Latest / Cash Flow for Life / Chapter 10: The Many Sources for Great Investment Properties
Transcript
- 00;00;00;05 - 00;00;22;08 Chapter ten the many sources for great investment properties. Michael, there's got to be a better way. We've been driving around for an hour and having seen a really good house for our next purchase. I've called our real estate agent, Scott, but we should try to find other ways to locate bargains. Looking for signs is the least efficient way, I think. 00;00;22;10 - 00;00;44;00 In our early investment days. We just look for signs and relied on real estate agents to feed us information. Now, while both of those are great ways to locate homes to buy for rental, there are other ways, and some of the other ways will land you a bargain without built in commission. It's never been our goal to cut real estate agents out of the deal. 00;00;44;02 - 00;01;10;08 It's actually the opposite. We like working with real estate agents and having them do the work that we don't want to do, but sometimes they don't have everything that is available listed on their MLS. Love the numbers, not the house. Loving the numbers requires knowing all of your costs, including acquisition costs for closing, how you locate a home and purchase it can make a big difference in these costs. 00;01;10;11 - 00;01;40;02 Then there is the price to buy as well. Finding bargains in places other than MLS listings can cut your costs and increase your ROI dramatically. In this chapter, we're going to jumpstart your buying knowledge with experience. We gained the hard way through trial and error over a number of years. Some of the resources we mentioned here may not fit in your market, and some may require more research and time on your part than you want to spend. 00;01;40;04 - 00;02;10;24 However, knowing about them will give you other opportunities to locate great rental homes to buy. And as always, resources are always changing, being added and being removed. So make sure you stay up to date with the resources that are available to you in your area at the time you're investing. MLS listed properties. Of course, the vast majority of local properties available for sale will be listed in the MLS or Multiple Listing Service. 00;02;10;27 - 00;02;37;22 As we've mentioned several times, you should get an automated listing report from a real estate agent, so you'll get daily updates of new listings, as well as homes that have been reduced in prices, and sometimes even the homes that have been sold. You can specify the criteria for your automated searches based on a number of MLS database information fields, including price, range, size, and geographic area. 00;02;37;25 - 00;02;57;20 If the agent is willing to provide it, a report on expired and withdrawn listings maybe a value to you as well. You may be able to call on these owners later to see if they've given up, and would be willing to talk to you about a purchase. Look at cumulative days on market and see how long they've been trying to sell. 00;02;57;23 - 00;03;34;16 You will no doubt end up buying homes that are listed through real estate agents, so you'll want to get regularly updated information to get out in front of bargains. Other websites for listing the time of writing. There's some large sites such as Zillow, dot com. Com and Craigslist, or homes and properties are listed for sale. This allows homeowners to list their homes for sale by owner or Fibo, giving you a resource outside of the MLS to locate properties not listed by real estate agents for sale by owner. 00;03;34;16 - 00;04;00;24 Websites are very common, and a Google search on for sale by owner will bring up a great many sites for you to check on. Some may be even specific to your area and new sites are popping up all the time. So make sure you continuously do these searches and do this research to find out where the properties in your area are being listed not only for sale, but also for rent foreclosures. 00;04;00;26 - 00;04;28;17 Many banks list their foreclosures, particularly in the US on the MLS. These listings are usually at prices below normal market value, so watch out for them. If you're unable to search foreclosure as an MLS field, you can look at other names to find the ones that are bank owned. Here's where you really get into loving the numbers. Let's look at a real life example. 00;04;28;19 - 00;05;02;24 There was a $200,000 home listed for foreclosure. Jane, our investor, knew that she could get a pretty good rent payment on this home and had run the numbers carefully. It would have been a decent by with decent cash flow at $175,000. It would have been a superbike with super cash flow at $150,000. So Jane offered $95,000. This is where it helps to have a buyer agent who understands your business and wants to be involved for the long run. 00;05;02;29 - 00;05;27;11 Many offers like this get presented, but few will be responded to and even fewer will get accepted. So the agent has to do some paperwork, but you're trying to get the very best deal that you can. Be sure to follow our 25 to 1 ratio offer rule. We cover this extensively in chapter eight of our companion book, Quick Start to Cash Flow. 00;05;27;13 - 00;05;53;28 If you haven't read or haven't got Quick Start to cash flow, you could go to key.com right now to learn how you can get the companion book in our example. The bank didn't respond to Jane's offer. However, Jane was patient and kept watching. The bank reduced the asking price a few months later from $200,000 to $175,000. So Jane came right back with that $95,000 offer. 00;05;54;01 - 00;06;21;16 Again, there was no response or counteroffer. Then a second price reduction to $160,000 was published, and Jane brought a third offer at $90,000. A bold move that told the bank she was serious about price. The bank was tired of holding the property. It was costing the money every single month. So this time it countered. A deal was made at $120,000. 