The Million Dollar Foreclosure System - Part 11 12-13
Chapter Thirteen
FACE TO FACE
Your face to face visit with the homeowner, in his home, is another chance
for you to make a favorable impression. Bring forth your kind, gentle,
understanding self for the visit. Show an interest in the prospect and his family.
You want them to like and trust you.
Because of what you learned from the homeowner during your telephone
conversation you have arranged for a visit. You have asked the prospect to have
all papers concerning, mortgage loans, deeds, liens, payment books and the
foreclosure notices ready for your inspection.
You will want to read key portions of these documents to get a true picture
of the situation. After you have your program in full swing you may want to buy a
small, portable copy machine to have with you on these visits. Then you can
make copies of all documents to study later. Or ask for permission to take them
with you. That way you can not only study them, but you’ve blocked any other
investor from stealing your deal.
This will free you from sitting at the prospect’s kitchen table for a couple of
hours going through the papers. Instead you can concentrate on determining
loan balances, amounts due on other debts and fees. Then you and the
homeowner will have an idea of what the equity figure is. The owner may not
have a true picture of his financial condition.
Get him involved with calculating amounts due on the various debts, how
far he is behind on payments, what he feels is the value of his home. Let it
become a team effort. Say things like, "How much do we owe on this one?"
13-1
Once you have done your best to determine what he owes, subtract it from
what you have both decided is the fair market value of the home. You can use
your computer to get a free property valuation report online at Yahoo.com by
searching for “property values”. Then you can explain that the figure at which
you have arrived is his equity before other necessary costs are deducted.
Explain about, selling costs, foreclosure fees, fix-up costs, etc. Show him
what you estimate to be the Adjusted Equity. Impress on him that this figure is
what he really owns. That this is the true "after all costs" dollar value of his
equity. Deduct a real estate agent’s commission and explain that this is what he
might realize if he had the time to sell his home through normal channels.
At this point you are ready to make your offer. Let him know that you will
help save at least a portion of his adjusted equity. You might offer to split his
equity with him – half for him and half for you, or whatever deal you feel will work
best. Read our book "Single Family Homes – The No Risk Investment" for some
winning ideas.
Half of the adjusted equity, if it is a large figure, can be a good and fair
offer. Explain to the seller just why he has less equity then he thought. Prospects
do not understand all of the costs involved in mortgage default. He may not
realize the amount of debt and fees that have become attached to the property.
Will you always explain every detail to the homeowner? Will you always
split equity 50/50? No! You will judge each situation as you get into it and then
formulate an offer. Your first offer does not have to be your best offer. You are in
the process of negotiation linked to motivation.
At times there may be just enough equity to cover your minimum profit
goal. In that case you would have to explain to the prospect that although he will
receive little or no cash it is still his best choice, so there will be no foreclosure
on his record.
Don’t be ashamed to make a profit. Don’t try to conceal your profit from
the homeowner. You will work hard to find these deals and you will earn every
penny you receive. Plus, there is always an element of risk in every property.
Have you made the correct calculations? Will an unknown debt or title problem
pop-up unexpectedly?
13-2
Will you really be able to sell the property for what you estimated, etc?
From the very beginning, in your direct mail program, you have been
telling the homeowner that this is your business. You say that you can only
make a deal if it is good for both of you.
It takes, time effort and money for you to be there when a prospect needs
you. You are entitled to be well rewarded for your specialized knowledge and
skill.
There is no exact procedure you can follow in discussing the deal with your
prospect. You must play it by ear and be ready to counter any objections. The
dialogue might go something like this:
Prospect: GRQ•W WKLQN \RX VKRXOG JHW VR PXFK RI WKH HTXLW\ , ,
You: I’ve explained all along that I do this for profit. This is the way I make
my living. I would not be here to help you and others if I couldn’t make money at
it. Yes, you are giving me half, but that allows you to save half. Otherwise you
will probably lose it all.
Prospect: WKLQN ,•
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You: There’s no time to wait. I have to get to work contacting lien holders
to find out actual amounts of money I have to come up with. If we are going to
save anything for you we have to act now.
Prospect: 0\ 8QFOH %XFN VD\V KH PLJKW EH DEOH WR ORDQ PH WKH PRQH\ ,
QHHG GRQ•W ZDQW WR GR DQ\WKLQJ XQWLO KHDU IURP KLP , ,
You: Tyrone, you’re running out of time. What if he doesn’t come
through? You’ll be stuck. Look, OK my offer and if you’re able to come up with
the cash you need before the close of escrow you can pay me for my out of
pocket costs and I’ll cancel the deal.
