Single Family Homes - The No Risk Investment! - Part 3 If you are contacting homeowners by mail some will call you. Use
the same approach and questions described here for investors who will be
calling sellers.
Now this is important. You must not sound like you are reading
questions from a list. Your entire conversation with the homeowner should
be very friendly and relaxed. You will be somewhat nervous and unsure of
yourself the first few times that you talk with a homeowner. Do yourself a
real favor and rehearse what you plan on saying. Actors make their
performances seem very natural and relaxed because they spend hours
rehearsing. Follow their example and do the same.
Practice by speaking into a tape recorder. Say everything with a little
smile on your face. This will give your voice a friendly sound. Don’t read
the list of questions word for word. Use them as a guide and work them into
your conversation with the homeowner. Speak slowly and clearly, so that
you are easy to understand. Your goal is to not only gather information, but
to lay the foundation for a friendly relationship that will be extremely
valuable if you intend to negotiate a purchase.
After you ask a question, listen! There may be valuable information
in the seller’s reply. It could be a clue to their true motivation. If you are
not carefully listening you may miss the chance to ask a crucial follow-up
question. There is no way to tell you exactly what you should be listening
for, but after you make a few phone calls you will develop a feel for what is
important. Listen for clues as to the real reason they are selling, how
quickly they need a sale, if they need immediate cash, if they have had a job
transfer and other bits of information.
When I first started prospecting for homes I recorded all of my
telephone calls so that I could review them and learn what I might do to
improve my technique. I can’t tell you how helpful that was. You’ll find
what you need at Radio Shack. (It may be against the law to record
telephone calls in your state as it was in mine. Since these recordings were
for my ears only I was not concerned about the law. You make your own
decision.)
I have found that when I talk with homeowners they most often have
one of three attitudes. One person will be bright and upbeat and try to paint a
rosy picture of the home. They will be very cooperative and answer all of
your questions. They are easy to talk to although their answers sometimes
will be a little brighter than the home really is.
The second attitude is a puzzler. This person seems to feel his house
is a treasure and he is doing you a favor when he speaks to you.
Salesmanship is certainly not his game. Fortunately you don’t run into many
of these.
Thirdly is the person who was absent the day they handed out
personalities. They will be a little dull and unresponsive, but they will
usually answer your questions as best as they are able.
With all of these people your job is to remain easy-going and friendly,
no matter what! If you just keep chatting and asking you usually will get the
information you need to make a go or no-go decision. Remember, these
people are really like fish out of water. They have very little experience
buying or selling a home. They are most likely not completely comfortable
with what they are doing. Be so friendly they can’t help but relax and open
up to you. You hope they will want to sell to you above all others.
If it seems that it might be helpful in making them feel comfortable
explain that you can handle all of the paperwork and open the escrow, if they
would like. Let them know you would have no objection to meeting with
their attorney to check the paperwork. Make that offer only as a last resort.
Avoid attorneys when possible.
As you are asking questions write down the information you are
gathering. After you have gone through the list of question you will have a
good idea if you have a chance at the property. If the seller sounds
motivated make an appointment to see her as soon as possible! Don’t sound
like you are hungry for the deal, but remember good deals are like ice cubes.
Once the sun hits them they don’t last long.
If the seller agrees, hang up the phone and speed over there. There
may be others prospecting through these same homes.
Always move with the speed of light when you think you may have
found a home that can be purchased under profitable circumstances. Move
quickly, but in a casual manner so you don’t alarm the seller.
Don’t give up on sellers who don’t seem distressed the first time you
talk with them. Send them a letter (Exhibit 3-F) every week for the next
three or six weeks reminding them that you may still be interested in their
home.
If they have not been able to find a buyer during that time they may be
ready to make a deal with you.
We avoid looking at a home until we have determined on the
telephone that the owner is motivated is flexible on price or terms. Your
time is precious and you can’t waste running around looking at home you
have no chance of buying.
And That’s How You Find Homes to Buy
Yes, that is how you prospect for homes.
•
Find prospects from ads or legal notices.
•
Learn the name of owner, address & phone
number.
•
Call owner and follow with letter.
•
Move quickly on any home with motivated
seller.
•
Use follow-up letters to catch sellers who don’t
sell quickly.
Here’s one more way to find motivated sellers. Find neighborhoods
you like and spend two hours each month walking from house to house,
ringing the doorbell and asking, “Are you the folks that are planning on
selling your home?” If they say no ask if they know of any one who wants
to sell. You’ll be surprised at what you learn.
When you get started looking for bargain property you will find that
80% to 85% of home sellers are very firm in their asking price. Don’t waste
time with them. You are interested in finding the other 15% to 20%. They
are the ones that can make you rich. They’re out there and now you know
how to find them!
You’ll need to develop the ability to determine who is worth spending
your time with and who is not. The secret to making money investing in real
estate is to only work with motivated sellers. If you chase after sellers who
aren’t motivated you’ll soon become frustrated and give up like most others.
You must find home sellers who are both motivated and have a
situation that will work with your creative offer. Determining the seller’s
true motivation will take about 80 percent of your time. And finding out if
the seller has the right situation for a creative offer to work will take about
20 percent of your time.
It only makes sense then that you’ll be focusing in the beginning on:
Which sellers have the right situation that will allow them to sell you
the property with little or nothing down? If a seller needs all of their equity
out of the property right now, then you probably can’t help them.
The problem for you as an investor is to be able to quickly determine
who needs their cash now, and who can wait. Ask any seller this question:
"Mr. Seller, do you need all of your cash now?"
The seller will almost always say "Yes!"
But wait! There’s a way that you can ask a few questions to quickly
determine if a seller is truly motivated.
