Category Archives: Education

4 Questions with Sharon Vornholt

Hi all,

A couple weeks ago my friend Sharon Vornholt posted an interview she did with me. She asked me 4 questions about being a real estate investor – it’s part of a series she’s doing on successful women in real estate, which is fascinating to read since she’s interviewed so many wonderful women.

You can read the interview here.

Be sure to browse the other interviews she’s done in this series and her wonderful podcasts.  Great info!

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How to Talk to Motivated Sellers

Hi friends,

Getting involved in real estate investing promises at least one terrifying experience: talking to a motivated seller the first time (and even the second, third and fourth time…).  I remember the first few months I started getting calls, and how cold my hands and feet went, how shaky my voice sounded, and how tightly I held onto my script!

My friend Sharon Vornholt hosted a fantastic call with me on how to approach talking to motivated sellers, and we literally flew by the seat of our pants doing a role play call.  I was really nervous going into it, but it ended up being a blast.

I hope you enjoy it.  Write me an email or leave a comment and let me know how you liked it!

 

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A Formula Doesn’t Always Work

I got word yesterday that a buyer is ready to move forward with a property I have under contract.  Always great news!!  But if I’d followed the typical wholesaler formula that is plastered all over the internet, I probably wouldn’t have this deal.

Here’s why.

The typical formula a savvy beginning investor would find out there for wholesaling looks like this:
ARV (After Repair Value) x .60-.70 – Repairs – Your Assignment Fee = MAO (Max Allowable Offer)

Take the neighborhood below, for a typical 3/2/2, following the typical formula:
$110k x .70 – $20k – $5k = $52k MAO

But look closely  at the properties that have sold in this neighborhood:
Screen Shot 2014-06-23 at 8.40.17 AM

First notice that I didn’t cross a major street for comps.  I also stuck to recent comps, no older than a year, putting more emphasis on the most recent ones.  So the average ARV is about $110k, and the average investor purchase price is in the $70’s.

Most of these sold comps had pictures or good descriptions of the condition.  The ARVs usually had replacement windows, but only basic upgrades; all had new paint and were fresh and clean. Most of the investor comps  were in decent condition, only outdated and possibly needing a couple major repairs like a new roof or heating and air units.

Based on this information, an end buyer could pay up to $75-77k for the house.  That’s over $20k MORE than my formula told me.  So in this case, you could get it under contract for $70k and still flip it for $5k. (Get it under contract for less and make  more! But $5k is a good average wholesaler’s fee.)

I’ve been outbid 3 times in the last two weeks and that’s frustrating!  But it reminds me to pay closer attention to the comps and hold loosely to my formula – the market determines what we can pay and nothing else.

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Filed under Comparable Analysis, Deals, Education

Live and Learn Lesson: When to Submit your Contract to the Title Company

I’ve closed several deals and have intensively researched and followed many other investors’ transactions to avoid those hard lessons that are learned by experience.  They’re inevitable; but I’d like them to be as few and as minimally damaging as possible.

Here’s one for you that I never really processed before now: Do not submit your wholesale contract to the title company before you have your buyer.  Maybe it’s obvious to everyone. And there are exceptions; but mine wasn’t one of them.

Two weeks ago I put a house under contract.  The ARV was $105-115k. The as-is value was about $80k. And I had it under contract for $53k.  A great deal, right?

The unique facet of this deal was that it was currently rented to long-term tenants for slightly below market rent, and the sale of the property was absolutely contingent upon the tenants being able to stay for 3 more years.

So yeah.  I had a difficult time finding a buyer.  And in the end, the seller was so nervous about the quality of the buyer that she backed out.  (I’m sure there are negotiating and deal-structuring lessons in there for me as well, but I just haven’t realized them yet.)

But as soon as I got it under contract, I submitted the paperwork to my closing agent.  It was a great deal…it would close quickly, and I wanted to have the title work ready, since in my experience title companies can get backed up around the holidays.

My mistake.  I’ve always waited until I had a buyer under contract (or an assignment contract signed) before submitting the paperwork, and I should have done that this time too.  Now I have no deal, and a $350 invoice for the title examination.

Boo. But, hey, now this doesn’t have to happen to you!

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Yellow Letter vs. Professional Letter vs. Postcards

I’m beginning to think that a marketing or statistics degree would have really helped the last 3 1/2 years I’ve been trying to unravel the mystery that is direct mail for real estate investors.  In any case, at least my Letters degree taught me how to think critically and connect seemingly unrelated ideas and concepts.  And that’s helped a lot.

