Cash vs. Credit: The Concept of Leverage

In order to understand real estate financing, it is important that you understand the time value of money. Because of inflation, a dollar today is generally worth less in the future. Thus, while real estate values may increase, an all-cash purchase may not be economically feasible, since the investor’s cash may be utilized in more effective ways. Leverage is the concept of using borrowed money to make a return on an investment. Let’s say you bought a house using all of your cash for $100,000. If the property were to increase in value 10% over 12 months, it would now be worth $110,000. Your return on investment would 10% annually (of course, you would actually net less, since you would incur costs in selling the property).

If you purchased a property using $10,000 of your own cash and $90,000 in borrowed money, a 10% increase in value would still result in $10,000 of increased equity, but your return on cash is 100% ($10,000 investment yielding $20,000 in equity). Of course, the borrowed money isn’t free; you would have to incur loan costs and interest payments in borrowing money. However, you could also rent the property in the meantime, which would offset the interest expense of the loan.

Taking leverage a step further, you could purchase ten properties with 10% down and 90% financing. If you could rent these properties for breakeven cash flow, you would have a very large nest egg in 20 years when the properties are paid off. Balance that with what you could make by investing the cash flow on one free and clear property for 20 years. And, of course, look at the potential risk of negative cash flow from repairs and vacancies on ten properties. Finally, consider the tax implications - if you have cash flow, you have taxable income; if you have increase in equity, there’s no tax until you sell.

Cash Flow vs. Cash Reserve

On a similar note, the size of your down payment will affect your cash flow on rental properties. Let’s consider two examples.

Example 1: $100,000 property with $20,000 down. $80,000 loan @ 6% interest, including taxes and insurance is about $600/month. Assuming you could rent the property for $800/month, you have $200/month cash flow or $2,400/year. Not bad.

Example 2: $100,000 with no money down. $100,000 loan @ 8% (higher rate is generally common for zero-down loans) would make your payments closer to $900/month. With zero down, you have $100/month negative cash flow.

Which is better? Well, it depends on what your goals are and what the rest of your financial picture looks like. Let’s say your goal was to hold the property for 10 years. In the first example, you have $200/month cash flow, but no cash reserve. In the second example, you would have $100/month negative cash flow, but you have $20,000 in reserve. The knee-jerk reaction of some people is that example #1 is safer. But is it really?

Think about it… in the first example, if your property becomes vacant for one month, you’d be out of pocket $600. It would take three months to make that up. In the second example, you have $20,000 in cash cushion to make up the deficit. With $20,000 in the bank, you could handle $1200/year negative cash flow for 16 years. If the property were in an appreciating market, you’d come out fine, even with negative cash flow. Another factor is the choice of loan. You could buy a property with nothing down and an interest-only loan fixed at 5% for three years. If your exit strategy is a lease/option that should cash you out within 36 months, why do a fixed-rate loan?

The point here is that you should not automatically go with a fixed-rate loan. Nor should you seek positive cash flow as the only goal. Likewise, you should not buy properties with nothing down and negative cash flow and assume that short-term market appreciation will be the only source of your profit.

Paying Down Debt

For years, our parent’s generation discouraged debt as a “bad” thing. For some investors, the goal is to own properties “free and clear,” that is, with no mortgage debt. While this is a worthy goal, it does not always make financial sense. If you have free and clear properties, you will make certain amount of cash flow and pay a certain amount of income tax. If you need more cash, you are forced to sell the asset, creating a taxable gain.

If you refinance a property, there’s no taxable event. And, since mortgage interest is a deductible expense, the investor does better tax wise by saving his cash. Think about it… the higher the monthly mortgage payment, the less cash flow, the less taxable income each year. While positive cash flow is desirable, it does not necessarily mean that a property is more profitable because it has more cash flow. More equity will obviously increase monthly cash flow, but it is not always the best use of your money. On the other hand, paying down debt may make sense if you can’t get a higher return elsewhere in the market. Also, if paying down debt can have other rewards, such as bringing a loan below 80% LTV, you may be able to cancel private mortgage insurance and save additional money.

In Short, Don’t Rely on Assumptions… Do the Math!

