The Big Questions Every Real Estate Investor Should Be Asking Sellers

Friday, October 31st, 2008

Below is a list of power questions to ask every seller when you’re qualifying each lead and negotiating with them. By asking the right questions, you will be able to gather all of the necessary information to make an educated offer.  These questions will uncover their true motivation, give you all the info you need to make a creative offer, and will put them on the spot to give you a better deal.

What is your situation?

This question gets at the heart of a prospect’s motivation. Often times, the person will just open up and tell you exactly why they are selling. This is very valuable information to use in your negotiations. Once you know a seller’s true motivation, you will know whether or not they are in a situation that you can help solve.

If the seller asks you what you mean, just rephrase it and say, “Well, why exactly are you selling? Are you moving out of the area or . . .” At that point, I usually just shut up and let them fill the void of silence with their reason for selling.

Are you just trying to get out from under the debt on the property and sell for what you owe?

By asking this question, you get right to the point. Even if they have a ton of equity, doesn’t matter . . . just ask anyway. You never know what someone will say until you ask. This also preps them mentally to know that we are the type of company that helps people that “NEED” to sell. If they are looking to get too much out of the property, we are on to the next lead.

If someone owns their home free and clear, this question wouldn’t make sense to ask. Use it in every other situation.

Would you be willing to receive payments for your equity over time?

Paying a seller for their equity over time is a great way to accelerate your wealth in real estate. This gets at the heart of being a creative real estate investor. Any time that we can get a seller to take back financing, we go for it. That’s less money we have to bring to closing, and you set up the terms. Usually we just say, how about $x per month until the full balance has been paid. By the way, that’s a 0% loan. Every payment goes straight towards principal. That’s how you build massive wealth quickly in this game.

Do not ever use the words “seller financing” or “owner financing.” Use this simple question that says the same thing and says it in a way that can be easily understood.

Is there a certain time frame that needs to be met with the sale of the property?

Maybe the seller is moving by a certain date whether the house sells or not. Maybe the property is going to foreclosure soon. Whatever reason someone needs to sell fast, you want to know why and what time frame must be met. When you go to make your offer, you craft it so that it meets the necessary time frame needed.

The ultimate big question . . . Is that the best you can do?

I love this question more than any other. It puts people to the test. You’ve been negotiating with them and you get down to the lowest price that the seller says they would take for the property. Then, you say, “Is that the best you can do?” Your nonverbal communication is going to say a lot here so look them in the eyes and say it in a very soft tone of concern. Almost like if they don’t come down on the price more, there’s nothing you can do.

Typically, even after a seller has given their final price, this question will get them down lower. Use it and prepare to be amazed.

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Warning: Your Real Estate Investing Team Will Make or Break You

Friday, October 24th, 2008

Whether you like it or not, you should view real estate investing as a team sport. Going it alone is not an option. It’s not like you are going to be the Realtor, mortgage broker, attorney, accountant, contractor and everything else. You will be relying on other people almost every day. With that said, building a strong team is of utmost importance to any real estate investing business.

Building Your Real Estate Investing Team

Realtor

A Realtor is one of the first team members you will want on board. To evaluate any deal, you have to know what a property is worth. Realtors are a great source to help determine a property’s value. When we first got started, we found a Realtor that agreed to pull comps for us if we would list our properties with him once we eventually sold them. A win win relationship.

Realtors are a dime a dozen so be picky. If you can find a Realtor that invests, that’s best. Anywhere in the business that we can delegate, we usually do. When we go to sell a property, we want a professional to handle it for us so we hire a Realtor.

Mortgage Broker

Often times, when you find a good Realtor, you will also find a good mortgage broker. Every Realtor typically has a primary mortgage broker that they use and vice versa.

If you can find a mortgage broker that does what he or she says, you’ve struck gold! I have found that way too often, when I have approached a new mortgage broker, they tell me that they can do a loan before I even open my mouth. That’s not who you want on board.

We have two primary mortgage brokers on our team. One helps more with refinances and the other to get our lease option tenants qualified to buy from us.

As a side note, on the sell side of the business, we always suggest our mortgage broker to any buyers. They can choose whoever they want, but it’s nice when you know the person doing their loan. Then, you actually know where things are at during the loan process.