For almost two years I’ve tried to figure out the great marketing question most real estate investors try to answer: Yellow Letters or Professional Letters or Postcards?  And I still have no answer.  But I’m beginning to wonder whether I need to.

First, I’ll lay out what I know.  It’s all about gathering information and data, so I’ll give that, even if it’s not as quantifiable as it should be.  Last year I closed on 5 houses, all from a single campaign (meaning that I contacted the same lists over and over).  They received one yellow letter and the subsequent letters (sent every 4-6 weeks) were white, professional letters.

So since I saw a rhythm developing, I thought I’d up my marketing but also outsource it since I’m a stay-at-home-mom to three munchkins and also don’t want to eat, sleep and breathe REI.  So at the beginning of this year I shifted my marketing.  I signed up with Postcardmania (a fantastic company), and switched from professional letters to postcards.  I added a brand new list to my campaign (both to increase leads and provide a “control” group for my marketing experiment with the postcards).

The results were terrible.  Really, truly pathetic.  I even SOSed a friend who is a successful investor about my postcard woes and apparently I’m not the only one.  I had less than 1% response rate and no deals (so far).  The failure could have been for reasons other than my knee-jerk theory that postcards just don’t work. I  have to consider that, because well,  it’s worked for others.  But at the very least, the problem of sorting out why postcards didn’t work for me (design? list?) seems too big for me to focus on for now.

After 6 months of postcards with no deals and scanty leads, I began re-thinking and researching like crazy (usually in forums – the best way, in my opinion, to really find out what works with REI marketing).

And I’m slowly coming to another conclusion all together.

If we know that some people have great success with postcards (and they do), others with professional letters (yep) and many, many others with yellow letters (resounding yes), then maybe the type of mailer isn’t as important as I thought.

I noticed that successful investors tend to mention over and over NOT the types of mailers they send out, but the types of leads they target, or their commitment to follow ups and/or drip campaigns.  Not everyone focused on both, but the successful ones focused on one or the other,  and usually thought it was much more important than the type of direct mail they sent.

Last year I found success in sending a drip campaign of professional white letters to absentee owners over the course of a year.  I don’t think the success came in how targeted my leads were (they weren’t), but in how many times I “touched” them.  The house I bought last January took 5 letters before they called me! 5!

Perhaps what I should have focused on was getting high quality, targeted and motivated leads AND/OR continuing the drip campaign I was already having success with.

Now, I’m not sure how the postcards play into this, honestly, since I did a drip campaign and kept the same lists and added another similar list.  Which brings me to the next idea that I’m beginning to think is important: do only what works for you and chase that alone.

I don’t know why postcards aren’t working for me.  I could probably find out.  But I need to do what already works to find success.  Really, all of us are groping in the dark to find out what works.  And when we stumble on something that works for us, we need to stop, clear our heads of other distracting and tempting paths, and focus only on that. 

I thought I was doing that with postcards.  It’s taken me 8 months to see that I’ve lost nearly all of my momentum, and I should have not let it lose any at all.  So I’ll need to go back, start sending professional letters again, re-gain my momentum, and only once that ball is rolling could I consider stepping aside and really looking into figuring out what went wrong with postcards.

There’s a phrase I came across in a Bible class I took in college: the “day of small things”.  It describes what it took for the Israelites to rebuild their city.  Our broken nature might naturally gravitate toward big bursts of effort, or seeking excitement and distraction, but to build anything substantial, it takes “not despising the day of small things”.   We must put one foot in front another, again and again, every single day.  Faithfulness has fruit, apparently.

Staying focused is so hard for me, but it takes focus to be consistent, and it takes consistency to build momentum.  I’ve felt that my success with REI has been a boom and bust cycle since I started in 2009 (not just felt – it’s in my marketing and deal statistics!). And I believe that’s from a tendency to become distracted with perfecting my marketing (or business model, or this or that) rather than focusing only on building the momentum of the particular strategy I have already discovered works for me.

What are your thoughts on types of direct mail pieces?  Do any of my ideas resonate with you? Do they agree or contradict your experience?  I’d love to hear about it.

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Breakdown of Closed Deals in the Past Year

I’m one of those dorky people obsessed with detective novels.  I love a great mystery and all that.  (My absolute favorite is the Lord Peter Wimsey series, by Dorothy Sayers.  If you like mystery, read this!)

I look at my marketing as a mystery to be solved.  I’m constantly trying to figure out the perfect marketing strategy, and I’ve learned that you never know when a piece of information that initially seems irrelevant turns out to be critical in discovering the truth.  So I try to collect as much data about my campaigns as possible.

In that spirit, I’ve come up with a breakdown of the 5 deals I’ve closed in the last year.  You can take a closer look below.