Nothing happens and nothing matters in real estate until you find a deal. You cannot put together a deal without a motivated seller and you can only convince a motivated seller to do something creative or that involves a discounted price. A motivated seller is one with a very good and pressing reason to sell below market.

The most common problem new investors face is finding bargain properties. Many who start out in real estate investing quit without ever buying their first property. They go through the motions of looking for deals for a few weeks or months and then decide it doesn’t work. They forget that finding motivated sellers is similar to the salesman finding his first customer . . . it takes persistence and hard work.

Find the Motivated Seller

At the cost of sounding redundant, the concept is simple: find motivated sellers that are willing to sell their properties at a discounted price or “soft” terms. Currently, the real estate market in some parts of the country is hot, hot, hot! Many people are complaining that the strength of the market precludes investors from finding deals on properties. The popular misconception is that in a rising market, even the most motivated seller can find a buyer for his property at full market price.

The truth is, you can find deals in ANY market. Real estate legend A.D. Kessler once said, “There are no problem properties, just problem ownerships.” The definition of a motivated seller fits squarely within Kessler’s idea. A logical person knows that time, money and effort can solve virtually any real estate problem. However, some people are too emotional about their real estate problems or have other motivating issues to deal with.

Some of these issues include:

* Divorce

* Lack of concern
* Inexperience with real estate repairs

* Time constraints

* Death of a loved one

* Job transfer

* Landlording headaches

* Impending foreclosure & other financial problems

Farming Neighborhoods

Successful real estate agents utilize a technique called “farming” to increase their business activity. They pick a neighborhood or two and focus their marketing efforts within that area. You should try the same technique. Start with a neighborhood that is relatively convenient for you.

1. Drive the Area

Spend a few weekends driving around the area. The goal for you at first is to learn about the area, the style of houses and the average prices. Over time, you may expand your farm area, but stick with areas that contain the type of homes you plan to purchase. It is not necessary to begin your investment career by learning every square mile of a large metropolitan area; it is important to learn the value of “typical” homes in your target areas. This knowledge will enable you to make quick decisions about whether a particular prospect is a bargain.

2. Attend Open Houses

Visit open houses and “for sale by owner” (FSBO) properties on weekends. Speak directly with owners and their agents. Pass out your business cards. Make friends. Word of mouth and referrals are a big part of any business.

Part of the process of finding a deal is to know how to recognize one. Take a good look at the property and its physical features. After viewing a couple of dozen open houses in the neighborhood, you will get to know the value of the properties and the different styles of houses. When someone calls you about a house in that area, you will know the value by its description.

3. Look for Ugly and Vacant Properties

While you are driving around neighborhoods, look for vacant, ugly houses. How can you tell if a house is vacant? Look in the window! Of course, this practice may get you shot, bitten by a dog or arrested. First look for the obvious signs of vacancy - overgrown grass, no window shades, boarded windows, newspapers, garbage, mail piled up, etc. If you are not certain whether the property is vacant, knock on the door. If the owner answers, be polite, respectful and ask if he is interested in selling. In many cases, it may be a rental property, so ask the occupants for the name and telephone number of the owner.

If the property is vacant, ask the neighbors if they know the owner. Most neighbors are helpful, as they know “ugly” houses hurt their own property values. In addition, ask the mailman - they know all of the empty houses on the block. Leave a business card and write down the address of the ugly or vacant properties. When you get home, look up the name and address of the owner. Finding the owner of a vacant house can be difficult, which is why the persistent people who find the information make the most money. The name of the owner can be found by calling your local tax assessor’s office or by looking up the deed recorded with the County land records.

If you want to contact the owner, it takes a little more digging. Try speaking with the neighbors or asking the post office for a copy of a change-of-address form on file for the property. Online services, such as www.infousa.com, will search public databases, such as the Driver’s License Bureau and the Department of Motor Vehicles.

Some cities, towns and counties will “tag” a house with code violations. This is often a sign of a neglected or vacant property. Ask your city if you can obtain a list of such properties or find where this information is publicly recorded.