Here are four of the common situations that you’re looking for:
1. The house is vacant
2. Seller has already bought another house
3. Seller has little or no equity in the property
4. The seller is willing to rent
Vacant Property
A vacant property is always a good sign for you as an investor. It
means that the seller has someplace else to live and that there is a good
chance that the seller is making payments on two properties. To find this out
just say:
"Are you living in the house right now?"
The seller will tell you one of three answers:
• Yes, I’m living in it.
• It’s occupied by a tenant.
• No, it’s empty right now.
If the seller says the property is vacant, then explore a little further by
saying:
"Oh, really, how long has it been vacant?"
A vacant property qualifies as a situation where the seller typically
isn’t going to need his cash out because the seller is already living
someplace else. If the seller needed his cash out to move, the property
wouldn’t be vacant!
Always wrap up your call to the owner of a vacant home by saying:
"Because I’ve got several numbers here in front of me, could you
please help me out and give me your phone number again? ... And if I
can’t reach you at this number is there another number I might try?"
You don’t want to lose this prospect, because you don’t have the
correct phone number. Chances are you’ve been making a number of calls
and you have a collection of numbers and notes on your desk. It’s very
important that you know which belongs to the owner of the vacant home.
Seller Has Bought Another House
You’ll find that people fall into two big categories:
• They need all of their equity to buy their next house
• They don’t need their money right now
The best way to find this out is to explore in a conversational manner
exactly where the seller will be living when they move out of the property.
Ask the seller:
"This sounds like a wonderful property, why would you ever consider
selling it?"
And the seller responds with:
"Because I’m moving"
You say:
"Oh, really! Where are you moving to?"
The seller will tell you where they are moving. You say:
“How exciting. That’s a very nice area.” (Or I understand that’s a
beautiful place to live if they are moving out of state.) "Do you already have
your house picked out there?"
If the seller says "Yes" ask:
"So when are you planning on moving?"
(What you’re really asking the seller in an indirect way is "Have you
bought your next house yet?")
After you’ve gone through this dialog, the seller will tell you in one
way or another if he’s already purchased his next home or not. If he has
already bought his next house then he obviously doesn’t need the money
from the sale this house. You have qualified this seller as someone with
whom you may be able to strike a deal.
Remember that you’ll still need to qualify the seller’s motivation, but
now you know that cash may not be an overriding requirement.
Now if the seller says:
"No, I haven’t bought a house yet. I need to sell this one first."
Clarify further by saying:
"So it sounds like you need the money from the sale of this house to
use to purchase your next house, is that right?"
You’ve just disqualified this seller because he doesn’t have a situation
that you can help him with as a “no money down” investor.
Avoid spending any more time with someone who isn’t qualified to be
working with you. Get off the phone quickly and politely.
Other Things to Watch For
You’ll talk to some sellers who are in the process of building another
house. They might even be able to move into their new house before they
sell their old house.
Check with this to see if they have a "bridge loan" in place. This is a
short-term loan that allows someone to build a new home while they are still
living in their old home. The bridge loan is usually paid off when the old
house is sold. This would mean that the seller is going to need the cash out
of their home to pay off the bridge loan and is therefore not qualified to
work with you.
Another situation is that the seller isn’t buying another house right
away. Some sellers are going to be renting after they sell for one reason or
another. Typically they won’t need their money out of the property
immediately.
Seller’s With Little or No Equity
A home owner who has either recently bought, or who has gotten
home equity loans for 100 percent of the value of his house, can’t sell his
property using a real estate agent unless the seller is willing to pay the
agent’s commission out of his pocket. This is a good situation because it
eliminates the means by which most people use to sell their house – listing it
with an agent.
A seller who has little or no equity is a great prospect because they
don’t expect to get much if any money from the sale of their house and
therefore qualify as a situation that you can work with. You’ll need to find
out what the market rent is for the area and compare it to the payment or
payments on the property. If the payments are higher than the market rent
then it’s going to make it much harder for you to put a deal together. Ask:
"And how much were you asking for the property?"
"And how much is owed against the property?"
If the seller owes almost as much as they’re asking, then they have
little or no equity in the property. Your plan would be to buy the home
using a lease option, land contract or “subject to” technique and put a renter
into it. This works very well if the monthly rent will at least cover the
mortgage payment.
A Seller Willing To Rent
When you’re talking with many sellers, sooner or later you’ll run into
a seller who offered his or her property for sale, but because it didn’t sell the
owner is now open to renting the property. This immediately qualifies the
seller because anyone who’s able or willing to rent a property is letting you
know that they don’t need their money out of the property right now. Ask:
"What will you do if you’re not able to sell for some reason?"
And the seller responds with:
"Oh, I don’t know... rent it out I guess."
Now you know that the seller is open to renting and therefore qualifies
for as a prospect. Motivation is another matter and will take more
questioning to determine.
The quickest ways to qualify sellers is to first see if they have a
situation that allows them to "sell" the house without needing all of their
money out of it. A vacant house is always a good sign. Home sellers with
another place to live, sellers willing to rent and those with little or no equity
– those are all prime opportunities for profitable deals.
Exhibit 3-A
Here are some classified ads placed by real estate brokers. Don’t waste time
with these. Yes, they offer homes for sale, but the owner has indicated he is
probably not a flexible seller by listing with an agent who will collect a large
commission on any sale.
If you do find an ad that indicates the seller may be motivated realize
that agents use these ads to find buyers to whom they may be able to sell
other properties. They usually will want your name and address and a
description of the type of home you are shopping for. Don’t waste their time
or yours. Let them know you are an investor and you are only interested in
motivated and flexible sellers. Some agents may be interested in working
with you and others won’t be.
Exhibit 3-B
Here are some FSBO ads. These are the ones you will look for
each week in the Sunday newspaper. Call each one that seems to be in your
price range. 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. |
