Real Estate Investing - Take The Guess Work Out Of Your Wholesale Property Purchases

Real Estate Investing - Take The Guess Work Out Of Your Wholesale Property Purchases

By Lou Castillo 

We have become very concerned by the number of readers writing to us asking how to determine which are the wholesalers(*) that can be trusted. Why are we concerned? Because when we dig a little deeper, we realize that they are buying properties based solely on the recommendation of the wholesaler. They're guessing which ones to trust, and which houses to buy. That's a dangerous way to do business.

Are we saying that most wholesalers will take advantage of you? Of course not. We believe in wholesaling. We wholesale many deals ourselves every year. Frankly, the majority of wholesalers are honest, and try to provide data that is as accurate as possible. The problem is twofold: first, wholesalers are sales people and present deals in the best light possible. The Buyers still need to do their due diligence to make sure the deal works for them. Second, wholesalers can only provide what the average renovator may incur as expenses. 

Your individual, specific expenses in any given deal may be higher or may be lower. It also depends on what exit strategy you're planning. That's why two investors can analyze the same deal, and one decide that it works great, and the other decide there's no profit. Both views may be correct since everyone's individual costs vary.

When you purchase any property, you have to calculate your own specific costs to determine if it is a good deal FOR YOU. It could be a great deal for many investors, but not for you. Only you can make that determination. Conversely, other people may have to pass on a deal that you, because you may have better resources available, will jump on the opportunity.

You also have to evaluate the After Repaired Value yourself. We still hear buyers talking about getting an appraisal to determine the value. An appraisal is a tool for the lender - NOT for the investor. Appraisals are an art, not a science. We could bring three appraisers to a property, and get three different values.

Therefore, it's up to you to do your homework and figure out the right value. The question is: "What will this house sell for when the rehab is complete?" You obviously do not want to use as a comp the one home that sold significantly higher than all of the others. But by the same token, don't use the lowest values either - you'll never buy a house. We use the highest price cluster of similar homes we find in the area as our comps. This is the most realistic version of what you can expect in the marketplace. We do not under-value the property making it impossible to buy deals; nor do we over-value the property potentially resulting in no profit.

Use the information the wholesaler provides you as a guide to determine which deals to pursue, but then do your own due diligence. Determine your own specific costs, and determine your own property values. Don't guess whose numbers are correct. In the long run, you'll be much more successful as an investor.

(*) Wholesalers are investors who market extensively to attract motivated sellers, get the property under contract, then sell the deal to other investors who will fix up the property and re-sell to owner-occupants.

Best of success & abundance,

Lou Castillo

Lou Castillo has been successfully investing in real estate since the early ‘90’s. Castillo was on his way up the corporate ladder until he recognized that real estate offered a greater opportunity for financial freedom, and for the lifestyle he desired. Lou has a knack for developing powerful & proven systems that work in real estate and has authored more than 7 books and courses on the subject.

For more information, visit http://www.Investorriches.com or sign up for his Powerful Investing Tips at http://www.Freerealestatestrategies.com

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Real Estate Investing - Follow-Up - The Key To Successful Closings

Real Estate Investing - Follow-Up - The Key To Successful Closings

By Lou Castillo 

If everyone always did everything they said they'd do, we'd all be a lot richer. Unfortunately, tasks are overlooked, and the ball is often dropped. If you want to have successful closings, you must have strong "follow-up" skills to catch problems early in the process. Follow-up on everyone and everything.

We can't begin to tell you the number of closings that almost fell apart, or would have fallen apart had we not kept a watchful eye on the entire process to make sure that everything was completed when it needed to be. Here's a typical scenario: you're wholesaling a house and you have just 30 days to get it closed before the contract with the Seller expires. You find a buyer who can get a loan and close before the expiration. Then a few days before closing you find out that the loan isn't ready and closing must be delayed two weeks, but the Seller already has another Buyer ready to pay more than your price, so they refuse to extend your contract. You just lost the deal.

So what is follow-up? We used to think it meant staying in touch with the buyer to make sure that everything was completed for the loan. Then we learned that the buyer is often a newbie and clueless of what needs to be done. Mortgage brokers just usually respond "Everything looks great" until they can't close the loan. So the real trick to following-up is to speak to the final decision maker for each step. This works whether you're selling a retail house or a wholesale house, or even if you are the buyer/borrower. The goal is to close without delays.