Get What You Can From Every Speaker

Real estate clubs are often under-funded and not-for-profit. As such, they cannot afford to pay professional speakers a fee to speak, so most speakers who volunteer to do so have something to sell. In many cases, it is a book, tape set, mentoring or boot camp. Some people are “offended” that speakers are selling something, insisting that the speaker reveal everything he knows about a topic in a 90-minute meeting.

Understand that everyone has something to sell, whether it is a guru selling a course or a minister selling the “the word”, while passing around the collection basket. Everyone who speaks at a group has an “agenda”, otherwise he or she would not be standing on the stage speaking. Even the most hardcore “pitchmen” do offer some great ideas during their presentations, so you need to get past the “I’m not here to be sold” attitude and get what you can from the speaker. A speaker cannot reveal everything he knows in 90 minutes, otherwise he or she isn’t qualified to take the stage. So, you should expect a certain amount of stories, jokes, anecdotes and yes, a sales pitch for something. Listen carefully, however, you might also learn something!

Respect Other People’s Time

Many newbies always expect they can take a veteran investor out to lunch to learn the business. Most veteran investors won’t do this, unless they are fairly certain you will bring them deals. And, the “teach me the business and I’ll bring you deals” attitude doesn’t work. If a veteran investor teaches you everything he knows and you do nothing (or you do invest and don’t bring him deals), he’s wasting his time. I know this from personal experience, having taught dozens of newbies the business for free, thinking they would come bring me deals. At one point, I woke up to reality - people who don’t pay for their education rarely uses it! Many people know that I charge for mentoring and I charge quite a bit. And yet the more I charge, the more people appreciate the advice and use it.

Be willing to pay people money for other people’s time. You wouldn’t expect a doctor to let you take him out to lunch for a consultation, so why is an investor’s time any different? Keep in mind that most investors have paid thousands of dollars over the years for seminars and courses. Many feel that sharing information with others for free is simply unfair in that respect. And, most importantly, don’t waste other investors’ time trying to learn the basics. Undoubtedly, you have seen dozens of unanswered posts on investors sites from people asking general questions that can be found in a $15 book. Go to the bookstore and buy 10 paperback books and read them. If you are not willing to spend $150 and the time to read 10 basic books, you aren’t ready to be an investor - period!

Let People Know Why You Are There

If you sit in the corner drinking coffee, you aren’t networking and marketing your most valuable asset… yourself! If your club does not have big name tags, make yourself one. Make it big and colorful. Have a statement about what you do and what you are looking for. There’s one guy at our club whose nametag reads, “The Mobile Home Guy.” Everyone knows him. Everyone calls him when they need to sell a mobile. Be creative and aggressive. Ask your club leader if it is permissible to pass out flyers - bring big, colorful flyers that read “I Have Houses To Wholesale - Call Me” or “I Am Looking For Rehab Properties On the West Side - Call Me.”

Get yourself a fancy business card and hand it out to everyone. And, don’t use the cheap computer-printed garbage, go spend $50 and get some nice double-sided cards that explain who you are and what you do. In short, if you show other investors you are serious about taking action, you will get their cooperation.

Join Membership Immediately

It amazes me how many people hesitate to join membership in their local real estate associations. For a few hundred bucks, you get access to one of the best resources you can find - other investors. Why spend all your time looking for the “right” mortgage broker when you can ask other people in the club? Why run ads in the paper for your wholesale deals when you can send an email to a dozen other investors you met at the club? Heck, even the fact that you are a member of the club will give people a reason to do business with you versus someone who isn’t a member.

I’ve been running a real estate club for 9 years and I can honestly tell you that I always go to the membership roll whenever I need a deal, a partner, a recommendation or money to borrow. Also, volunteer to assist with the meeting. Volunteers often get on the “inside track” to becoming a board member, which gives you a lot of influence in the club. Offer to write articles for the newsletter on your own area of expertise that may be related to real estate. If you are an experienced investor, offer to teach a beginner’s class or host a breakfast meeting.

Respect The Rules

Be considerate others at the meetings. Every club has rules, so be mindful of them. Show up early so you don’t disrupt the meeting. Don’t pass out flyers without asking permission. Don’t stand in the back of the room and yack while the speaker is onstage. Don’t shout out questions to the speaker without raising your hand. Close the door to the room quietly when you go to the restroom. And, for Pete’s sake, turn off your cell phone!

