the property, painting it, replacing carpets, and so on. That’s $250 a month. With repairs and vacancies, he’s really only making be-tween $500 and $600 a month.
On almost any rental property, you can take 30 percent to 40 percent off the top for vacancy, management, and repair expenses. That’s something most invest-ing books and seminars never tell you. You may be an exception. You may have a rental property that’s been full all year and has had no repairs. If so, you’re very lucky. Over a 5 to 10-year period, you’ll still have to fix things, paint, replace car-pet, or replace the roof and hot water heater. Managing property takes thousands and thousands of dollars.
After you point out that he’s really only making a fraction of what he as-sumed, he could be motivated to let you take over the property, so that he can get out of the headache business, get out of the repair business, get out of the tenant business. Then he’d be free to travel and pursue his hobbies. Talk with him about doing a lease option or selling the property. Make a quick profit and move on.
Most people call 20 For Rent ads and only reach one or two people. They leave a bunch of voicemails and no one calls them back. After that, they quit.
I’m willing to call at least 100 For Rent ads. Out of 100 ads, I usually get through to about eight people. I leave voicemails with the rest, and between four and eight people call me back. So I’m lucky to get a 10 percent to 15 percent re-sponse rate.
Most people lose interest and quit too quickly. One of my deals in South Florida resulted from making 150 calls on For Rent ads. I only got a hold of 15 people, with callbacks and leaving messages. But of the 15 people, I connected with one landlord who had two deals and had only closed on one of them. I whole-saled his condominium and made $28,000. Do the math: $28,000 divided by 150 calls equals $187 per call.
The way I look at business is this: I don’t care that I called 150 people and most people didn’t call me back. I look at what I make per phone call. Now that’s just to find the deal. Then I had to put it under contract and find a buyer, so there’s more work involved than the initial round of calls. And deals do fall through occa-sionally; nothing works out perfectly.
But consider this: Would you make a call knowing you’d earn $187 to make it? Let’s say you’re not very skilled yet, and you only average $50 a call. Would you still be interested in making a call to earn $50? Do you currently make $50 for every phone call you make? Of all my students tracking calls on For Rent ads, the least successful one I’ve heard of is making $30 a call—and he didn’t follow my system. Still, that’s not bad. Unfortunately, most people will make a few calls, get no response, decide this doesn’t work, and quit.
Consider this: If I’ve made 149 calls and still haven’t found a deal but have confidence that I can make an average of $187 a call, I’ll make another one (or whatever the call ratio is). The point is this: Calling is worth your time and effort.
Track the number of calls you make, the number of responses you get, and the amount of money you make. I promise, if you call For Rent ads in the next year, you’ll find deals.
What are the two things landlords and property managers hate about their property? (1) Collecting rent, (2) Making repairs. If tenants always paid their rent on time and there were no repairs, no one would complain about rental property. So when you talk to landlords, keep in mind you’re here to fix problems. Tell them, “I have a program. I need to see whether you’re qualified—you might or might not be.
This program will get you out of the repair business and make sure you get your rent on time, all the time. Would you be interested? Please call.” (Leave your name and phone number.)
Most beginners in real estate investing call with an apologetic attitude. They want something the owner has and aren’t sure they’ll be able to get it. So using the script on the previous page, you’re posturing. You’re telling them you have some-thing they might not be able to get. You have to see if they’re qualified, because you have the goods: the information, the knowledge, and the program.
For Sale through Real Estate Agents
Usually, if a house is listed by a real estate agent, the sellers are not highly moti-vated. The real estate agent has done an appraisal and run comparable sales, advis-ing the seller to list the property for what it’s worth—or even more. However, these agents might know of some motivated sellers. And remember, you’re always build-ing your team of experts.
Real estate brokers are valuable team members for several reasons:
■ They know the market.
■ They can help you assess what properties are worth.
■ They can help you find a buyer and sell a property.
Probate, Estate Sales, Divorces, Bankruptcy, Foreclosures, and Auction Announcements
You can specialize in one or two of these areas. Taking ethical shortcuts, I suggest you find out who works in these areas at the courthouse and take them to lunch. Tell them you’re looking for deals in real estate and that you’ll pay them a finder’s fee. The transactions become public record, but you still must respect client confidentiality.
Read announcements about upcoming auctions and court actions. Then at-tend them.
■ You might find an incredible deal.
■ You’ll meet buyers who have cash.
Talk to everyone there, get contact information, and use it to build your buyer database.
Obituaries
If an obituary is in the newspaper, what does that mean to you? The deceased usu-ally leaves behind real estate, furniture, cars, and family members who live all over the country. You could be doing the relatives a service by writing or calling them and saying, “I am so sorry to hear about your loss, but if you have any property you want to dispose of quickly, I can help. I might be interested in taking it over.” In a lot of cases, people say, “We don’t want to mess with this house. The children and cousins have moved across the country. Just take the house; you’re doing us a fa-vor. Yes, we know we’re selling way below what it is worth, but we don’t have time to deal with it. There are too many memories there. Just take it.”
Investment Property Ads
Investment Property ads are for properties being sold by investors and landlords.
They may not know enough about investing or analyzing or managing property.
They may be losing money on their properties or deciding to retire. Find out their situations; these sellers could be highly motivated.
After a rich man in Nashville passed away, Bill, a friend of mine, read the obit-uary in the newspaper and called the widow. She had just inherited 14 apart-ment buildings and 20 small houses—property she didn’t want to deal with.
She was happy to sell them to my friend for 50 cents on the dollar. She offered owner’s terms and made a lot of money.
He also asked her the magic question: “Do you have anything else you’d like to sell?” She took him out back to the barn, where she showed him 20 col-lector cars her husband had acquired. He bought them all for $50,000, and sold one of the 20 for that exact amount. The proceeds from the other 19 were pure cream on top.
The lesson is this: Be aware, look in the paper, and make that phone call.
Why did Bill find all those deals and make all that money, while I didn’t? Be-cause he picked up the phone and asked. I wished real estate was a bit more complicated than that, but it’s really not.