I just spent good half an hour searching for online marketing blogs. Unfortunately all I was able to find is a bunch of crap. Pardon my French. Almost all the blogs I found where so overloaded with ads, had almost no information about online marketing and tried to sell me something. I realize everyone needs to make a living, but what happened to just sharing information?

Has anyone found a decent blog about online marketing?

It all boils down to 3 key indicators, at least for me:

1. location
2. situation
3. deadline

Like you already know the 3 key factors determining the price of any piece of real estate are: location, location, location. So first we look at the location of the home. Is this home in the good area of town? Is it even in the area we do business in? If the main source of your leads is from direct mail, leads should be in the right area of town. Signs, on the other hand, bring leads that are in other states. So check the location first. If it falls into your business area, take it, otherwise pass and go to the next one.

BTW, you have chosen the area you will do business in, haven’t you? Do not spread yourself too thin. We chose to do business primarily in the North east quarter of Atlanta. If I would do business in the whole metro area I can have a drive of more then 2 hours between the houses in the south and north suburbs. Imagine that you have to manage the renovation for 2 houses at the same time which are 2 hour drive apart.

Anyway, back to prescreening. The second thing we will look at is the situation. We want to work with motivated sellers. Not someone who is thinking about selling the house, but with someone who NEEDS to sell. And to determine that we need to know the situation. The situation can be: divorce, job loss, illness, job transfer, can not maintain house anymore, can not afford payments anymore, etc. We need to see a situation where they really need to sell. If the sellers say “I want to….”, pass this deal. You will spend weeks spinning your wheels and in the end come up with nothing.

The third and last thing we are looking for is the timeline. When the sellers need to move? Is it next week, next month, or some time in the future? This is important. If you hear the seller saying “I really need to sell this home in 2 weeks, because I have been transferred to another state and have to start working there from next month.” you have the situation and deadline. If you hear “I wan to sell in next couple months. I would really like to move to this state to be closer to my grand children.” pass this deal. There is no situation or deadline. The key phrase here was - “want to”.

So we have checked the location, the situation and the timeline. All are good we play, one of them missing we pass, or put it on follow up if the deadline is not there yet. If we play we go to the next step - negotiate and sign the contract.

1. Direct mail
2. Referrals
3. Signs

Dirtect mail : the most cost effective and predictable source of leads. 80% of our leads at the moment of writing this come from direct mail. A lot of people I meet say that direct mail does not work. It does not if you do it wrong. For direct mail to work you must have 3 things right: the list, the message and repetition.

First of all you need a list of people to market to - a targeted segment of people. What would be a good target to mail to? People who really need to sell their home? People behind on their mortgage payments? Someone who has recently been divorced? I think all of them are perfect candidates to receive a letter from someone offering to buy their house.

Second you must write to your list about their problem. They are not interested in how big your company is or how long you have been in business. All they care is how they can get rid of their problem. So write to the people who are behind on payment about their situation and how they can benefit by calling you.

Third thing you have to mail them multiple times. Sending one postcard to 1000 people will not do the trick. You must, I repeat, you must mail them at least 4 times. Would you like to convince 1000 people 25% of they way or 250 people 100% of the way? The choice is yours.

Referrals : do not be afraid to open your mouth and tell other people what you do. The longer you are in business the more people will know what you do and refer othes to you. Do not be afraid to ask the sellers to refer others who need to sell their house to you. This does not cost you a dime, but brings great results with time.

Signs : the best way to get a quick inflow of leads. Follow county and city ordinances -you do not want to pay fines for illegal signs. Signs work great for a very short time. Put out 20 “we buy houses” signs and you will get 20 to 100 calls depending on the weather and where your signs are. The only catch is that the leads are unpredictable: your sign may be on the north side of town and the lead will come in for a house on the south side, more then 1 hour away, or better in a different city or even state.

If you do these 3 things and do them right your phone will ring day and night with motivated sellers calling you with houses they are ready to get rid off.