First, you need a court-ordered money judgment. If you filed for an eviction in court, you received a judgment and order of possession. The actual name of this court order may change slightly from state to state, but it’s the same thing - a document signed by a judge that permits a local sheriff or constable to forcibly remove the tenants from the property. In most states you can also get a money judgment against the tenant, but this requires one of two things:

1) the tenant must have been personally served with the court papers or…

2) the tenant must have shown up in court. If the eviction papers (the court papers, not the notice to rent) were posted on the door of the unit and/or mailed to the tenant, you generally do not get a money judgment from the court.

What About Security Deposits?

If you have a security deposit from the tenant, you can apply that against anything he owes you for back rent or damages. However, you still must comply with state law for notifying the tenant of your intent to keep the deposit. Even if you return the security deposit, you can still sue the tenant for actual rent owed and/or damages incurred to the unit. If the tenant left before the court date or you did not otherwise get a money judgment, you can always sue the tenant in your local small claims court for money owed and any damages to the property. The process is quite simple, and does not require a lawyer. You have to file the claim before the end of the statute of limitations, which generally ranges from three to six years, depending on which state you live in.

Once you have a money judgment, you can collect it against all non-exempt assets of the debtor. Certain assets, such as retirement accounts, are exempt from collection by creditors. Also, keep in mind that assets of the debtor’s spouse may be attached as well in states that recognize community property (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). Cash in bank accounts is the easiest target. If you have a copy of a recent check from your tenant, you can file for a “levy of execution” on their bank accounts through the local sheriff (this is why it is a good practice to make copies of your tenants’ checks each month to make sure you know where they are banking).

If the tenant is working, you can garnish wages, but most states limit garnishment to 25% of the wages of the debtor. Still, if they have a steady paycheck, you will get your money back, plus interest. If you get a transcript and record the judgment in county records, the tenant will not be able to buy a house in that county without paying you off. If the tenant owns other real estate in his name (not likely, but always possible), the judgment will create a lien on that property as well. If you do not know where the tenants assets are located, you can start a debtor proceeding in court to make him appear in court and answer questions regarding his assets. Failure to comply may result in a warrant issued for the debtor’s arrest. Depending on the amount of money owed and likelihood of collecting, this process may not be worth your effort. But, considering a judgment may be valid for as long as 10 years and you get interest on your money, why not make it a part of your business practice?

As a real estate investor, you can get more sellers calling you and sell your houses fast using the lowest postage rates available. It works when you want to concentrate a mailing to all homes in a certain neighborhood or area.

We already mailed an oversized postcard to sell 6 of our houses and next week will deliver my famous “advertorial” to homeowners convincing them to call if they want to sell their house quickly and easily.

After showing other investors how to use this low cost, direct mail approach, I have figured out the best way for you to research it and use it yourself. Look in your phonebook under “mailing services.” You’ll also find print shops and letter shops that can help. Tell them you want to saturate several neighborhoods with a postcard. You want to use their “standard Mail” permit or you can get your own. The cost for your own is $125 to setup and $125 a year. But the mailing house may prefer or require you use theirs. That’s good.

Tell the vendor you want to mail to all residents. This is also known as a SATURATION mailing. In some areas, instead of an address label, you can have POSTAL CUSTOMER or BOXHOLDER or RESIDENT preprinted on your postcard. In other areas you’ll need to buy a RESIDENT LIST which includes all the addresses in a certain zip code or carrier route, but not names. We checked several sources for lists and were quoted 1 cent to 3 cents each. Do pay more than 1 cent each. If you can’t get it locally then you can get it from a national company. In fact, it’s possible to do the entire job (print, address and mail) with a national company.

If addresses are required, one source you can look into is www.melissadata.com. In fact, if you go to their site, you can get a count of the number of addresses and carrier routes for any zip code you enter. Their cost is about 1 cent each for online download, CD-ROM or labels.

The key postal term to mention is Enhanced Carrier Route Walk Sequence Saturation (ECRWSS). When prepared properly, the mail carrier will deliver one mail piece to each address on the route. That is a minimum requirement, all addresses on a route.

