Real estate investing is really simple if you simply follow the basics. The problem is that we have the tendency to complicate things more than they really need to be AND that we over-think things too much. We get “too much” specialized knowledge that it begins to cripple us.
When I started out in the business, I made a commitment that I had to implement at least one thing from any home study course I purchased, event I attended, or book that I read before I could buy something else. You see, we tend to keep looking for the “magic pill” to riches in real estate and no such thing exists. You need to actually take action and apply the specialized knowledge that you are getting — not simply go from strategy to strategy, never actually implementing anything.
In addition, when you take this approach, you often get contradictory information which makes you start to question if a strategy will work. For instance, when I was brand new to real estate (I mean… one bootcamp under my belt and no home study materials to which I could refer), I found this piece of property that I absolutely loved. I called about the property and proposed a lease option. Why? All I knew is that I couldn’t afford to “buy” a house like that and that I was used to renting!
The husband initially said “No”, but the wife called me back about 10 minutes later and asked if I could meet her there! I told her what my situation was and that I was getting started in real estate and some of my personal situation. We had a great conversation and I fell in love with the house, but realized that it was much to big of a decision for me to make with my current financial situation. I couldn’t afford the option consideration until we closed on that first deal and I didn’t want to lose the other place I was looking to rent.
I left the house a little disappointed. But, less than an hour later, she called me. She said, “Heather, I know this is a big move and it’s probably a little difficult to make such a big decision in less than 24 hours. So… why don’t you move in now (I had to be out of my friend’s house in 3 days) and see if you like it? If, at the end of the month, you want to move forward, we’ll sign the paperwork. If not, you can simply move out.”
I was blown away! I could hardly believe what I was hearing. To this day, I still keep in occasional contact with them and always remember back to how I got into my very first home. Plus, I negotiated this in one of the strongest markets in history, when other people were saying deals like this couldn’t be done. More than a place to live, it gave me confidence and it gave me the opportunity to start over new. But most importantly, it made me believe in the business and also helped me realize that it doesn’t matter what other people say.
Don’t get bogged down in what other people tell you will/won’t work. Every situation is different and if you’re sincere about what you’re doing, you’ll be able to put together deals that other people won’t.
I have talked about the 13 traits that every successful real estate investor has and the value of what Napoleon Hill teaches in “Think & Grow Rich”. But one that really is so critical, especially early on, is the Burning Desire. You have to want it so bad that you’re willing to overcome obstacles and to continue to press on even when you feel like giving up and I can promise you that you WILL feel like giving up as you grow in real estate.
I can still remember back to my first 6 months in real estate. I was sitting on my couch which was underneath the window of my living room. I got a call from my Realtor® who told me that we had a “low offer” on one of our properties and the reason was because ‘there was nothing in the house’. Now, naturally, my question was, “What do you mean?” Apparently, someone had broken into the home and stolen the appliances, ceiling fans, a/c units and fixtures. Just as I was trying to absorb this, I got another call. Only this time it
was from my contractor. He had just arrived at the job site to find that all of his tools had been stolen, including the $4000 generator that was there. I certainly wasn’t having the best day ever! And as the week progressed, there were a total of 5 break-ins at 2 properties in 3 days.
I remember looking out the window — up the street and down the street — thinking to myself, “What the hell have you gotten yourself into?” I couldn’t afford my own mortgage payment (which was in my mother’s name, so I had no choice but to find a way). I couldn’t even afford groceries. I lived on canned marinara sauce and pasta with an occasional olive oil and garlic twist. I had a good heart to heart talk with myself and decided that I had no other option. I had to stick with it and fight through it.But, boy… I sure wish I could have quit that day.
But, by making the choice to stick with it and dig myself out of whatever it was that I had gotten into, something else happened. I strengthened my tolerance muscles. I got just a little bit stronger and a little more focused and determined. I had a big reason for doing it and I wasn’t going to let this little “challenge” stop me from achieving my dreams!
Now having said that, let’s assume that you have your reason why and that you’ve made the decision to get into — and stick with — real estate.
There are really only 5 things you need to do to make money. The key is to work one step at a time. So often, members contact us and are so worked up about what’s going to happen in step 5 that they never even get started with step number one. The key is to start at the beginning. Once you accomplish the first step, then move on to the second. Trust that the right information will come to you at the right time. This goes for anything.