My Impressions:

  • Follow Ups Matter: 4 deals out of 5  received 2+ letters from me before they called.
  • Are spring and fall busier times than winter and summer?
  • Are older sellers (50+) more motivated than younger ones?
  • Free and clears might be a better criteria for my absentee owners, rather than out of state with equity.
  • Are Absentees better than Probates? 4/5 deals closed were absentee owners
  • Vacant houses are gold.
  • I wish there was a way to know about problem tenants before the eviction process.

What do you think?  Am I missing any key pieces of information that could be important?  Which information do you pay attention to?  What have you noticed when you’ve looked at trends in deals that you close?

#1 Barclay House
3/1/1 in solid middle class neighborhood
ARV 100k
Repair level: moderate cosmetic
Seller demographic: single, female, age 50+
Seller motivation: desperate
Seller circumstances: moved out of state for job 5 years ago
Seller financial situation: not in default, but close to it, mortgage of 60k
House situation: occupied by “squatting” tenant buyer
Exit Strategy: Executed L/O then executed option and sold to investor
Mailing List: out-of-state absentee owners with equity
# of Mailings before calling: 2
Date called: 3/23
Date of closing: 4/25

#2 Elmview House
3/1.5/2 in lower middle class neighborhood
ARV: 75k
Repair level: full cosmetic
Seller demographic: son of owner, a widow
Seller motivation: motivated (difficult to tell)
Seller circumstances: father passed, mother moved out of state to live with son
Seller financial situation: owned free and clear, some city code violations
House situation: vacant and vandalized
Exit Strategy: Wholesale (double closing)
Mailing List: probate
# of Mailings before calling: 2
Date called: 8/1
Date of closing: 9/24

#3 Beech House
3/2/2 in middle class/upper middle class neighborhood
ARV: 115k
Repair level: none, completely remodeled
Seller demographic: married, mother of previous owner
Seller motivation: Very motivated
Seller circumstances: Bought house for son, who was injured and unable to make payments
Seller financial situation: owned free and clear
House situation: Currently occupied with long term tenants
Exit Strategy: Cash offer rejected, owner finance offer accepted
Mailing List: Out-of-state absentee owners with equity
# of Mailings before emailing: 1
Date emailed: 6/4 then 7/25
Date of closing: 9/25

#4 Toledo House
2/1/1 in middle class neighborhood
ARV: 110k
Repair level: moderate cosmetic
Seller demographic: widowed, age 80+
Seller motivation: Very motivated
Seller circumstances: Long term absentee owner, unable to take care of house, with bad property manager
Seller financial situation: owned free and clear
House situation: occupied by non-paying tenants (grandsons of “property manager”)
Exit Strategy: Cash offer rejected, owner finance offer accepted
Mailing List: Out-of-state absentee owners with equity
# of Mailings before calling: 5
Date called: 10/1
Date of closing: 11/4

#5 NW 17th House
3/1/1 in middle class neighborhood in transition
ARV: 100k
Repair level: full gut rehab
Seller demographic: married, age 60+
Seller motivation: Motivated (difficult to tell)
Seller circumstances: co-owner of childhood home with sister, who had a stroke
Seller financial situation: owned free and clear
House situation: vacant, a hoarder house that needed bio-hazard clean up crew
Exit Strategy: Wholesale (double closing)
Mailing List: Out-of-state absentee owners with equity
# of Mailings before calling: 5
Date called: 10/24
Date of closing: 1/7

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Filed under Deals, Education, Marketing, Planning

Interview with Sharon Vornholt

Hi friends,

I wanted to post here the interview I did with Sharon Vornholt of Louisville Gal’s Real Estate Blog.  Sharon is a real estate investor who has a wholesaling business and I’ve learned so much from her blog and articles.

She asked me to spend some time talking with her about my REI story.  You can see her post here (which also has a link for the podcast), or you can watch the interview below.

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Liquidated Damages: Know How to Use Them!

I’m working on a rehab right now for our second rental property.  It’s nothing too extensive – mostly just cosmetic.  I’m using a smaller contractor to do the repairs and painting.

And it’s just not working out.

Has that happened to you before?  I don’t have a lot of experience doing rehabs, but I do have a fair amount of experience with contractors.  Most of my family on both sides are small business owners, and my grandparents owned an interior design store.  My mom says that she always heard my grandpa say that “you can find a contractor who does good work, has reasonable prices, and shows up on time – but not one who does all three”.  It’s the running joke, isn’t it?

So this contractor was the first two.  He’s reasonably priced and has done great work so far, but has not done what he said he would do.  I’ve had to practically stalk him to get him to show up or answer my questions.  He and his guys have gone completely MIA several times.

