The Anatomy of a Wholesale Deal: A Case Study
In this guest blog post I will share with you one of my latest closings every step of the way from lead generation to closing. This particular property introduced many new challenges that I had not yet experienced in my real estate career such as: dealing with Power of Attorney and selling a property with a tenant in place. But that’s the great thing about real estate there is always more to learn and room to improve, whether that’s more efficient marketing, rapport building techniques or making offers. This is one of the components that make real estate both so rewarding and challenging.
Every lead originates from somewhere. In this case one of the criteria I use is absentee owners with high equity. I find this information from my local appraisal district. For my marketing piece of choice I prefer postcards. Some investors like to use yellow letters; however, in my own personal split tests I have found yellow letters generate more calls, but the overall lead quality tends to be much lower than the calls I receive off post cards. But that’s a discussion for another blog post. I first began mailing this lead in December of 2012. I continue to mail every lead on my list every 3 months for a year. This results in them receiving my message 4 times annually. For this particular lead I did not receive the first call until August 2013. It took a grand total of 8 months for the seller to contact me. Many would be real estate investors give up on mailing after having a poor result on the 1 month, so keep mailing!
I don’t want to get too specific here, but this case involves a father and his daughter. The father had been living in a nursing home and his health was failing, and they were running out of money to pay for his living arrangements due to a delay in health care approval. The father also had a rather severe case of dementia, and as such was not of “sound mind” to make any real estate related decisions. Thus the daughter had been granted power of attorney. This property needed to be sold before the 1 September to maintain the fathers living arrangements. This seller was under the gun and needed to liquidate the house fast, and had less than 2 weeks to do so. However, the direness of the situation was not fully revealed to me until I had gained the sellers trust at the appointment.
When I go on appointments the last thing on my mind typically is the house. At the forefront of my mind is building an excellent rapport with the sellers and trying to connect with them anyway I can. I genuinely care about their problems. Of course that is not to say I don’t hop on the MLS and research what’s going on in that area, or drive the comps and all the other stuff we must do as real estate investors. No, I work on building an excellent rapport first with the seller so I can earn their trust. This allows me to get properties under contract even when my offer may not be the best.
This appointment was a little more challenging. The property had been turned into a rental unit to help cover the father’s medical bills. The property also used to be the fathers primary residence. There was a full family renting out the property now. Not only did I have to bond with the seller, but the renters as well. I knew when I would later have to show the property to my funding partners it would be a challenge if the tenants gave me trouble. The tenants seemed to like me, but also a bit resilient since the property could be sold. Let me make it clear, they did not want to move. To make it easy as possible
I took very good pictures and a walk through movie of the property while I was there on the premises. This would make it MUCH easier to move the property later when I had it under contract. Other investors were scheduled to take a look at the house that day as well, however the seller felt so comfortable with me she canceled the remaining appointments (see I told you that rapport building thing would come in handy). The seller also began to reveal to me truly how dire the situation was touching on some of the details I had discussed earlier regarding her father’s living situation.
Making the Offer & Contract:
In this particular instance I wasn’t confident enough to make an offer at the property. Instead I called back later that evening and made her a fair offer based on the market value of the property and the amount of repairs it needed. Since this property was tenant occupied, and I wanted as few people looking through it, I was a bit more aggressive in my pricing.
The seller took my offer well but was hoping to receive a little more for it. I continued to educate the seller on the nature of the repairs (quite extensive) and the fair market value of the house. The seller needed a day or two to think about the offer. In the mean time I submitted a PDF offer for her records via email (a nice professional touch). A few days later the seller decided to write it up, so we met and filled out the contract.
Showing the Property with the Tenant in place:
Immediately after signing the contract I began putting together my property overview packet. Although I had a 10 day option, I didn’t sit around and do nothing for a few days. From the moment the contract was executed I put myself under the gun, I became the motivated seller and had the packet ready to market to potential funding partners. Unfortunately for me, this particular property was in an area where I had ZERO established buyers. The first night I had this one under contract was probably one of the most stressful nights I have ever experienced. I really wanted to help the seller, I didn’t know what to do showing the property with a tenant in place and ultimately wanted to perform on the timeline they needed.
