Archive for November, 2014

Appreciation?

As the real estate market shifts in different areas investors must adapt to the changes in both their buying and selling strategies. Many people, including myself, strongly believe that you make your money when you buy a property at the right price. Recently, due to lack of inventory and/or more competition, investors have begun to buy outside my personal comfort level. I see them beginning to buy/invest based on future appreciation. If the appreciation comes the profits will be great but if not then they remodeled a house for a new owner for pennies or nothing.

Just two years ago I was acquiring single family residential properties for 65% LTV, last year I was still picking up a good amount of investments at 70% LTV and today I am having to go as high as 75% LTV. I understand that some areas are hot and demand is high but going above that seems ridiculous for a flip. Buying at a high LTV to rent I can understand but that is a whole other topic. There are investors who have given criteria that they will buy at 90% LTV. These are seasoned investors that buy, fix, and sell homes regularly. I ran into one of these investors the other day and had the opportunity to ask how he is making a profit buying at 90% LTV. He turned to me and said, “Appreciation!” As soon as he said this I already knew his business model. I myself benefited from the recent appreciation he was referring to on a few deals I joint ventured on this year. Essentially, he is figuring out the average appreciation in the area the property is located in and estimating what this property will be worth when it is renovated. He then runs his numbers based on those future appreciated values. Thus, while I am using current values and purchasing at 75% LTV he is buying based on estimated appreciated values at 75% LTV. This makes his true LTV greater than 75% based on current values and he would out bid my offer. When I benefited from appreciated values I still bought based on the current value. When I listed the property and ran a new CMA I adjusted the list price up to the new values. This increase in value was a bonus and nice to have but I did not base my entire investment on this appreciation. In fact, I could have still listed the property at the original ARV, undersold all the other listings on the market, had a better product, and sold even faster.

Hopefully, when you close on a property you buy it with plenty of equity while leaving room to remodel it and bring it back to market conditions. If your purchase price was not low enough, meaning you paid too much, you have already lost money. Assuming this is meant to be a home you want to buy, fix and sell you are now starting off with a low rehab budget. This can lead to a mediocre renovation which will cause the property to sit on the market for a longer period of time and possibly lead to price reductions that will leave very little profit. Now imagine if you were banging on appreciation to make a reasonable profit and the market cools down. You, the investor, now own a house that is worth more or less what you have invested into it. You have now spent weeks and/or months on a project that, after closing cost and real estate agent fees, may not turn a profit or at least not one worth the time. Therefore, make sure you do not buy with the expectation of appreciation. The great thing about real estate is that it is always a great investment because it is tough for it to become a liability unless you let it. You can always rent, owner finance, lease option, trade, etc. but why go to plan B if plan A can work just fine if executed properly.

As investors we all take risks when investing in real estate so there is no need to add another uncontrollable variable to the equation. Appreciation is a great thing to have when flipping a home but it should be more of a bonus when it does happen, not something to be depended on.

Michael VazquezMichael Vazquez has been offering properties to real estate investors significantly below market value since 2006 in both Texas and Georgia. Michael taken on projects starting with just 4 brick walls (literally) to managing his own rental portfolio. When it comes to investing in real estate he has done much more than many twice his age. Michael is always looking for more investors to work with.

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Nine Unique Strategies to Locate Motivated Sellers

There are several rather unusual ways that I like to use to locate motivated sellers. I’d like to share several of my favorites with you so you can find even more motivated sellers in a non-conventional way. This is absolutely the best time of the year to be locating motivated sellers since property tax bills have just gone out to owners in many states AND the holiday season is upon us. As you know one of my favorite techniques to locate highly motivated sellers is using direct mail and during the holiday season sellers are opening all of their mail since they are getting letters from friends they have not heard from in a year. Here are some of my other favorite albeit unusual techniques to find highly motivated sellers.

The first of these is to contact auction houses in your area and work with them to help you find leads on houses for sale. I’m talking about the auction you go to on Friday or Saturday night to buy “stuff”. Where do you think these auction houses get their merchandise? They get it from homeowners who need to get rid of a household full of items. One way to find these auction houses is to look in the yellow pages or google “Auctions” and find the ads that say “we consign estates”. These are going to be the ones you will want to work with. Many times an auction house will be contacted by an heir to sell items remaining in a property to settle an estate or to simply get rid of things remaining in the property after they inherit it. They may also be working with a widow or widower who wants to get rid of their excess furnishings, sell the home, and move into an assisted living facility or with a relative. The next item of business is to get the property sold as well. You can make a deal with the owner of the auction house to contact you when these situations arise, and they will give you the information about the sellers. If you offer a fair price and the auction house gets paid a commission, this is a good way to buy houses no one else knows about.