Attorney or Title Company

Depending on what state you are in, you will either close on properties through an attorney or title company. In South Carolina, where I’m from, attorneys are used to close real estate transactions.

As a creative real estate investor, you may have to search a little bit to find the right one. You want to find someone that is willing to learn. Most attorneys and title companys are used to doing things the traditional way. There’s nothing wrong with that, but you need someone that is willing to look at nontraditional ways of buying and selling real estate.

Asking for a good referral at your local REIA (real estate investor’s association) is a good place to start looking.

Cash Buyer

This is a valuable asset to the team.  Once you find a serious cash investor or investors, you have the ability to turn a contract into cash quickly. This can provide useful in many instances.

Whether your cash buyer uses their own cash or someone elses, doesn’t matter. You just want someone who is a serious investor and has the resources and experience to close a deal fast with cash. This will be the person you will wholesale or assign properties.

Look for cash buyers once again at your local REIA, classified ads in the real estate wanted section of your newspaper, or just call any investor that markets to buy properties in your area and find out what constitutes a good deal for them.

Contractor

This can be one of the more frustrating team members to acquire. We have gone through many a contractor over the years. Many of the ones that we have worked with failed in one of the three important areas: price, quality, and reliability. If the contractor did great work at a great price, we could never rely on them. If they were reliable and did quality work, their price was through the roof. And if they were reliable and priced well, their work sucked. You get the point.

Eventually, you are bound to find a good one though so keep at it until you do. We have a couple on our team now that I have 100% faith and trust. That’s exactly what you want.

Check out How to Find Good Contractors and The Contractor Success Triangle for more info.

Other Key Team Members

• Appraiser
• Home Inspector
• Hard Money Lender
• Private Investor
• Bird Dog
• Property Manager
• Accountant
• Credit Partners
• Insurance Agent

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Posted in Business Management Systems and Tools, Real Estate Investment Financing Strategies, Real Estate Investment Selling Strategies, Renovations, Tips and Tricks | No Comments »

What Are Real Estate Market Indicators and How Do You Use Them?

Tuesday, October 21st, 2008

Here’s an article from Trevor’s real estate investing blog, theREIbrain:

When professional real estate investors make a move, they do it based on how they predict the market is going. True investors don’t just make an investment or enter a new area on a hunch… they do it because they see strong indicators for future growth based on hard facts and history.

If you are one of the people who makes their real estate decisions based on a guess… hunch… or what your friend said, you could be in for a hard lesson. Of course, anyone can make money in real estate when the market is booming in your area; however, it is the ones who know what to look for that will make huge money in real estate no matter what type of market it is.

So, what do you need to look for so you can get an edge and invest in areas when the market is right? You need to know the market indicators and what they mean. Some of this can be a little brain twisting, so I will go over these concepts in easy to understand chunks.

A Bit of Good Ol’ Economics

To understand these indicators more easily you need to know some basic economics. Remember back to that high school or college economics class? If not, maybe dust off that old text book and take a quick glance in it. I’ll try to summarize it for you as it relates to real estate.

Supply and demand. The basic theory that says the “market price of a good is the intersection of consumer demand and producer supply”. What does this mean to real estate? It means that there is a set price range that consumers will pay for real estate and builders, sellers, developers, etc. should try to supply only what consumers are willing to buy to optimize the price. In real estate, the demand sets the price. If nobody wants the real estate, it will be very cheap. If many people want the real estate, it will be higher priced and will increase (appreciate) more rapidly.

However, real estate prices and market conditions are not as simple as basic supply and demand. Things need to be researched such as why there is a high/low demand, what is driving home sales up/down?, what are people looking for in real estate?, are people making more money now?, etc. Of course, you want to look for markets that have a huge demand with a somewhat low supply for investing techniques such as flipping and wholesaling. These markets have great opportunity for growth. However, even markets with an oversupply of real estate and below average demand can yield decent profits through investing techniques such as lease options and buy and hold for rental.