So what are you doing now to attract sellers? Is it working? Are you ready to try something that does?

1. Attract Sellers
2. Prescreen Leads
3. Negotiate and Sign Contract
4. Fund and Close the Deal
5. Get Property Ready to Sell/Lease
6. Attract Buyers/Tenants
7. Prescreen Buyers/Tenants
8. Close Quickly
9. Cash Check and Repeat

These are the steps we go through every day in our business. This is all you have to do from beginning to the end with one property. After you are done with your first one you will be able to juggle multiple properties in different steps and still get them all to the check closing step, but the first one is the most challenging and the most fun.

In the next post we will start on Step 1. Enjoy the ride!

Since then we have revamped our marketing to sell and now we are working on improving our buying marketing. Just recently we have redesigned our website to sell your house fast in Atlanta. We are currently working on couple more websites some of which are real estate related and some are not.

I have made a commitment to myself to blog more often about what is happening in our business and share my knowledge on how to start investing in real estate.

I will see you in the trenches.

So what other ways can you purchase this house? The conventional way would be to go to the bank and get a loan. But wait, there is more. With current situation in lending industry the best deal you will get will require you to put at least 10% down and your interest will be somewhere in 9-10% range. So you will need about $15k to put down and you monthly payment will be $1,140 just for principal and interest. Add taxes and insurance and you are looking at $1,400+ per month. So the conventional way you need more money to put down and your payment is higher.

Also you can go and borrow hard money. Hard money is called hard money, because there are hard rules. You will have to pay about 5 points which is 5% of the loan amount and you will be able to borrow about 70% LTV. LTV stand for loan to value. So if in this case the value is $163k, so LTV comes to about $115k. So you need to buy properties way bellow market value and it will cost you about $6k to get this loan. So in this case you need money up front and the payments are high and LTV is low.

So considering the 3 ways you can buy houses, the Sub2 way looks pretty darn good. You do not need to go to the bank and apply for a mortgage and you do not need to borrow hard money. Plus the monthly payment is usually lower and the mortgage is not showing up on your credit report. Once you get about 10 loans in your name you will see that it is very hard to get more.

So the moral of the story is that in current market, at least in Atlanta area, there are so many houses for sale that we do not buy any other way, but subject to existing loans.

Leverage is ability to use OPM - other people’s money. You can put 10% down on a house and borrow 90% of the purchase price to buy a house. Try going to the bank and borrowing some money to invest into stocks. I have not met anyone who has succeeded.

So lets look at a simple example. I have $100k in and John has $100k. I go out and buy 10 houses worth 100k putting 10% down on each. Now I have 10 houses worth 1 million. John goes out and buys $100k worth of stocks.

Lets say that John’s stock portfolio earns him a whopping 20% return on investment and after a year he has $120k. My real estate portfolio on other hand is not doing so well, it is growing at a pathetic 5% rate, but because of leverage my portfolio now is worth 1,050,000. So John made 20k and I have made 50k. But that is not the end of the story. My 10 houses have tenants in them, I am making modest positive cash flow every month of $50/mo times 10 houses = $500 per month, plus my tenants are paying down my mortgages and I am depreciating the properties to create a loss to lower my tax basis.

The moral of the story is that if you use OPM you create leverage to increase your gains.

Remember real estate created the most millionaires then any other investment strategy.

Chain of Title is the real estate property ownership history. You may think that only current state of title is important, but in reality last couple years of ownership are important because of two words: mortgage fraud.

Here is the most common scenario of mortgage fraud. A scammer, mortgage broker and crooked appraiser work together to pull this off. Let’s say a scammer buys a house worth 100k, appraisal is done to show that house is worth 150k, mortgage broker falsifies documents and buyer from behind the interstate overpass is brought to the closing to sign the papers. The homeless buyer gets his $100 for troubles and $50k get split up by the 3 scammers. New mortgage never gets a single payment made and the house goes into foreclosure.