Assuming that you have already received a pre-qualification letter from the lender, and ensured that the lender will loan on the deal (i.e. no issues with title seasoning, assignment fees, inhabitability of the property), the first step is to follow-up with the broker/lender that all of the application paperwork was submitted, and have they forwarded it to the lender? If not, what is still required? Determine if the lender requires a termite letter, appraisal, and a survey (most lenders do). If so, have they all been ordered? When is each to be completed? Keep following-up until you verify that each has been delivered. You also want to verify that the appraisal was sufficient for the loan.

If we don't already own the house, we order a title report as soon as we go under contract with the Seller to discover any defects early in the process, and begin resolving them. Closing attorneys usually do not order the title report until just before closing to receive as current information as possible. But if they find problems, it could delay your closing. It is well worth the $125 to run title ahead of time, and eliminate delays.

Once the broker has forwarded the paperwork to the lender, the next step is to verify the loan has gone to underwriting. If not, what is the delay? If so, was the loan approved? Do any conditions need to be met? What are they and who is handling them? Make sure that once the conditions are met, the loan is returned to underwriting and approved.

Verify that the closing has been scheduled with the attorney, and that they have cleared title. Find out if and when the loan package will be forwarded to the attorney. Then remind all of the players of the date and time of closing, to bring a picture ID to closing, and to bring any funds required in a certified check.

This seems like a lot of work that should be handled by other people, but the reality is that often times something is overlooked. Through your diligent follow-up efforts, problems will be detected early and corrected, allowing your closing to occur flawlessly and on schedule.

Lou Castillo has been successfully investing in real estate since the early 1990s with a focus on rehabbing and wholesaling single family residences. He is also a national speaker and trains other investors on his model for investing and for leveraging the power of the internet.

For more information or to sign up for his Powerful Investing Tips visit http://www.Investorriches.com

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How To Automate Your Collections

How To Automate Your Collections

By Tim Randle 

Having been a landlord since the early part of 1994, I feel fairly safe in stating I've tried almost every imaginable way of collecting monthly payments from my residents. I want to run through some of these methods and let you in on the pros and cons of each technique. I'll wrap it up by telling you what I do now.

Personal Collections

Scheduling appointments to pick up payments was never even a consideration for me as a standard way of doing business. I'm too lazy and I consider it the resident's responsibility to pay me if they want to stay. The advantage is that you know right away who's paid and who hasn't. You still don't know if the check will clear with good funds, assuming you weren't paid in cash or certified funds.

Of course, I've met with residents to pick up payments on special occasions when the resident was late or trying to avoid late fees. Again, this is a waste of time in my opinion.

I now have a designated place for the residents to drop off payments if they want to go this route. Also, for chronic late payers, they lose the privilege of paying any other way than by certified funds at the drop box. Once they've paid consistently and timely for six months, I'll consider reverting back to the standard pay system I'll discuss later.

If you do decide to meet your residents to collect, I highly recommend NOT meeting at your personal residence. Do not allow any of your residents to know where you live. In fact, my opinion is that you should have an unlisted telephone number for your home line and that you should spend as much time as necessary removing personal information from the various internet directories. Sorry for the tangent here, but I thought it important enough to include.

I don't recommend this method as it requires too much effort on your part.

The Check's in the Mail

This is probably the way everyone starts out. The payment doesn't arrive and the resident claims it's in the mail. If it arrives, is it even good? Who knows? The advantages to this method are that it's very common, and if you have a great tenant, it can be a low hassle way to collect payments.

The disadvantages include reliance on the resident's memory to write the check, correctly address the envelope, place the correct postage on it, and actually drop the payment in the mail. Additionally, you then rely on the postal service to deliver the payment to the correct address and in a timely manner.

I've even gone as far as providing payment coupons and self-addressed stamped envelopes to residents to remove some of the risk associated with this methodology. I didn't find this added effort to produce any noticeable difference in the results.

I don't recommend this method as it requires too much Involvement from your resident.

Resident Makes the Deposit

I realize many of you will completely balk at this idea, but I've tried it for years now with some success. Prior to having a drop box location, I would give my late payers a bank account number to which they could deposit the monthly payment directly.

Naturally, I graduated from that step to providing deposit slips that were pre-printed so the account name and the account number wouldn't be inaccurate. In this case, this added effort did reduce the monthly "I don't have such and such information" telephone calls from the residents. I was never that concerned about a resident attempting to make a withdrawal from my account, although I'm sure that's a possibility. To decrease this risk, you could have a separate bank account for deposits and sweep the funds into another account periodically.