Okay, back on track here. By now you might be saying, “I don’t need to know any of this because I will know when a market has gone bad or one is going strong“. You are exactly right. You will know when a market has gone bad or is going strong. But by then it may be too late. You want to know when a market will go bad and when a market will begin to boom. You want to know when the market is at its highest so you can sell off and take your profits… and when the market is at its low end just ready to pick up steam again so you can get in the market low and sell for huge profits later.

This is possible not by luck, but by following the market indicators and letting them show you the future long before most people will know.

Real Estate Market Indicators

Okay, here’s some indicators you should be familiar with. Some are more important to others, but all should be reviewed just so you know what you are looking at. Remember, when you are researching your market be sure to look at local numbers and statistics. Real estate values are always local in nature and don’t necessarily reflect what the national market looks like.

Housing Affordability - Guages the affordability of housing based on how well a borrower making the median income can qualify for a loan to purchase a home at the median price. The NAR index revolves around the 100% mark. A rating of 100% means that the median income earner has just enough money to purchase a median priced home assuming a 20% down payment. An index number of above 100% means that the median income earner has more than enough money to qualify for a loan to purchase a median priced home assuming 20% down. A rating of over 100% is ideal for a growing market and higher supply.

Population Growth - Is population growing or shrinking? In general, a growing population means increased demand for real estate. If the average growth over the years for your town is 3%, but a new highway was just finished that goes right through your town and is driving more and more people to discover just how great of a place it is to live… I’m sure the population growth will increase greatly. Let’s say it goes up to 10%. This is a market you will probably want to consider investing in. So look for good population growth.

Employment - Employment is a very good indicator. Is unemployment at an all time high because the auto plants are shutting down (as it is in Michigan)? If so, this may not be the best time to invest because people now don’t have the money to buy real estate and/or are leaving the area in search of new work. Employment is a very good indicator that can help you see an up or down turn in real estate early on. For instance, in North Carolina the real estate market is currently undergoing a boom. Many large corporations are moving into the state and bringing many job seekers with them. Those job seekers are upper-middle income wage earners and in need of housing. In turn, the housing market in North Carolina is booming. Noticing the influx of new jobs was a leading indicator a few years back that a housing boom was in the works. Those who invested then made a mint. However, the market is still booming and investment is very strong as we speak. So… look for low unemployment rates and healthy/growing industry.

Consumer Confidence - This is just as it sounds. How confident are consumers? A real estate market with high consumer confidence should do well. A market with low consumer confidence means that consumers are somewhat unsure about the economy and possibly about their future earning potential. Low confidence often reflects in the real estate markets as a decreased amount of potential buyers, which hedges prices down. Once again, consumer confidence is measured by the NAR (National Association of Realtors). A score of over 100 means consumers are confident… under 100 means consumers are less confident and the real estate market may reflect it. A high consumer confidence often comes with low unemployment rates and a strong economy.

Home Sales - Are homes selling? The sales of homes is an excellent indicator because it is a direct answer to whether the real estate market is doing well or not. If homes are sitting on the market for 120 days and inventories are at all time highs, real estate prices will hedge down and it will become a buyers market. If average time on market is very short and inventories are low, market prices will be higher and the market is ripe for quick “in and out” deals such as rehabbing, prehabbing, wholesaling, etc. Of course, home sales is usually somewhat of a following indicator. It is the result of other leading indicators such as consumer confidence, employment, affordability, and so on.

Interest Rates - How are interest rates doing? Often times interest rates can be an indicator. Lower rates tend to result in more qualified buyers and higher real estate prices. However, rates aren’t a hugely important indicator. If rates are high but consumer confidence is also high, the rates will make less of an effect on the market. Be on the lookout for cash flowing properties when rates are low. Sometimes a percentage point can be the difference between a positive cash flow and a negative.

Of course, there are still many other real estate market indicators that can help you to “predict” real estate trends but these will get you going.

For more of Trevor’s articles, tips and resources, check out his real estate investing blog.

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Two Vital Skills You Must Master in Your Real Estate Investing Business

Friday, October 17th, 2008

To be successful at real estate investing, there are two skills that you must develop: Negotiating and Marketing. And to truly develop and master these skills, it’s going to take study, practice, application, testing, retesting, and knowing the difference between what’s working and what’s not.