Fortunately I started getting some calls and one of them was a big investor in the area that I knew I could trust, although this was the first time I had met with him. I gave the tenant a call and scheduled another appointment to look at the property.
We both arrived at the property and I could see the tenant from the drive way, he looked very annoyed and displeased. I don’t blame him, but this process wasn’t exactly easy on me either. We got out of our cars and started to look around. After finishing our walk through I pulled him aside and asked what he thought. To my surprise he wanted to buy it now and whipped out his check book giving me his nonrefundable deposit. I only had to show the property once, thankfully. Because I made sure the numbers worked and had great pictures and video, it really helped me package the deal together and market it efficiently.
One of the biggest challenges besides the tenant in this scenario was the lease agreement. The seller had been in a frantic mad dash trying to take care of a million other things up until the day of closing while I handled the property. One of the main issues that came up was the lack of a valid lease agreement. In Texas, when you sell a property, the lease conveys with the property and the new owner becomes the new land lord and the title company needed this information. However, in this case the copy of the lease the seller had originally turned in was Xeroxed in such a way that the initials at the bottom of each page were cut off. In other words, without the initials the contract was invalid. I had to continue to remind the seller up until the day of closing to find the original and get it back to the title company ASAP.
You have it under contract, you have a buyer lined up and yet you are STILL not finished. At this point you effectively become the transaction engineer and do everything within your power to make sure this deal makes it across the finish line in, or in this case closing table. In this case, making sure the title company gets a valid lease agreement.
The seller also had Power of Attorney in this case, and that is something I had not yet experienced in the field. It turns out it is very simple to fill out the contracts when someone has PoA here in Texas. That brings me to another point; you don’t have to be an absolute expert on everything to do a successful deal. LEVERAGE the expertise of those around you and build your power team! I simply called up my title company and asked them what to do. Turns out, very simple, the format they like to see is (Owner of the property) signed by (person with PoA) – Attorney in fact.
Always aim to create a win-win situation where the seller benefits and gets the amount of money they need and the end investor gets a great deal. Don’t be afraid to get your hands dirty and try some new things you have not yet experienced.
Special thanks to Ned for allowing me the honor and privilege of guest post on his blog. Thanks for reading and if you have any questions feel free to leave them in the comments below and I will do my best to address them.
This Guest Post was by Chris Feltus. I hope you enjoyed it. I met Chris on the Bigger Pockets forum. His website is Feltus Family Homes.
Happy Investing – Ned
Tags: Beginner · real estate
“The sense of unhappiness is so much easier to convey than that of happiness.”
Isn’t the ultimate reason we invest in real estate, earn money, and strive for goals, is to be happy? One of the surest ways to be happy is to be thankful for what you have. Everyone has something to be thankful for. Let me give you an example. If you are reading this, you can be thankful for access to the internet. The internet is a powerful tool that essentially gives you access to the entire accumulated knowledge of mankind! Wow that is something to be thankful for.
If you think about it you probably have a LOT of other things to be thankful for. Do you want to be happier? Take a few minutes to think about what they are.
Happy investing – Ned
Tags: Quotes · Success & Wealth Building
One of the good ones passed away to day. Lonnie Scruggs was real estate investing instructor who wrote books on mobile home investing. He was famous for “Lonnie Deals.” This is buying an inexpensive mobile home and selling it at a big profit with owner financing. I am somewhat anti-guru because of the tremendous hype and lack of real information many provide. However Lonnie was down to earth and gave great information. Even John Reed who is known for bashing just about all gurus gave Lonnie his seal of approval. Rest in Peace Lonnie.
I was out checking properties for the 2013 Baltimore City Tax sale today. One property going into the sale is 702 N Carrrollton. The good news is 702 will soon be an end unit.