My next mailing will be to an entire zip code has 17 carrier routes, and about 8,000 addresses. If I wanted to I could further target my project to selected carrier routes only.

The cost on my last mailing was 11.6 cent postage each. To get that rate we delivered (to each respective post office) presorted stacks of cards, one for each carrier route with the number of cards needed for each route.

If you do not deliver the cards to each individual post office, then the rate is 12.1 or 12.6 cents. I have found that the easiest way to do it is to let the mailing houses do it all. Tell them what you want and let them figure it out. Get several bids.

I suggest you put your marketing message on a double-sided 4.25″ x 8.5″ (half sheet) postcard. That way your printing cost will only be 3 or 4 cents each. Use yellow or bright yellow card stock. Your “message” should be filled with reasons why they should respond…what’s in it for them.

My first mailing was to a rural area so no labels were required. We just put POSTAL CUSTOMER below the permit imprint. That saved us from buying a list and addressing the cards. Our next mailing to a city area which requires addressing. A mailing to rural routes or postal box holders only should not require labels. Your local mailing house or letter shop should have experience with these types of mailings and can help you plan your campaign and design your postcard (i.e. the position of the permit and address info).

For more info you can search http://pe.usps.gov/ for “enhanced carrier route walk sequence saturation.”

Writing great copy is a state of mind. It’s really just about you talking to your potential sellers about why they should contact you to buy their house. No one knows you like you know yourself. And no one can communicate who you are and what you have to offer better than you. It is best, therefore, if you write the ads yourself so the true you comes out – the one that the customers are going to meet in person when they call. Here are some tips that will help:

1. Determine what type of customer you’re trying to attract. What is their situation? What are their immediate wants (remember we always seek out what we want, not necessarily what we need? Put yourself in their shoes. What are they thinking?

2. Write down who you are. Why should someone call you? Are you a friendly person? Do you focus on service? Are you easy to talk to? Do you have a lot of experience?

3. Have a USP – Unique Selling Proposition. What makes you better than all of the rest? It can be that all your phone calls are answered by a real person. Or that you will always make an offer within 24 hours. Whatever it is that you do that makes you unique to the competition.

4. Compare the two lists and the USP. Write down some phrases that match what you have to offer with what they want. For instance, they’re intimidated to call and talk to anyone about their situation. They’re afraid of being judged. You feel that you are a nice person who is easy to talk to. A phrase you might use is: “If you’re looking for a down-to-earth person who will take the time to make you the best offer on your house, then call me now at _______.”

5. Since composing the copy is difficult for most people, consider just talking it out into a tape recorder. Just talk to your customers in everyday English. Tell them what you can do for them. Then re-play your recording and write it down.

6. After that, put it away. Come back a day or two later, and read what you wrote, and make revisions that make it a stronger message. You may want to repeat this step a few times.

7. Be confident and proud of what you have to offer, but don’t let it become cocky, and do not over promise. It is much better to under promise and over deliver.

8. Be excited when you record your message, and allow that excitement to come through in the writing. You want your target customers to feel that excitement, and know that you are the person to call.

9. Test. Test. Test. Don’t feel that you have to get your copy perfect before you can send it out. Test it. See what kind of results you get. Then make improvements, and test again. Keep which ever version pulled the best results. Then test again with a new message, always keeping the best one as your control piece.

If you feel that your advertising is not pulling the number of leads it should, you may have one of the following trouble spots with your marketing. Critique your marketing and see if any of these apply. Or ask someone you trust and respect to review your marketing and provide their feedback.

1. You are not working in a good farm area for your service.

2. Your message is not clear.

3. Your headline does not grab their attention.

4. You are not building credibility & rapport with the readers - Do you have testimonials?

5. You have not clearly communicated the WIIFM - What’s In It For Me.

6. You have not made it easy for them to see your phone number to call.

7. You do not have a live person answering the phone and you are losing lead calls - most will not leave a message.

8. You have not differentiated yourself from the competition.

The key is just get started. The hardest word is the first one, after that, each one is much easier. Just follow these steps and you’ll write some killer copy.

A Real Estate Jobber is a person who finds qualified leads for professional Investors, through a variety of sources using a systematic process.