It should be your number one goal to become both a negotiating and marketing master! By doing so, you position yourself to turn your real estate investing business into a cash cow.

Fast Track to Real Estate Negotiating Mastery

Get educated!

Here’s a hand full of books to get you started. Selling 101 by Zig Ziglar, You Can’t Teach a Kid to Ride a Bike at a Seminar by David Sandler, How to Win Friends and Influence People by Dale  Carnegie, How I Raised Myself from Failure to Success in Selling by Frank Bettger, and Instant Rapport by Michael Brooks. You can also check out our book, The Advantage of Real Estate. And if you don’t already have a copy, get Dusty’s free real estate negotating CD, “7 Things You Must Know Yesterday About Negotiating Great Deals.”

For more advanced training, check out The Sandler Sales Institute. I’ve studied negotiating and sales extensively over the past 6 years, and Sandler has a system like no other I’ve studied. Very powerful information but only for the serious student.

3 Quick Negotiating Tips to Keep Top of Mind

1. Explore the Prospect’s Decision Making Process

This is done by asking a couple simple questions. Ask, “How do you usually make decisions like this?” and “Is there anyone else involved in making the decision?”

Before you are meeting with a seller, make sure to find out who is involved in the decision making process. You want all the decision makers present when you meet. Otherwise, you lose any control you had. Second hand information will be given to the other party and the answer will most likely be no or you won’t ever hear from them again.

2. Build Massive Rapport

Effective negotiating is effective communication. Communication is comprised of your words, tonality, and physiology and determines your level of rapport with someone.

A great question to ask is, “What contributes the most to communication . . . words, tonality, or physiology?

Surprisingly enough, physiology is 55%, tonality 38%, and words 7%. How about that? The actual words you use only comprise 7% of what’s communicated.

That brings us to mirroring and matching. This is done by using similar body movements, expressions, gestures (physiology), rate of speech, pitch of their voice (tonality), and words and phrases (words). When I am speaking to a fast talker, I’m going to talk a little faster. If they make a lot of hand gestures, I will too. People like people who are like themselves. and you become more like someone when you consciously utilize mirroring and matching.

Building massive rapport is the essence of effective communication. Become excellent at this one skill and you will be on your way to negotiating mastery.

3. Shut the Heck Up

If you are doing the majority of the talking when negotiating, you’re leaving a ton of money on the table. I would go so far as to say that you should be talking less than 25% of the time. Why you might ask???

People mistakenly think that negotiating is all about the product or service being offered. It’s NOT! It’s about the seller, or buyer, or investor’s true goals and needs. I see myself as a professional problem solver when meeting with buyers, sellers, and investors. It is my job to find out if the person is motivated to make a decision, what their true needs and goals are, and if the service that I have to offer would work for them. To get the needed answers, I have to ask good questions, shut up, and listen.

It is especially important to shut up when you ask a question like, “Is that the best you can do?” Oh . . . the dreaded uncomfortable silence. Fight the urge to say anything! Fight it with everything you’ve got. Your bottom line will thank me later.

Fast Track to Real Estate Marketing Mastery

Get educated!

Check out these resources. The Tipping Point by Malcolm Gladwell, Purple Cow by Seth Godin, and The Ultimate Sales Letter, The Ultimate Marketing Plan, and any other book by Dan Kennedy. Also, check out Seth Godin’s blog.

As far as real estate investing marketing courses, Kathy Kennebrook has a direct mail course that we’ve used with success over the years and Peter Conti and David Finkel have some great material. When we were mailing to foreclosure leads, we used their three step marketing letter.

3 Quick Marketing Tips to Keep Top of Mind

1. Test, Test, Test, and Keep Testing

Honing your marketing is a never ending process in business. You can only truly become a marketing master if you become an expert at tracking your marketing efforts and testing what’s working best. You would be surprised the difference that one word can make in a headline, if you use testimonials in your ad copy, what contact information you provide, etc. Run two ads at the same time and see which one does best. Tweak the one that didn’t do as well and run the ads again.