Another consideration here is that potentially you could run into a failed eviction for accepting partial payments. Whether or not a judge would consider a tenant making a small deposit in a last ditch effort to avoid eviction "constructive receipt", I'm not able to answer. So far, (knock on wood), none of the folks I've evicted have tried this angle.

However, what will invariably happen is that residents WILL make partial payments. The truck broke down, the child custody legal fees, etc. get prioritized over shelter and what few remaining funds there are end up in your account. Then you're left with the fun job of trying to determine who paid what.

Advantages to this method are that you don't have to make a trip to the bank and if you have online banking, you know within a day or so if the deposits are there. Again, you don't know whether or not they paid in pennies or stolen checks from their neighbor, but you at least see the deposit made.

I don't recommend this method as a standard way of collecting, but perhaps consider it for the good payer who's just had a bad month.

Print the Checks for Them

(Thanks to Earl B. for the following tip)

I forget when it was, but probably sometime around eighteen months ago, one of my friendly competitors suggested I try this service. One of his friends was using it with success so I signed up for it. It's inexpensive and allowed me to just sit down and print all the monthly payments at one time. I signed all new residents up on it and bribed some of my existing residents to join.

The service is presented to the residents as an auto draft service and they sign off on a one-page form that authorizes you to debit their account. The program itself is a Windows-based software application that allows you to print these "Demand Drafts".

The advantage is that the payments can be set up as a recurring monthly payment and you can print them whenever you want. So, rather than waiting for the mail to arrive, you just sit down at your PC and hit print. The checks roll off your standardized printer. In other words, you don't need any special equipment. On the first of each month (or whenever) you just head on over to the bank.

Again, you don't know if the resident has good funds or not, but at least you're not waiting to make your deposit. One of the disadvantages is that you will have to purchase check stock, but I believe I received 300 checks with my initial purchase.

Another advantage to using this software is that you could set up your own bills on this so that each month you just print out your recurring bills or a set of blank checks with your pre-printed information.

I no longer use this method, but can recommend it as It worked well for me.

Direct Deposit

For the last year I've been using a new service I found. I searched high and low for a reliable, quality direct deposit service that wasn't designed for the huge apartment complexes. Everything I stumbled upon had a fee structure that priced it way out of my league.

Again, as before with the software application, I signed all my new residents up on it (company policy, don't you know?) and bribed some of my existing residents to join as well. I think it's fantastic.

Residents receive an email notifying them of the coming draft and it all runs through the banks Automated Clearing House systems (ACH), so there's absolutely nothing that I have to do.

The resident's account gets debited automatically on the designated day and I receive an email the next day that shows me which accounts were drafted successfully, and which failed, if any. Three days after that, the funds are automatically deposited into my account.

The residents know it's coming and since it's automatic like other bank drafts, it requires no effort on their part. It also requires no effort on my part. It's the simplest solution that I've found and very affordable to boot.

Tim Randle is the founder of http://www.REIClub.com, one of the web's best online resources and communities for creative real estate investors. To view over 800 other real estate investing articles, please make sure you visit real estate articles today!

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Directionals Move Properties

Directionals Move Properties

By Tim Randle 

One of the most effective and frequently overlooked methods of filling or selling a property is the use of directional arrow signs. I'm guilty of it myself, although usually I'm merely lazy instead of overlooking this great marketing technique. Being lazy usually costs me in terms of holding costs, especially if you happen to be in a buyer's market as I currently am. Even if you're in a hot market where everything is moving quickly, directionals will move your property that much quicker.

Yes, there are numerous other methods you can use such as: flyers in the neighborhood and large stores and shopping malls, ads in the large and small papers, listings on the internet, listing with a real estate agent, calling real estate agents to inform them, mailouts to apartment complexes, yard signs with flyer boxes, open houses, calling loan officers, emailing your buyer list, etc., etc. (I have one friend use advertises her properties on the cable preview channel and she says it works great. Unfortunately, that option isn't available in my area.)

Why Do Directionals Work So Well?

Directional arrow signs work well for a number of reasons. First, they are targeted to the neighborhood where the property is located so the folks who will actually see them are the buyers or tenants who are already driving the neighborhood looking for properties. The second group of people who will see the signs are the residents who already live there. Many times the nearby residents will have family or friends who want to move into the neighborhood.

Flyers delivered to the neighborhood will also accomplish the notification aspect that there's an available property, but what flyers don't do is lead the prospect or prospect's friend straight to the front door.

Why Not Just Use Typical Bandit Signs?