This is the property right next door, #700. This must have just collapsed because the city wouldn’t leave a building in this condition long. It is scheduled to be demolished because it is a safety hazard. While this one is not in the tax sale this year, it shows the importance of inspecting properties in the city. It would be easy to look at the picture in Google and bid thinking “I can pick up a fixer upper three unit dirt cheap.”
Hey if you need a chimney it’s still got a perfectly good one. And all the bricks you can carry for free !
Be Safe – Ned
Tags: real estate
Below is a guest post by by Ryan Webber. I like this post because of the point he makes about integrity at the end. I met Ryan on Bigger Pockets. He consented to let me use on of his posts here. Ryan canbe contacted via his contact page o his website http://www.AmarilloHomeBuyers.com.
Here is Ryan’s Post
I had a newbie wholesaler hit me up a couple months ago with a house that I could buy for $35,000. I crunch numbers in my head and think that it might be a deal. He tells me all about it and makes clear that I had to pay ALL closing costs. Then I finagle out of him that there are $7,000 in back taxes and he says that they will “carry” with the property.
So as we talk about it and I explain to him that back taxes don’t “carry” with a property that they have to be paid at closing, I end it with, “Okay so you really need $42K for this house. ” He says, “No, I need $35K.” So I ask him about the back taxes again. He says, “Well yeah I told you that you have to pay all closing costs.”
I love newbie wholesalers.
I would recommend that you always include back taxes into your price. ALWAYS. I hung up the phone not wanting to do business with this guy. Think about it like you are trying to build a long term relationship of trust and rapport with professional investors. Jickiness and not being totally up front is NOT the way to build trust with anyone, especially professional investors. Having an investor find out later that they have to pay more than you told them they would have to is a BAD idea to build trust.
I have taken money out of my profits before to make sure the relationship with my buyer is the absolute priority.
6 years ago, I was trying to sell a vacant piece of crap triplex for $28K and I called an investor that I had done several deals with. We walk through it and I tell her everything that I know from the seller that is wrong with it. She says, yes. We sign a contract and drive off. I remember 5 minutes later that I forgot to tell her that it needed a new gas line in one of the units (about a $1,000 fix). I immediately call her and tell her about my lapse. She says its fine. I tell her that I’m not okay with it. She agreed to the price not knowing that there was an issue with the gas line. I tell her that I’d like to drop the price by $1,000 to compensate for my mistake. She responds that she would still have taken it at $28K with a gas line issue, but I insist that we drop the price by $1,000 anyways.
My priority was to build the relationship of trust, not to make an extra $1,000. Fast forward a couple years and that same investor bought several more larger multifamily properties off of me. I would estimate we cleared over $100,000 in profits on those later deals.
I’ve had investors screw me over for $1,000 before, and what it does is destroy any future potential of business. If you want to maximize your greediness and make the absolute largest amount of money in this business, then have integrity. Integrity will make you so much more money in this business than being a snake.
So that’s it. I hope you liked it. If you did, leave a comment.
Happy investing – Ned
I am sorry to report that Ryan Webber passed away in June of 2013. Ryan was too young of a man to go this soon. Here is a report from Amarillo Globe-News and From Bigger Pockets where I met Ryan.
Tags: real estate · Success & Wealth Building
February 26th, 2013 · 2 Comments
“I would like to make a toast to lying, stealing, cheating and drinking.
If you’re going to lie, lie for a friend.
If you’re going to steal, steal a heart.
If your going to cheat, cheat death.
And if you’re going to drink, drink with me.”
Tags: Humor · Quotes
February 20th, 2013 · 7 Comments
The Sales Lion
Here is a site I just discovered about website marketing. This post was about networking and linking out to other sites. How to network like an online Superstar. In web marketing, links are key to getting ranked in the search engines. Since he reminded me how important linking out is to networking, I am starting with his site. In fact his post is motivation for what I hope becomes a regular feature of Baltimore Real Estate Investing Blog. So if you like the links below, stop by his site and leave a comment thanking him.