I. Just. Don’t. Understand.

Last week I sat down to talk about when his work would be complete.  The contract stated it would be done the 18th and it was already the 20th – and he had at least 2/3 of the work to go!  He promised it would move faster than I thought, but then I heard they were letting a helper go and it would be ONE GUY working on the house.

Eventually we faced off and I canceled the contract based on his (several counts) of breaching the contract.  He wanted to be compensated for his work.  I said that considering that I’ve already paid him 40% of the contract price and that he’d done about 30% of the work, I thought we were square.

Obviously not.  He had his attorney call me, he was going to place a mechanic’s lien and sue me, etc. etc. I’m fighting the panicky feeling I fight when anyone male or in authority (or, Lord have mercy, both) is upset with me.  But I just couldn’t see how he wanted more.

After an afternoon of ill-will, angry words and non-sequitur lines of argument – I relented.  I just wanted a happy Thanksgiving, you know?  I ran over to the house and left a check for him for $400 more than I think I should have paid him.

The reason I’m forced to do what I don’t want to do is because of this little bitty clause I left out of our contract.  Liquidated Damages.  My lawyer says that if isn’t spelled out in the contract what happens when he misses a deadline or otherwise breaches the contract, it’s difficult for me to win in court (in Oklahoma at least).

So learn from me.  Whether you’re getting work done on your personal home, a rental property or doing a flip:

1) Have a contract.  Don’t go on a handshake.  Write down every single expectation you can think of. Exactly which materials will they use?  Exactly which work do you expect them to do (be as specific as replacing outlet covers)?

2) Spell Out Payments.  Will he get a deposit?  Progress payments?  Will you hold back 15% for touch ups after they finish painting?  Will labor be paid separately from materials?  Can you use a check?

3) Include Liquidated Damages.  Spell out exactly what will happen if he doesn’t do what he says he will do and vice versa.  Will he be fined a certain dollar amount every day he’s late?  Do you reserve the right to hire another contractor to finish the work after a certain period of delay?  Can you backcharge him for the difference?  Can you cancel the contract without recourse if he fails to meet any part of it?

These things will go a long way with a difficult contractor.  Remember that the law favors the “little guy”, which I assumed was me but, unfortunately, is him.  My attorney reminds me that the judge sees him as a struggling individual living day-to-day with mouths to feed, while I’m an LLC, sitting pretty with cash to burn on contractors.  That might be true in some cases, but not many that I’ve heard of and certainly not mine.

So go to the trouble to make a detailed contract, and be willing to deal with the awkwardness of discussing expectations at the beginning of the relationship.  In the middle of a disagreement, reminding him of what you both agreed to in writing is so much better than dealing with an angry contractor, his attorney and work left undone.

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Filed under Contractors, Contracts, Education, Ethics & Etiquette

Elancing My Research

The word “outsource” keeps popping up everywhere around here.  It seems that every investor I come across is talking about outsourcing their work, and the book The 4-Hour Workweek.  (Have you read it?  Should I?)

Well, with my wrist(s) hurting, I thought I’d give it a go.  I went to elance.com and began researching how to post a job.  How in the world do I navigate that place when I don’t even understand that I want to “Get Services”, not “Provide” them??  Maybe I’m too capitalistic, but I kept clicking “Provide Services”.

I decided to just plunge in and posted a job.  Within 10 minutes of posting, I got 8 proposals!  I now have a total of 14.  The majority are from India, and the rest from North America.  I picked my favorite four and sent them a message outlining exactly what I want them to do, and attached my oh-so-savvy probate tutorial and excel template.  I mean, really, you couldn’t guess that I don’t know how to text! 

I have also received a few more calls!  Whoop! (That’s a Texas Aggie-style exclamation, btw.)  No deals, but calls.  From Vena Jones-Cox’s statistics, it takes 20 calls (prospects) to get 5 quality leads (suspects) to get 1 deal (cha-ching).  6 people have called me so far.

So even when it doesn’t turn into a deal, I go to my excel marketing summary sheet, enter the call, and see that I am ONE MORE CALL CLOSER TO A DEAL.  Yes.  I. Am. 

In other news, our tax sale season is getting close, and I’m getting uber-excited about the opportunities there.  Lists are published/released at the end of April/beginning of May.  I’ll post about that later!

Take care and do your best to have a great week – even if it is Uncle Sam Week!