For those that don't know, bandit signs are the road-side signs that many people utilize to advertise their business, favorite politician, and/or properties for sale or lease. The signs come in many colors and sizes, some professionally done and some hand-written. The nickname bandit signs stems from the fact that many municipalities have sign ordinances that prohibit their use or restrict use in the public domain or right of way.

The primary weakness of typical bandit signs for marketing a property for sale or lease is that the sign provides a little information (often impossible to read while driving by) and a phone number. If I'm out looking for properties today, I don't want to leave a message or turn around to go see what the sign said. I want to drive by NOW, not tomorrow, not later today, right now.

How is a Directional Arrow Sign Different?

Who said anything about one directional sign? I'm talking an entire series of signs that leads the prospect from the main thoroughfare all the way through the neighborhood to the driveway of your property. There's no thinking, major squinting, turning around, or phone calls involved here. "Oh, honey, turn there quick." Then it's "look, there's another sign, turn there." etc., all the way to the property. Then, of course, there's more information including contact numbers available at the property.

Okay, So How Do I Implement This Technique?

Here's the way I do it and you should tweak it and improve to suit you. When a property becomes available, I study the neighborhood and determine the "best" ways to lead prospects to my property. By "best", I take into consideration ease of navigation, neighborhood amenities like parks and schools, and surrounding properties. If there's a back way into the subdivision or location, I map out both paths.

My target locations are every single corner that my prospects will need to turn in order to get to the property. If there's a really long stretch without a turn, then I might need a directional arrow in the middle of that stretch to keep them coming. My experience has been that I will have to replace signs within the neighborhood only a few times, but I have to monitor the signs on the major roads and replace them fairly frequently. However, these signs tend to stay put much longer than a traditional bandit sign.

Then I simply go door-knocking and ask people if I can place a small directional sign in their yard. I intentionally do this during the day to miss folks because I'd rather not get involved in lengthy discussions about the property and I've got many doors to get to. Once I'm sure no one's home, I leave a letter in the screen door or someplace where it will be easily seen. I drop this letter at all four houses on each corner on the route.

What Does the Letter Say?

I've found it's important to NOT come across as a real estate investor or a company. I use an informal style and simply ask for help in finding someone to buy or lease my property. Points that I include in the letter are:

• It's just a small directional arrow sign
• I'll put it right by the corner and not really in their yard
• I'll make sure I don't damage any sprinkler systems
• They get a $20 gift certificate once the process is done
• They get to choose the store, restaurant, etc.
• Please call me to replace the sign if it gets removed
• The first person who calls me wins

This technique has never failed. Frequently, I'll have two or more people from each corner call me, but I've always had at least one person call to agree to the arrangement. Some of them have even taken serious offense to do-gooder neighbors who remove the signs as the property owner is concerned they might not get their gift certificate. I'll describe the signs in more detail below, but I started adding "Placed With Permission of Owner" on the top of the signs and this reduced my losses.

The end result of this effort is that perhaps I pay out $160 to $200 in referral fees, but I have to run my $50 to $150 worth of weekly newspaper ads many, many fewer weeks. It definitely pays off from a monetary standpoint. The other benefit is that I now have a list of folks near each property (whom I've never even met) who think I'm great. Every single person will call me back after receiving their gift to thank me and the large majority volunteer that I'm more than welcome to do this anytime I need.

What Do the Signs Look Like?

The signs I use are basically the standard bandit signs cut in half. A normal size bandit sign is 18" x 24" and I use 9" x 12" signs for my directional arrows. I have a red directional arrow that takes up about 5 inches of the sign, leaving the bottom 4 inches blank. Within the red arrow I ask the sign company to put my message which could be "Owner Finance" or "Lease Purchase" or whatever you prefer. The message is easy to read.

In the blank space I use a large marker to write the property address. It's important to leave enough blank space below the arrow to write the address in large numbers and letters. Also, as I mentioned above, I include the "owner permission" tag line on top of the arrow. I buy 36" wooden stakes from Home Depot and attach an arrow sign to each side of the stake so the information can be seen coming and going.

If you don't have a source for these signs, please contact BanditSigns.com to get some. They're inexpensive and well worth the cost.

I hope you'll add this tool to your marketing techniques and discover the same success I've had in using it. You may find that you abandon many other advertising tools you've been using in the past.

Tim Randle is the founder of http://www.REIClub.com, one of the web's best online resources and communities for creative real estate investors. To view over 800 other real estate investing articles, please make sure you visit real estate articles today!

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