Prospect: WKLQN ,•
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WU\ OLVWLQJ ,P\ KRPH ZLWK D UHDO HVWDWH DJHQW , ,
13-3
You: There’s no time for that. You’re down to just a few days before you
lose your property. It takes time to find a buyer and for the buyer to find a loan.
And even then the deal can fall through at the last second and you’ll be lost.
Besides, look at what it will cost you to sell: (Alter numbers to fit.)
$100,000 Selling Price
-6,000 6% Agents Commission
-3,000 3% Closing Costs
-1,000 1% Loan Prepayment Penalty
-3,000 FHA/VA Loan Points
-2,000 Fix-up Costs
-500 Transfer Tax
-250 Inspection Fees
$ 84,250 Net Sale Proceeds
$ 84,250
-73,500 Loans, Back Payments, Taxes
-1,500 Foreclosure Fees
$ 9,259 Homeowner’s Total Equity
Prospect: ZDQW WR WKLQN LW RYHU , ,
You: Tyrone, I’m not a bank. I can’t help everyone. Right now I am
contacting other families that have money troubles. If you don’t accept my help
now please understand I may not have the cash necessary to come back and
help you.
13-4
Prospect: ZDQW P\ DWWRUQH\ WR FKHFNRXW WKLV RIIHU ,
You: Is your attorney your financial advisor? If so, he sure hasn’t done a
very good job. Look, if you want to pay an expensive attorney fee it’s OK with
me. Just be sure you make it plain that you are asking for his opinion only on the
legality of the contract and not the financial arrangement. Attorneys are not
trained to be financial advisors even though many act like it.
Tyrone, because I have other people who are asking for my help I must have
your answer within 24-hours. I have explained how I can help. Now it’s up to
you. I won’t contact you again.
Always be sure that everyone whose name is on the title of the property
will be there when you visit. You want to explain the situation and your offer just
once. You want to be able to answer the objections of any owner (usually a
spouse) right there and then. You don’t want them to be able to say, ,•
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WR WDON WKLV RYHU ZLWK P\ ZLIH , ,
When you make the appointment insist that they all be there. Let them
know that you won’t stay if anyone is missing. Also ask if they will need the
advice or approval of anyone before they can agree to a deal. Say, 7LPH LV ,
UXQQLQJ RXW RQ \RX I ZH FDQ ILQG D VROXWLRQ WR \RXU SUREOHP WRPRUURZ ,
HYHQLQJ FDQ \RX 2. LW ULJKW WKHUH RU ZLY
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DSSURYDO"
If they need someone’s approval insist that person be there, too.
When you visit the home you must inspect the house and make notes on
an Inspection Sheet. This will help you determine if any work needs to be done
and then you can make an estimate of the costs. Have the owner walk through
the house with you, so you can make him aware of defects or damage that will
have to be corrected. This is an important part of your negotiating strategy.
In most cases the fix-up work will consist of clean-up, painting, replacing
carpet and other cosmetic work. It's a simple matter to learn prices for this kind
of work.
13-5
Check with carpet stores for the per-square foot price of installed carpet.
Economy grade, of course.
Talk to a painter about the cost of painting an average size room, bath and
kitchen. These simple steps will prepare you to quickly pace off room
dimensions and make estimates.
There could be more serious defects in the home, like foundation
problems evidenced by sloping floors or large cracks at the corners of rooms
and window frames. Plumbing problems may reveal themselves in slow draining
sinks or tubs, rusty water coming from taps, damp spots on walls or floors.
There are two schools of thought when it comes to fixer properties. One
says that you should buy only if the repairs needed are cosmetic -painting,
cleaning. Semi-skilled workers can do these repairs quickly and inexpensively.
A very few investors look upon certain major flaws as rare opportunities. If
you find a home with an obvious foundation problem there will be few, if any,
buyers interested in that property. So you can make killer deals on such
properties. Often an experienced contractor can easily correct what seems to be
a monster problem. The cost may be reasonable when compared to the profit
the investor might chalk up.
What level of fixer are you comfortable with? Do you have a contractor you
can rely on to do the job quickly for the estimated cost? If so, you might want to
tackle all but the worst properties and reap the rewards. Just remember that
there must be enough equity to cover repairs and still give you your profit. You
must demand more profit on a major fixer, because you are taking on more risk.