Step #1: Find A Motivated Seller
Real estate investing comes down to motivated sellers. That’s it. Period. If you don’t have a motivated seller, you won’t be able to get your price or your terms.
The most common question that we get from subscriber is: “What’s the best way to find motivated sellers?”
The answer: There are endless ways to find these sellers. It simply depends on your budget and time constraints. If you are short on cash, it is important to realize that you will have to put in some time. If you have no time, but have money, hire out some of the work or use leveraged marketing strategies.
If you’ve got no money, but lots of time on your hands, go back to the basics. Get out your Sunday paper and start calling the classified ads. When I started out, I had no money, but all the time in the world. I would run through the paper 3 times. The first time, I would circle the ads that called out motivation. Then, I would go through a second time to see if I missed any. And then, after I’d called the first round of ads, I’d skim through one last time to make sure I’d not missed anything.
I could almost guarantee that out of 50 calls, I would have at lease 5-8 motivated sellers.
Plus… this strategy really helps you practice overcoming objections and talking to sellers.
Now, let’s assume that you have limited time and limited funds (but some of each). I would recommend direct mail to targeted prospects, like foreclosure leads, out of state owners, probate, etc. Send personalized letters out on a weekly basis. The number of letters you send out will depend on your budget.
These are but two ways to find motivated sellers. There are dozens and dozens of ways to find motivated sellers that we cover in the membership section and in peripheral materials.
Understand that you’ll probably have to call 50 to get 10 sellers with real motivation.
Step #2: Evaluate the Deal
You must be able to quickly determine if a deal is worth your time and effort.
We first evaluate a deal on 5 criteria:
- Location
- Seller’s Motivation
- Property Condition
- Price
- Financing
Each criteria is rated on a scale of 1-3. Depending on where the deal scores, we cut it loose, put in a little more time evaluating it, or move on it fast!
Remember, not all deals are won or lost on price only. Terms play a big factor in whether or not you’ve got a deal on your hands. Obviously, in all cases, the lower the price, the better the deal! But in some cases, you may trade price for terms. Of the ten motivated sellers, you may only end up with 2-3 that are really deals after your evaluation.
Step #3: Write An Offer
Once you’ve decided that you have a motivated seller and the deal makes sense, it’s time to put the offer in writing. Before you do this, force yourself to come up with 3 creative alternatives that are win/win for you and the seller. The model that we follow is: 1. Cash offer price; 2. Full price (market value); 3. A hybrid offer.
You can present them all at once as a “pick your favorite” strategy or actually sit down with the seller and go through each of the offers and show him/her the benefits of each of the offers. Present your least favorite offer in the middle as people tend to choose the first or third because of the recency and primacy effect.
But… keep in mind that every single offer should be a win/win. If there are not 3 alternatives (like in the case of a short sale where the seller cannot offer you terms), then don’t write three offers just for the sake of doing it.
Be sure to include ‘exit’ clauses to get out of the contract if you should have trouble getting financing or find something during the inspection.
Step #4: Line Up Your Financing
Whether you’re going to a conventional lender, hard money or private lenders, you’ve got to get your financing lined up. Even if your seller is holding all of the paper, you’ll want to get the actual mortgage or deed or trust and note written up by an attorney to ensure everything is done properly. During this financing, or due diligence, period, you’ll also do your home inspections, appraisals and any additional research.
If you truly have a deal, the financing is the easy part! It’s the properties that you try to make a deal out of something that’s not there that are the real problems.
Step #5: Follow Through with Your Plan
Remember what your original intent was with the property. If you were going to buy and hold long term, don’t get in and expect to turn an overnight profit. The deal was structured for a different purpose.
Likewise, if you based your evaluation numbers on basic renovations, don’t decide to put granite counters and marble floors in after the fact. Also, don’t get greedy on the price! If you put the deal together based on a certain sale price, don’t get greedy (or attached) once the project’s done and increase the price. You bought it based on one set of numbers. Stick to it so you can get out and get on to the next!
If you step back and truly focus on one step at a time, you’ll be able to get more deals done in a shorter period of time. So many of us get caught up worrying about what might happen that we never really get through to find out that the things you fear most are probably the least likely to happen!