Bigger Pockets is one of the largest real estate investor websites. They recently started doing podcasts and I just listened to Starting Out with Karen Rittenhouse – Subject To, Direct Mail, and Investing from a Woman’s Perspective. This is about 45 minutes long but well worth it. Karen is artiulate, energetic and funny. This is her sucess story about getting started with no experience and growing and continuing to have tremendous sucess. This is inspirational, motivational and includes enough specific information to help you take action
Morgan Politan’s Blog
This post I already mentioned in my post about Maryland Rent Control. If you are interested in politics, policy and real estate investing you will enjoy Morgan Politan’s post on Rent control.
Steph Davis Video on Blockshopper
I never heard of Blockshopper before seeing it on Steph Davis’ Flip This Wholesaler Blog. This video describes blockshopper and how she uses it to find cash buyers for her Wholesale deals. I am a big believer in Steph. She has great content on her site. Her Ebook on Flipping bank owned properties is one of the few products I endorse on my site; solid info for a bargain price.
Steve Cook’s New Forum
I have save what is perhaps the best for last. Steve Cook the creator of the extremely popular Flipping Homes forum (Now run by my friend Pete Gauthier) has created his own new forum, Lifeonaire. If you need real estate tips or advice there is no one better than Steve Cook. I already see several names of very experienced investors on the board. Yours truly will also be participating. Check it out here http://lifeonaire.com/forum/
Leave a comment and let me know what you think of these links.
Happy Investing – Ned
Tags: Blogging · Business and Finance · real estate · Success & Wealth Building
February 18th, 2013 · 7 Comments
The rent control bills Below did not pass.
Rent Control in Maryland/Rent Control In Baltimore
I occasionally get asked f there is rent control in Maryland or in Baltimore. Currently neither Maryland nor Baltimore have rent control. Often I talk to people who believe there is rent control in Maryland. In some ways I am a little surprised, as Maryland and even more so Baltimore, is very liberal. Fortunately for both landlord and tenants there is no rent control. Studies prove rent control reduces both quality and quantity of housing. More importantly the benefits of rent control often do not go to the very people it is intended to help.
Rent Control is Introduced in Maryland
The Maryland House of representatives has introduced House Bill 315 proposing rent controls and Just cause evictions. This is a serious encroachment on our property rights. The bill limits rent increases to 5% and requires there to be a “Just Cause” to remove a tenant from a property. Simply choosing not to renew a lease is not an option.
On the surface, today a 5% increase may seem reasonable. It would be easy to say this is not a real problem for landlords. Yet it is a serious problem. What happens when inflation is 10% but you can only raise rents 5%. What happens if you rents are well below market and you finally realize you need to catch up to market rates? What happens when you buy a property with a tenant that has low rent? You will not be able to bring the rent up to market rates. This will hold down property values on tenant occupied properties. That’s just what we need now, more government interference to hold down property values.
Just Cause Evictions
One issue that comes up regularly, primarily from delegates from Montgomery county, is “Just Cause Evictions”. These
Morons Delegates want a law that says there needs to be a “Just Cause” to remove a tenant from a property. Obviously the landlord needs to follow the lease and there already needs to be a just cause to remove a tenant. However the new law limits the reasons you can remove a tenant to 11 specific reasons. It would appear that the landlord choosing not to renew a lease is NOT one of the reasons allowed.
Gee is it possible they left out some legitimate reasons. Anyone who has been a landlord for a while knows it is perfectly legitimate to get rid a of a tenant that is an Asshole. But that would not be allowed. By law you would have to renew your lease with bad tenants. How about a breach of lease? Can you remove a tenant if they breach the lease? Well the new law says only if it is “substantial”. Although Rent Control is more likely to get the attention of landlords, “Just Cause” is probably a greater infringement of our property rights. The problem is the term just cause is used to push through a policy that is anything but just.
Blame the Politicians
This bill is proposed and or sponsored by delegates; Hixson, Cullison, Gutierrez, Hucker, Kaiser, Luedtke, and A. Miller. It is interesting to note that every one of these morons is from Montgomery County. It is sad that we don’t require that you need to be able to pass an economics test to be elected. Obviously the group above can’t.