Another unique way to buy houses that no one thinks about is to contact local attorneys in your area who handle estate, probate, family, real estate and business law. Quite often they will have clients come to them with a probate situation, a divorce situation or a bankruptcy situation or other situation that they need handled. These clients need to sell a property quickly in order to liquidate assets no matter what condition the property is in. If you are a person of integrity and you do what you say you are going to do and offer a fair price, these attorneys will continue to contact you with potential deals. Interestingly enough, you will find that these attorneys talk to one another and you will find yourself getting referral business from other attorneys. This is one of the ways I use in my own business to bring in new leads on a regular basis.

Another way to find motivated sellers is to contact mortgage brokers who deal with private lenders. I have personally purchased several foreclosure properties this way. A private lender would just as soon sell a property they have had to foreclose on to you as they would rehab it themselves or sell it conventionally. This is an excellent way for you to get leads coming into your business, especially if you are just getting started. Very often the same private lender who had to foreclose will finance the same property for you if they see that you are going to get it sold and get them paid off. In addition, this is a good way for you to bring new private lenders into your own business. This is another technique that most of your competitors just don’t think about.

The fourth unique way I use to find motivated sellers is to check various types of ads in the newspapers and online. For example, you can check the marriage notices to find out who is getting married. If you see older couples, you can pretty much assume that they both already own homes and want to sell one or both to buy a home of their own. You can also check the death notices. When someone dies, there may be an heir who now has a house they need to sell. Tread lightly when following up on these leads, you don’t want to offend a potential seller. Send them a generic type of letter explaining that you are interested in buying some houses in their neighborhood. DO NOT refer to the fact that you know the person has died. You can also watch the paper for public auctions, bank foreclosures, and divorce filings. In divorce cases, you will have situations arise where neither spouse wants the property; therefore they are anxious to sell. Or they need to sell in order to liquidate assets.

Another way I like to locate potential deals is to locate vacant houses. I simply drive around and look for them whenever I am out driving somewhere. I will tell you, the more difficult it is to find the owner of these vacant houses, the better a deal you are likely to make. These houses are sitting empty for a reason. It may be a divorce situation where both parties just walked away, or an estate, or perhaps a pre-foreclosure. These are all good lead possibilities and vacant houses are some of the easiest potential leads to locate. In my personal business I use a skip trace service to find the owners of these vacant houses.

Another unconventional way to find a bargain is to make a friend of someone who owns a junk or disposal service. These folks are an excellent source of leads for you. Think about it. Who do people call when they have just inherited a house loaded with junk? Or maybe a widow or widower who needs to have the attic or basement cleaned out? In these scenarios the junk hauler is often the first person to be aware that a sale of the property is imminent based on their conversation with the owner. I will offer the hauler money for the lead and another fee if I actually purchase the property. This keeps him very interested in finding more properties for me to buy. And, once again these are leads your competition knows nothing about.

Speaking of unconventional ways to find deals, how about working with the owners of storage units? Think about it, if someone is putting things in storage, most likely it’s because they are moving. The owner or office manager of the storage unit is going to know it before anyone else and this is a very good source of leads for you. In addition, inside the offices of storage units there is usually a public board where you can post your business cards or a flyer with pull-tabs. When the person comes in to pay their bill, they will see your information. We have purchased properties using this very strategy.

Another great way to find excellent leads is by going to estate sales and yard sales. I know many of you like to do this on the weekend anyway, so here’s a great opportunity to mix business with pleasure. When you arrive at one of these sales, ask the person running it why they are selling their stuff. It’s that simple. I once bought a house where the owners were trying to sell enough “stuff” to make up a past due mortgage payment and they were in pre-foreclosure. If you see a sign that says “everything must go” this is also a pretty good indicator that they might be selling the house as well. Sometimes in estate situations you will see a sign that says “estate sale”, another good indicator that the home might be for sale. If they don’t want to talk to you just then, leave your business card with them and also try to get a phone number to contact them later as well. These sales can be a very good source of leads for you and another idea that your competitors are simply not thinking of.

And last, but certainly not least are your tenants. What an incredible source of leads for you if you are a landlord. We have a tenant referral program where we offer our tenants a credit of one hundred dollars toward the following month’s rent if they give us a lead and we buy the property. We have purchased multiple houses on the same street using this technique. Your tenants are hearing about situations while talking to their neighbors that you would never know about otherwise. When the tenant knows they can make money from it, they will refer these people to you.

We also put signs in the yard of every rental property that we own which helps our tenants start a conversation with a potential seller. They will give the potential seller our contact information as well as getting their information for us. We have some tenants who are fairly greedy and send us lots of potential leads.

As a real estate investor, you always want to be finding new ways to locate properties no one else knows about, and to have between three and five marketing strategies in place at all times.

Kathy KennebrookKathy Kennebrook is a speaker, author and has been actively investing in real estate since 1999, Kathy currently resides in Bradenton, FL and is known as the “Marketing Magic Lady” because she is the country’s leading real estate marketing expert on finding motivated sellers using direct mail.

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