Your general business plan will be to buy homes below market value and
then quickly sell them to collect your profit. Once you have been working pre-
foreclosures for a couple of years you will have acquired some "keepers".
Keepers are homes that you hold as rentals. Since rental homes require some
degree of regular maintenance you will build a relationship with a handyman or
two. You may be able to use them when you find a fixer property.
It is important to realize your limitations. If you are a handy person you
may be very good at doing your own estimating of fixer repair work. If not, or
when in doubt, call in an expert. Fixer properties can be money pits if you make
a mistake. Do you really need them? Only you can answer that question.
13-6
You should use a property inspection checklist when you checkout
property. Make generous allowances for fix-up work. If you have an estimate
from a contractor always add on 10% to 20% to be on the safe side.
If you plan on selling the property as quickly a possible after purchase
(flipping) you will have to price it a little below market value. Enter how much
under fair market value in the space marked "Quick Sale Discount" on the
Property Info Sheet. You will learn what that discount should be with experience.
In a hot real estate market it can be a small discount -larger in a slow market.
In some cases you won’t have time for contractor inspections. You will
have to do your own estimates of repair costs. Should you take the risk? Sure,
you can prepare yourself for these kinds of opportunities. Spend some time
learning how to properly inspect a house and estimate repair costs. You will find
these "under the gun" deals can be very profitable.
Be sure there is plenty of adjusted equity in the property to cover the costs
of any surprises and still leave a reasonable profit. Very few people are in a
position to step in and handle this kind of deal, especial at the last minute. It is a
great chance for large profits, but it is only for the strong and experienced.
After you have visited with the homeowner take the time to make some
notes. Write down your impressions of the prospect and the property. Log what
you offered and how you made the offer. Note anything you might have done
differently. Jot down any information that might be helpful later.
Do this immediately after your visit, while everything is still fresh in your
mind. If you will go back and review these notes from time to time you will find
ways to sharpen your skills in dealing with owners facing foreclosure.
Your invitation to visit with the homeowner is a rare and valuable
opportunity. There may have been many others who were trying to get such a
meeting. Even if you were not able to close a deal on this visit you still had the
chance to make such a good impression that the prospect will contact you a few
days later. Make a file of your notes so they will be easy to find if you will be
dealing with this owner again.
13-
7
A visit allows you to size up the condition of the property. This is a
tremendous advantage if the prospect won’t sell and you later want to bid on the
property at the foreclosure sale.
You may be the only bidder who really knows the condition of the home
and has detailed information about the structure and the liens against it.
Keeping the information on file is also a good idea if the prospect is able to
find the money to cure the default. Experience shows that often the homeowner
will be right back in foreclosure within a few months. If you have done a good job
of connecting with him you will have the inside track and the information to go
with it.
Here are a couple of tips to help you keep control of the situation when
you are in the prospect’s home. Children will often want everyone’s attention
while your are there and this can be very disruptive to your negotiations. Keep a
hand full of bubble gum in your briefcase for such occasions. The larger the
pieces the better. Give each child two or three pieces, after asking the parent’s
permission.
The family dog may want to spend the evening sitting on your lap. Take
along a couple of rawhide chew-toys to keep Fido busy.
QUICK INSPECTION CHECK-LIST
Owner's Name _____________________________________Date _______________
Address ______________________________________________________________
Date Built ______________ Sq Ft _______________ Bdrms _______ Baths ______
Exterior Front Yard _______ Back Yard _______ Walls _______ Foundation _______
Walks/Drive way _______ Trees/Shrubs ________ Pool/Spa ______ Garage Dr ______
Windows/Doors _____________ Window Screens _____________ Paint ___________
Roof __________ Lot Drainage __________ Street/Curbs/Sidewalk _______________
Gutters/Downspouts ____________________ (13-8)
Interior
Walls/Ceilings Flooring
Entrance: ______________________________
Living Rm: _____________________________
Family Rm ____________________________ __________________________________
Dining Rm: ____________________________ __________________________________
Bdrm #1: ______________________________
Bdrm #2: ______________________________
Bdrm #3: ______________________________
Bdrm #4: _____________________________
_
Bath #1: ______________________________ _________________________________
_
Bath #2: ______________________________ _________________________________
_
Bath #3: ______________________________ _________________________________
_
Kitchen: ______________________________ _________________________________
_
Appliances: Range/Oven _________ Dishwasher________ Disposal _________ Sink This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