Why Real Estate Jobbing?

* You can start in your spare time.

* There is absolutely zero financial risk.

* There is practically no start up costs.

* You don’t need money or credit.

* You can gain hands on experience without risk.

* You can find out if real estate investing is really for you, before spending hundreds or thousands on books, courses and other learning aids.

Your job is simply to supply quality leads and it’s the Investor’s job to handle the rest of the process.

You Earn While You Learn

For each lead that an Investor is able to close on, you will be paid a referral fee. There are several types of referral fee arrangements that can be made including:

* A flat rate.

* A percent of the purchase price rate.

* A net profit rate.

* Rates that combine more than one method.

Build Mentor Relationships

There is no doubt that mentoring is the most efficient way to learn, but it can be difficult to find a mentor to work with. Do you really think seasoned Investors have time to mentor everyone that asks? Separate yourself, and bring something of value to the table. By supplying good, quality and qualified leads you are saving your Investors time and helping them to make money. Now an Investor will be more willing to help.

Start in Your Spare Time

You can easily start out as a Jobber in your spare time. You don’t have to quit your job; in fact I would not recommend that. You work from home, and you may be able to do much of the lead finding research on-line. Anyone can become a Jobber. There are no special qualifications, education requirements or specialized experience required. Your age, gender, race, background, geography or current occupation does not matter.

The skills you develop will carry over. As you gain experience you will work closer and closer with your Investors, and learn the business first hand. When you are ready to take the next step, you will know how to find profitable leads. As an Investor you must be able to find motivated sellers, that’s one thing that will never change.

What Makes a Successful Jobber?

You must know your Investor’s needs. Know what types of properties, what price ranges and what locations they are looking for, and prefer to deal with. The Investor is your customer, and you must give him or her what they want. The successful Jobber is like a real estate detective. The client is the Investor, the case is to find motivated sellers, the reward is the referral fee and leads represent clues. A good detective will investigate as many clues as necessary to solve the case. Likewise a good Jobber will generate and investigate as many leads as necessary to find the truly motivated sellers. You must provide complete information to your investors. It takes much more than an address and phone number for an Investor to make a decision. The Jobber goes the extra mile and uses the public records and other sources to provide as much information as possible for Investors.

You must be (or learn to be) organized. Jobbers use a systematic approach for generating and qualifying leads. If you are disorganized it will be very difficult to stay on top of your business. Anyone can learn to be organized. It all boils down to providing good, quality information, which saves the Investor time and helps them to make money, that’s the goal of a Real Estate Jobber. If you achieve this goal, then your Investors will be more than happy to help you learn the business, and pay you very well for your efforts.

It’s Not Easy

Real Estate Jobbing is a great, risk free way to start your Real Estate Investing career. You earn money while learning the business first hand. But, it’s not an easy get rich quick program. You will have to put forth some effort to be successful. You will need to generate hundreds of leads, which takes some time and commitment. You will need to look up the property information for each lead and present the leads regularly to your Investors. You must be able to motivate yourself to keep finding leads, even when it seems like none of them are panning out.

Real Estate Investing is not for everyone. Jobbing is an inexpensive way to find out if it’s for you, before you spend hundreds or thousands of dollars on courses, books and other materials. Find out what’s involved first hand, experience the challenges as well as the rewards. You get paid to find motivated sellers while saving Real Estate Investors time and money, all while learning the business; it sure sounds like a win-win situation to me.

High dollar houses naturally instill fear in real estate investors as they feel if they make a mistake they will be sued for hundreds of thousands. Real estate investors perceive they need perfect credit, a high net worth and millions of dollars already to buy million dollar houses, so they exclude themselves as buyers and don’t pursue high end deals. Most real estate investors feel they don’t deserve to buy a million dollar house or to be talking with the people that own them. They have a self image that equates themselves with lower price range houses and the people that own them, so those are the houses they pursue.

All of these reasons are fear in one form or another, and none of them are real. The beings that own high end houses are people, and they get divorced, lose their jobs, go out of business, make stupid mistakes, have bad financial management, and do all of the things that result in financial distress and necessitate a quick sale. The high dollar properties they own are real estate, just like the two bedroom one bath house in the median price range neighborhood, It can be put under contract, optioned, or creatively financed just like any other house in any other price range.