00;06;21;19 - 00;06;46;20 Jane is happily taking her rent checks to the bank every month, finding foreclosures in other ways. If you watch for mortgage default notices and announcements of properties that are being sold on the courthouse steps, you can sometimes step into a good deal on a foreclosure property. Before the blank lists it with a real estate agent. There are foreclosure websites as well. 00;06;46;23 - 00;07;11;02 For example, Realty Track is a large site keeping comprehensive records of bank owned properties all around the country. A quick Google search on foreclosure listing websites will give you some sites to check out. You may even find some sites that are more localized to your area. If possible, develop relationships with the people at major banks who handle the foreclosures. 00;07;11;05 - 00;07;36;18 Get to know the asset managers employed to manage and liquidate bank owned properties. Let them know that you're always in the market for value, and maybe you'll get the chance to pick up a property directly before listing an agent. Commissions. The bank doesn't like paying them either. Short sales. A short sale is the purchase of a property at a price below the balance due on the mortgage. 00;07;36;21 - 00;07;59;27 This can happen when a homeowner is having trouble making payments and can't sell in the current market for at least the amount due on the mortgage. Basically, the homeowner is trying to avoid the foreclosure. This happens before the foreclosure. The key here is that the bank must approve the sale. The homeowner has no real power in the negotiation. 00;08;00;02 - 00;08;24;29 As the buyer, you're negotiating with the bank. Short sales are tough to get to closing, and even when successful, they could take months. Generally, you'll be able to better spend your time and resources in other ways that will locate value properties than trying to buy via a short sale. However, it's something we want you to know about and something you might want to investigate. 00;08;25;01 - 00;08;52;25 Advertising for sellers. This is a good time to discuss advertising for sellers because of how many short sale deals are begun. You could run classified ads in newspapers stating that you're looking for a property to by. For example, Craigslist is a great place to run these ads with the advantage that it's often free. Other investors use bandit signs you'll see on street corners saying we buy houses. 00;08;52;28 - 00;09;20;00 You can also place notices on bulletin boards and prepare business cards to hand out or to tack on boards as well. In our companion book, Quick Start to Cash Flow, we go through all of these marketing strategies in detail and help you build a comprehensive marketing plan to advertise for sellers and buyers and partners and tenants. You could put out the word to real estate agents that they can steer impossible deals your way. 00;09;20;03 - 00;09;43;17 What are those homeowners concerned about? Continuing to make their mortgage payments? Contact a real estate brokerage about listing their home. The truth in some of these properties is there's no way they can sell it for what they owe and cover the closing costs and the commission to the real estate agent and brokerage. So the agent generally isn't going to take on the listing, even if they do listed a few months later. 00;09;43;22 - 00;10;04;28 Everyone might have to admit that it isn't going to work. Let the agents know that you're out there actively seeking the right kinds of deals, and that you'd like to know when something like this comes along. Even if they don't notify you about an opportunity, they may be willing to hand the owner your business card and tell them to give you a call to help them out. 00;10;05;05 - 00;10;41;18 Probate investing. This may sound like a small niche, but there are trillions of dollars of real estate in probate at any given time. Probate investing is actually a highly profitable niche for investors who either flip or hold properties, depending on where you live and do business. You will have different levels of technology for accessing the public probate records, however, and in the US they are public and you can locate properties held in probate and destined for sale by the personal representatives of the deceased. 00;10;41;20 - 00;11;08;28 These normally aren't attorneys, but people designated by the person before their death to handle their estate. The representatives are people who are tasked with selling off assets and paying the debts of the deceased, and they usually want to get the job done and go back to their normal lives as quickly as possible. A misconception is that you'll have to always deal with bereaved relatives and heirs, which is often not the case. 00;11;09;00 - 00;11;34;21 You're often dealing with the personal representative or executor of the estate, not a judge and seldom an attorney. The single largest asset in most estates is real estate, so the representatives naturally want to dispose of it as soon as possible because they want to use those proceeds to pay down the debt. Well, it's not going to be a simple process where you can just simply look up real estate for sale at the courthouse. 00;11;34;27 - 00;11;55;20 It can be a well worth the effort. Generally, you'll have to access the court probate records to find real estate listed as one of the assets, then match by using the tax ID number for the property. You can determine where and what it is. Then you can go to a drive by and see if there's something that you'd like to investigate more here. 00;11;55;23 - 00;12;16;12 You'd then contact the personal representative or executor of the estate and ask to see the property. Let them know you're interested in buying it and you can make it happen fast. Once you've seen it, don't appear to eager or say too much. Take detailed notes and ask if you can call the personal representative after you've run the numbers. 