Banks are not dumb, after couple hundred cases like this they instituted a new requirement – Title Seasoning. What they saw is when house gets sold 2-3 times in a short time period the loan goes bad in much higher number of cases versus the cases where houses where sold only once every 2-3 years. So if the buyer wants to get a loan to buy a home the present owner has to own the home for at least 12 month in most cases.

So if you just bought the home for 100k, put in 20k worth of renovations and now are trying to sell this same home 2 month later will you have a title seasoning issue? To the bank this looks very similar to the mortgage fraud. House was bought for 100k and being sold for 150k in 2 month period – red flag goes up.

So how can you overcome this little issue? The answer is Land Trust. Land trust in essence is just a bunch of papers. It is designed to own real property. For the Land Trust to exist there has to be 3 ingredients: Land (we have a piece of dirt with everything stuck to it in semi permanent way), trustee and the beneficiary. Beneficiary is the entity who will benefit from this trust and trustee acts on behalf of beneficiary. Conveying the property into a land trust does not break the chain of title. If you own the property for 2 month and the previous owner owned for 4 years, when the new lender will request a title binder from the closing attorney title seasoning will show 4 years and 2 months. The event of conveying property to the land trust will show, but not break the chain of title.

Here you have it. We buy all our properties now into a land trust. This has too very good side effects: limited privacy and limited liability. I will not go into details, but if you will be dragged into a courtroom that is where that limit will end.

And one quick note. Never, ever buy property on Quick Claim Deed. Always go the real estate attorney’s office (title company, escrow agent), order title, pay closing and get title insurance. To close on 200k home here in GA costs me around $700 and title insurance another $700. Considering how much money is at stake this is a small price to pay.

Ok. I am done ranting. Now really think, would a desperate person spend $200 to place a classified ad in the newspaper to give away their house? I do not think so. Here we have the very first mistake that most of real estate investors make - calling on classified ads in a newspaper where you need to pay for classified ads.

Second most common mistake I think is placing an ad “We buy houses” in the local newspaper. Have you looked how many these type of ads you see there. Last time I checked, I counted 13 “We buy houses” and 19 others with a different wording, but meaning exactly the same. Stop following the herd. Do something different.

Third most common mistake I see beginner real estate investors making is wrong approach to direct mail marketing. They either

1. select a very small area and mail them constantly
2. they mail the whole city one time.

In the first case investor would mail only to 1000 homes in a subdivision where about 10 homes get sold every month and they will continue mailing these same homeowners every month. This approach can not produce enough leads to have a deal to recoup marketing expenses.

In second case the area is too big and repetition too small. You need to mail at least 3 times to the same person to produce results.

So my advise would be select a big enough area and target your prospect sellers. Targeting means that you are looking for something specific. It can be landlords who just evicted their tenant, homeowners who can not make their mortgage payments or someone who listed their home 3 times and could not sell it. There are ways to get your hands on the list of such homes, you just have to spend some time or cash.

Be creative!

All three parties benefit in this situation. Obviously we benefited by 6k, the seller benefited, since they got rid of the house they did not want or can afford to keep and the buyer benefited by purchasing 22k of equity with 6k.

On one hand wholesaling is the great way to make a quick couple thousand, without taking possession of the property. All you need to do is to market to attract sellers, prescreen sellers, go out construct and present offers, negotiate, sign the contract and do the due diligence. Once you have the contract signed with the seller you must market to attract buyers, show them the property, etc.

On the other hand wholesaling is the great way to buy properties. You do not have to do any of the above! All you have to do is bring 6k to the closing and you own property without signing for debt or borrowing hard money and you made 22k. This is a great way to buy your rental properties, since now the lending industry is in big turmoil and it is almost impossible to get 100% financing for investment loans. Think about is, on the home worth 230k the bank will ask you to put down at least 10% which is 29k. You can buy 4-5 subject to wholesales with that kind of money.