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First Course and First Slap in the Face

This week it seems that a lot has happened, but when I think about it, it doesn’t feel productive.  I suppose most days fall into that category of a “day of small things”, where our many many days of doing seemingly insignifcant, or unimportant things on our to do list add up to a lifetime of accomplishment.  I hope that’s what this week was.

I bought my first ever REI course at our REIA meeting Thursday.  It’s Vena Jones-Cox’s Real Estate 101.  It might have been the coincidence of her speaking about REO’s, probates and evictions – the very strategies I want to use, or the fact that she focuses on wholesaling (also what I’d like to focus on).  Several investors told me about their experience with Vena, and recommended her course.

I wasn’t tempted when I sat in front of all the gurus who gave their sales pitch at the REIA meetings, but I really liked her and what she had to say.  The kicker was the email coaching and the free t-shirt!  🙂

I’ve learned a LOT asking questions from investors and using my dear friend Google to introduce me to the world of wholesaling.  Bigger Pockets is a wealth of information.  But I needed something to fill in the gaps.  I hope this is it.  We’ll see!

Also, I’ve had my first bad experience in the business.  Considering that I’m not actually “in the business” yet (i.e. haven’t even done a deal), I’m surprised. 

Tell me if what I did sounds unethical.  I am extremely committed to honoring God in every one of my thoughts, activities and relationships, so this felt like a blow to my own integrity and possibly my reputation.

This man was interested in having me do research on probate leads for him on our courthouse website.  We met a couple of times, but I couldn’t get anything conrete out of him.  How did you want to compensate me?  How do you expect me to handle this information?  How long do you want our arrangement to last, seeing as how I am also an aspiring real estate investor and do not plan on researching for you indefinitely? 

I told him I needed to know the answers to these questions so that I could know exactly what his expectations were and how to honor them (if possible).  He was completely vague, and honestly spent more time telling me how much he knew about real estate than WHAT he knew.  You know?  The only thing he asked of me was “not to mention the word ‘probate’ to any other investor”.  I took that to mean, while you’re selling me leads, please don’t tell my competitors what you’re doing for me.  It really restricted me, but I could understand.  Although his secrecy was strange considering probates are a common way of finding motivated sellers in the REI world (even I know that).

We discovered a glitch in the system that prevented us from doing our probate research, and he said he would get back to me.  The weeks passed, the glitch remained, but he didn’t get back to me.  I discovered a way around the glitch and tried to approach him about it.  That’s when he started avoiding me.  Hmm….

Enter Nick Johnson’s great post about how to get into probates while not paying for marketing.  It came at a perfect time, since I’d been spending all these weeks compiling probate leads and wanted something to do with them.

I decided to ask this guy first, since he did approach me first about it two months ago.  I thought he would definitely be interested.  When I called, he dodged me and said he would call back, but (surprise!) didn’t!  I emailed him and laid out what I wanted to do.

POW! BAM! BAP!  He blew up.  He was angry.  He was appalled.  How could I turn on him.  He made it sound like freakin’ Absalom and David.  Please!

I apologized for any misunderstanding, but explained myself as I did above.  Surely even a man like himself could recognize an honest person when they see one?

Nope, he emailed me back tonight saying that he didn’t get back to me because I was “extremely ambitious” (why, thank you) and he was suspicious of me “not wanting to have a boss” (um..why do you think I’m interested in REI?!) and that me turning around and selling leads was his “worst case scenario” (so he assumes that despite us NOT having any agreement, I would never mention probates to any other investor??  That seems crazy!).

“Bottom line I didn’t trust you and that’s why I pulled out.  You seemed so innocent and honest”.  Ouch.  Really?  Because I AM.  I’m so trustworthy I’m naiive, fellow!  And you think I took advantage of you because you helped me “connect the dots”?? Excuse me??  I knew about the courthouse, I knew about getting records, I knew it all.  You did manage to put the spotlight on probate for me, but what’s wrong with me running with it? 

He did say that I could make more money marketing to realtors, and I could make $75/lead.  I don’t know why he told me that.

My husband (who is less suspectible to bouts of panic and depression over what people think of him and tends to scream less than I do), says he’s an ass and there you have it. 

But I can’t help but wonder if I broke some sort of REI law that I didn’t know about. 

In other news, I decided to go into a 30-day buyer’s agreement with the realtor who’s been sending us mls properties in our farm area that have been on the market 180 days or longer.  I tend to think buyer’s agreements wouldn’t be good for an investor, but she’s the only realtor who would work with us at all at this point, and is requiring it.  We’ll see if it goes anywhere.

Phew.  Rambling and getting it out feels so much better.  My apologies to whatever person ends up reading this far.  Verbose is what is I am.

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Filed under Education, Ethics & Etiquette, Probate