00;12;16;14 - 00;12;44;04 Then do your very detailed research and cost estimations, including any rehab or repairs that you'll have to make. Do a spreadsheet of costs with a very conservative and even understated rent that you can expect to get, and then make an appointment to see the personal representative again. Go over the numbers and be fully transparent. As an investing professional, pointing out all of the issues that justify your offer, which will be very low, by the way. 00;12;44;10 - 00;13;06;05 Remember the 25 to 1 offer rule from quick start to cash flow. You'll be using that in probate deals. Currently, you may be the only person who has discussed the value of real estate with the personal representative, someone not really in real estate business or in the know, but the market values in the area. Right now you are in the driver's seat. 00;13;06;08 - 00;13;34;25 You have the knowledge and experience. While it's likely that that low offer will be problematic for the personal representative. They may have nothing else to compare it to at this point, and the property may be free and clear of any mortgages. Looking at the debt that the sale would pay off and the problems it would solve. The personal representative may be inclined to do a little negotiating and let you have the property at a deep discount. 00;13;34;27 - 00;13;59;07 Take a look at probate situations to see if there's an opportunity there, and decide if it's worth your time and effort. Sometimes it may present a way to own a rental property in an established area where income properties are hard to find or hard to buy. Remember, this is one of the tools in your toolbox. Some investors will never invest in probate properties, while others will make it their core focus. 00;13;59;15 - 00;14;26;01 It all depends on what works for you. Fixer upper well, fixer upper is a property category and not really a way to locate homes. This is a good place to talk about the opportunities presented by properties needing work. We also call these rehab properties. You will see damaged properties in many situations discussed in this chapter, including homes listed on the MLS. 00;14;26;04 - 00;15;00;20 In the next chapter, we'll go into detail about repairs and after repair value or RV. However, for this chapter, let's just be general about the opportunities presented by properties needing work. We'll start high level and later in the book we drill down the retail buyer, and even the casual rental property investor can be easily turned off if they think a property needs extensive repairs, because you'll be getting an education both from us and on your own, about what is entailed in repairs and renovation and how to calculate the costs. 00;15;00;28 - 00;15;23;02 You'll have a much more pragmatic view of the situation. It's all about loving the numbers, and you'll just sit down and do them to see if it's a deal for you or something you should pass by. Knowing how to do a lot of the work yourself, or how to supervise and hire without a general contractor will reduce your costs and improve your ROI. 00;15;23;04 - 00;15;48;28 This is a common place where investors start, and as they get more cash flow and they get more properties, they slowly have other people that they hire on to do the work. Internet searches and alerts. Craigslist. We've touched on advertising for sellers on Craigslist. Craigslist can also be a valuable tool in locating properties and getting them to you before the competition. 00;15;49;01 - 00;16;11;12 You don't have to entice the seller to call you, as you're going to watch for their advertisements. Many motivated and distressed sellers will place ads on Craigslist. It's free and they've used it to sell other items, so why not try it for their home? They may have been trying to sell it in other ways. Even listing with a real estate agent. 00;16;11;14 - 00;16;37;05 However, they're not getting it done, and the owner may be getting closer to problems with paying their mortgage or even approaching foreclosure. You can do specific searches on Craigslist and other online listing sites, and you could save your favorite searches for quick reference. Just build searches for key words and phrases that motivated homeowners might use when they lost their homes for sale. 00;16;37;07 - 00;17;03;21 For example, the need to sell home must sell home. Home for sale motivated must sell home fast. I mean, you get the idea. The more you see these ads, the more that you're out there in real estate, the more you'll know exactly what keywords will respond to for you. But the point is, people will let you know via these searches that they have a home that might meet your needs. 00;17;03;23 - 00;17;32;03 All you have to do is have the searches saved and then check on them. Google alerts. Another really great free tool is Google Alerts. You can't really use this for a specific site such as Craigslist, so you'll need to modify your search terms a bit. Google alerts instead, they search all over the web, not just one site, so they'll find the for sale by owner ads anywhere they are. 00;17;32;05 - 00;17;53;11 So use some of the same key phrases and just add your local area to them. That could be the city name or even names of neighborhoods. Google alerts will send you emails when new items term up. When people are searching the terms you're looking for and you'll find for sale by owner ads soon after the owners put them anywhere on the internet. 00;17;53;13 - 00;18;20;29 Isn't that cool? If it's for sale, you'll find it using the resources we've provided in this chapter. You can develop a powerhouse property location system. This is something you couldn't have done nearly as well ten years ago, but the internet is amazing. It has created a property information resource that can't be equaled. And guess what? It's only getting better. 00;18;21;01 - 00;18;46;05 Action steps one. You began the contact with real estate agents in the team building chapter. So get in touch with one or more of them and get those automated reports coming to your email and cell phone setup. Two. Go through each of the other sections in this chapter and research the resources for finding homes. Check out foreclosure sites and other large property sites. 00;18;46;08 - 00;19;15;06 Three. Check out real estate listing websites and for sale by owner sites. You might be surprised what you find and you'll be impressed by what you learn. Number four develop searches through Craigslist and Google Alerts to deliver properties right to you. What's next? You're moving rapidly towards actually locating a home and running the numbers to see if it will meet your investing and cash flow needs. 00;19;15;09 - 00;19;25;14 In the next chapter, we'll take you through the other costs involved in purchasing a home other than the price of the home, it's critical to the process of loving the numbers.