Remember, just because a specific marketing strategy has worked well in the past, doesn’t mean it will work well in the future. As time passes, you must continually analyze and tweak your marketing plan.

2. Focus on Quality Not Quantity

Which is better . . . a marketing strategy that brings in 50 calls a month or one that brings in 10?

That question cannot be answered until it’s looked into further. If you have two great deals from the strategy that produced 10 calls and no deals from the 50, I think it becomes pretty obvious.

You want to determine your cost per deal for each marketing strategy. That will tell you what you want and need to build a successful marketing plan.

3. Consistently Market for Both Sides of the Business

Often times, an investor will put all of their marketing dollars into the buying side of the business. Eventually, they get a deal and transition their marketing from the buy side of the business to the sell side of the business. They stop marketing to motivated sellers and start marketing towards tenants or buyers.

This stop and go approach is not the most effective way to go about this. You should be continually marketing for both sides of the business. One of my real estate investing mentors taught me this early in my career. By having a consistent marketing plan for both the buy and sell side of the business, you position yourself to succeed.

Related Posts

Your 30 Second Commercial

How to Combat the Shopper

How to Turn a Good Deal Into a Great Deal

The Most Costly Mistake You’ll Ever Make as a Real Estate Investor

6 Great Marketing Strategies to Keep the Deals Flowing

10 Great Ways to Find Lease Option Tenant Buyers

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Posted in Marketing, Negotiating, Tips and Tricks | No Comments »

I Won’t Make That $25,000 Mistake Twice : Real Estate Investment Tips

Monday, October 13th, 2008

No matter how good you come out on a property, leaving $25,000 on the table leaves a slight sting. And that’s exactly what happened when our first lease option tenant buyer cashed us out. It all came down to a few sentences in our lease option agreement in the purchase price section. Ever since then, we vowed never to make that same mistake again.

What is a Lease Option

A lease option is when someone rents a property from you for a specified time frame (just like a normal lease), but they also have the option to buy the property. We have found numerous benefits over the years by utilizing lease options as our primary exit strategy as opposed to a straight rental.

The $25,000 Mistake

The purchase price section of our lease option agreement is structured in a way so that you lock the tenant buyer in at a specific price.

Here is how it reads:

4. PURCHASE PRICE AND METHOD OF PAYMENT: The initial agreed purchase price of the Property shall be: ____________________________ ___________________ Dollars, (U.S.) ($___________), until the _______ day of ________________, 20___, then shall increase by _______________ percent (____%) per calendar month thereafter until the exercising of this Option, to be paid in cash or its equivalent, less a credit of _______________________________ Dollars ($______________) and an additional credit of ___________________ Dollars ($_____________) per month credited each month in advance on or before the _______ day of each month, (”Monthly Option Payment”). Buyer’s obligation to close shall not be contingent upon Buyer’s ability to obtain financing. Optionee/Buyer shall pay any and all loan and sale closing costs.

(for information on the real estate investing contracts that we use, check out Louis Brown’s website)

In the first blank, we had locked the tenant buyer in at $239,900 for the first year. They were in a three year lease option and after year one,  the purchase price went up by 6% annually. By the time they bought the property, it had appreciated very well and was worth far more than their purchase price . . . To the tune of us leaving $25,000!!! on the table.

As a side note, the last couple blanks are for the down payment and any rent credits you are giving the tenant buyer.

The Solution

We no longer lock a tenant buyer in at a certain price. Why risk leaving a pile of money on the table if you don’t have to?

In the first blank, we simply write, “See Special Stipulations.” We do not write in a price or a percentage that it will increase, but do still fill out the blanks for down payment and rent credits.

In the special stipulations, we write,

“Purchase price to be determined by appraisal at the time of purchase to be no less than $ X amount. Appraisal to be ordered by the seller and paid for by the buyer.”

And we’re done! Had we structured our first lease option in this manner, we would have walked away from closing with an extra $25,000 in our pockets.

A couple things to point out . . . we make sure to put “to be no less than $ X amount,” just in case we get a low appraisal. And we also specify that we are the ones ordering the appraisal to protect ourselves.

When you lease option property, always keep in mind that you are the one in the driver’s seat. You make the terms, not the tenant buyer.

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