You Can Help
There are three things you can do to help
- Write, email or call, The delegates above or those on the Environmental Matters Committee which is hearing the bill.
- Come to the hearing for the bill to testify.
- Join the Property Owners Association. This helps fund a lobbyist to fight for real estate investors and address all the anti-landlord bills that come up regularly.
A hearing on this bill is scheduled for Thursday 2/28/13 at 1:00. If you have never testified before the legislature it is easy. It is important to have a good turnout, whichever side you are on. If all you do is show up and take ten seconds to say I am against the bill, it will help. If you get good feeling that you have done your civic duty when you vote, you will get the feeling ten fold by testifying.
Update On rent control hearing location
House Office Building
House Office Building
6 Bladen St.
Annapolis, MD 21401
Downtown Annapolis Map
Find your Legislators here
Find Maryland legislators by Name.
Find Your Legislators by Your Address
Why rent control does not work
I wanted to add more to this post about how counter productive rent control is. However in the interest of time I will simply refer you to a great and well researched blog post by Morgan Politan. Why rent control l doesn’t work.
What do you think of rent control? Leave a comment. – Thanks, Ned
Tags: Landlording · Law and Regulations · real estate
Realty Trac Report
Realty Trac recently came out with a list of the best cities in the nation to buy foreclosures in 2013
Realty Trac Foreclosure Market Report
They report that in 2012 57% of the markets they track over 200,000 people increased in the number of foreclosures over 2011. Twelve of the top 20 markets in size decreased in foreclosure rates. However one large city of note Baltimore was one of the 8 out of 20 largest markets that increased in foreclosures. Baltimore foreclosures showed an increase of 34% over 2011.
Daren Blomquist, vice president at RealtyTrac said “Markets with increasing foreclosure activity in 2012 took the first step in finally purging delayed distress left over from the bursting housing bubble.” I have to disagree. That may be true in some areas, however as I drive through Baltimore I see a lot of properties that appear vacant. My experience tells me that those were homeowner properties or investors who cold no longer pay the mortgage. These owners have abandoned their properties and they sit vacant while waiting for the banks to foreclose.
Best Markets to Buy Bank Owned Homes in 2013
Despite the increase in foreclosures in 2012, Baltimore was not listed as one of the best foreclosure markets for 2013. However as I said above I think there will be plenty of opportunity in this market in 2013. Palm Bay-Melbourne-Titusville metro area in Florida was at the top of the list. Five other Florida markets were in the top 20. Five New York cities made the top 20 list which means FL and NY cities represent over 1/2 of the list. Check out the Realty Trac site to see the complete the complete list and cool looking charts. (I won’t copy the charts here for copyright reasons) They also have list of the worst places to buy foreclosures in 2013.
How to Buy and Flip Foreclosures
So if the foreclosure market in Baltimore is strong, how do you best take advantage of it? I make my living flipping tax lien foreclosures. There is plenty of information on that in the tax lien section of my site. If you want to learn how to invest in Bank foreclosures the best person I know is Steph Davis. In Fact she is known as REO Steph. (REO is short for Real Estate Owned or bank owned)
Steph was a broke bartender who hated her job. She struggled for some time before she figured out the real estate business and went on the crack the code of how to profit from bank owned properties.
Yes I am pitching her course and yes I will make a small commission for selling it. You know, I am somewhat anti Guru. Oh yes I have spent a ton of money on those courses myself. You know what I have found – The cheapest courses are often the best. Courses can go for thousands even tens of thousands of dollars. But some of the very best are under $500. That’s why I recommend Stephs course. It’s only about 50 bucks. You can get Stephs course of REO investing here.
Happy Investing, – Ned
Tags: Advanced tips · Beginner · real estate
The work will wait while you show the child a rainbow; but the rainbow won’t wait while you do the work.
~ Patricia Clafford
The Crab is Purple with Envy
Yesterday I sent out an e-mail with a great deal on a rental property.
Today five more properties went out to my list,
All under $17,000!!!
If you missed it, sign up for our buyers list by clicking the button near the top right of the page. Tax sale foreclosures are coming in regularly now and more properties will go out to the list soon.
Happy investing – Ned
PS: No you didn’t miss out on anything. The deals that just went out can be seen here CrabProperties.com
Tags: Advanced tips · Beginner · real estate
January 24th, 2013 · 7 Comments
What is a Lien Sheet
When buying or selling a property a title company will do a Title Search. These companies do much more than just check the land records to confirm who the owner is. They must check for Mortgages, judgments against the seller, bankruptcies, and make sure all taxes are paid up. One tool they use is a Lien Sheet (This is in Baltimore City other municipalities may handle it differently). Lien sheets have a list of all city bills due. This includes water bills, property taxes, fines, and special assessments. The Lien Sheet will have a date that the payoff amount is good through. This is 45 days so there is plenty of time to get a property settled. For an extra charge you can also get a violation report. This is especially important for vacant and run down buildings.
How Much Does a Lien Sheet Cost
A lien sheet will cost $25. If you add the violation report it is $55. It seems a bit unfair that you have to pay the city to find out how much you owe them, but that’s the rules. Normally your title company will order it when handling a closing of a property. However if you want to check out a property yourself you can order them online here: Baltimore Lien Sheets
What a Lien Sheet Does Not Cover
Don’t be misled. Despite the what the name might imply, a lien sheet does not list all liens against the property. It is only for city liens. It does not include mortgages, mechanics liens, and other liens against the property.
Many properties that investors buy have some kind of distress in either the property or the owners financial position. This is why we can get such bargain prices. Often these properties are in tax sale. This means a tax lien has been sold to an investor and there may be extra interest and legal fees due. If the property is in tax sale the lien sheet will say you must get clearance from the tax sale office. You can find more information about Baltimore liens here: Baltimore City Lien Sheet FAQ
Of course all of this is normally handled by your title company. However if you are marketing directly to sellers, knowing your way around the tax and lien office will come in handy.
Happy investing – Ned
Tags: Advanced tips · real estate · Tax Liens
Good results without good planning, come from good luck not good management
Tags: Quotes · Success & Wealth Building
What are the Best Neighborhoods to Invest in?
A common question I hear is “What are the best neighborhoods to invest in?” The answer is, any neighborhood. There are good deals in any area, and the quality of the deal is more important than where it is located.
Often “hot” neighborhoods have ready buyers but there is much more competition for the deals. It can be very tough to find deals in a hot market because so many other investors are working the area. Prices get driven up. Higher costs mean lower profits.
Conversely there can be competition for buyers. When the market was booming, some neighborhoods became hot with investors, but without much thought of demand for finished product. Washington Village (or Pigtown) in Baltimore was a great example. There were so many investors that when the rehabs were completed there weren’t enough buyers. It is often a trade off, do you want it easier to find a deal or easier to sell it.
The Three Most Important Word In Real Estate
Location Location Location
You’ve heard it before “The three most important words in real estate are Location Location Location.” My Dad used to tell me that. My dad was a smart man but on this, he was wrong! The three most important words in Real Estate Investing are Cash Flow and Equity. A bad deal, in a great area, is still a bad deal. However if you could buy a property for no money down that had $10,000 a year in positive cash flow, would you really care where it was?
Let’s say you pay top dollar for a property in a great neighborhood (property 1) . The high price paid means you have no equity and negative cash flow. Are you really better off than buying in a lesser neighborhood at 50 cents on the dollar (property 2)? Property 2 would have positive cash flow and built in equity. Even if the better location appreciates faster it could be many many years before that investment pays off. In fact by leveraging the equity in the second property and doing things like 1031 exchanges, the better neighborhood property may never catch up to the returns you get on property 2.
It’s sad that many investors I know never learned that important lesson even after years of investing. If you are a collector, pick pretty buildings in nice neighborhoods. If you are an investor, whether in a great neighborhood or not, focus on your return on investment. That would be Cash Flow and Equity.
Tags: Beginner · real estate