But real estate investors avoid them, and in doing so, prevent their most heartfelt dreams from coming true. The key point all real estate entrepreneurs and investors must understand is that owners of high end houses who are experiencing problems need the solutions that well trained investors can provide. And as with all real estate deals, when done properly, everybody wins. The seller gets the house sold and some cash to move, the bank gets their loans paid off, the new buyer gets a house they love, and the investor makes a profit.

A Six (or Seven) Figure Profit!

Going after high end houses is a choice. Real estate investors can attract these million dollar deals to them by setting up marketing systems that target high end houses only, and leave the lower price ranges alone. By making high end homeowners the only people you contact with your marketing, high end homeowners are the only ones that call in response. And when real estate investors have a steady stream of motivated sellers with high end houses calling them every day, their desks begin to fill up with million dollar deals. Just like a hunter going after big game, the real estate investor who sets their marketing sights on high end deals, and persists, the moment arrives when their real estate investing dreams come true.

Are you doing a bit of advertising and just hoping that a deal will fall in your lap, or are you operating in a way that makes certain it will happen. If you don’t have a process for making sure deals happen, you don’t yet understand the importance of having a marketing plan.

The sad fact is that even after all their training, less than one percent of all real estate entrepreneurs and investors actually have a marketing plan. Even though it’s very simple, don’t underestimate its power.

The Most Important Thing About Marketing is to Have a Marketing Plan!

1) It’s a concrete result you put out for your mind to seize on and strive to achieve.

2) It allows you to clarify exactly what you want to achieve in the coming 30 days.

3) It allows you map out the activities needed to achieve that plan.

4) It allows you to plan in advance to delegate off the lower paying activities, so you don’t end up doing them.

5) It allows you set time deadlines, to hold others accountable so everything gets DONE!

6) It results in you being free to concentrate on your highest payoff activity: Making Offers on Great Deals!

7) You have a business that operates consciously, not by accident.

More people fail in real estate because they simply do not have a plan or goals. You should have a detailed marketing plan of what you want to accomplish and how you are going to accomplish it.

And, don’t be vague, either. Things like, I want to make more money than I can ever spend, and I want to be rich, and I want to make $10,000 a month, are not plans. They are too vague, and they won’t help you get there. Be as specific as you can possibly be.

In planning for monthly revenue, try to put your money goals in cash income, not gross revenue. I know gross revenue is what you’re used to thinking in, but cash is obviously more important. It’s what you take to the bank, and it’s what pays bills.

First, examine your current numbers. More than 80 percent of all real estate entrepreneurs know how many houses they are buying each month, but they don’t know where those houses came from and how many leads they had to process to develop them into the single deal. And, this is a deadly sin.

You Simply Must Know How You Are Currently Doing

You should know:

1) The total leads that call each month (each week is more manageable),

2) Where those leads come from,

3) How many “qualified” seller prospects (i.e. those that you are willing to invest follow-up in if they don’t sell now; they have motivation, you are interested in the house.) you get each
month,

4) The ratio of total to qualified,

5) The number of deals you close,

6) The ratio of closed deals to qualified leads – for each lead source

7) How much you make from each seller,

How much it cost you to acquire a new seller.

With this information you can look at your current resources, look ahead, and then plan out what you want to have happen. The number of deals you want to do, the amount of money you want to make.

For example, let’s say you are bringing in around $10,000 a month and your average deal gives you $5,000. Yes, I know that’s low, but for the sake of example. That’s two deals a month. These are cash proceeds and after expenses you net 50 percent of your gross or $5,000 a month. And let’s say that you want to double your net income next month.

You will have to get twice as many deals to double your business. Goal? Four deals a month, or one a week.

Let’s say you currently get one deal a month from a classified ad, and one deal a month for mailing expired listings. But, you get ten qualified calls a month from his classified ad and 10 qualified prospects calling a month as a result of mailing expired listings. So, you currently close ten percent of your prospects.

First, you can improve on this situation by improving that twenty percent closing ratio. By improving your closing ratio by things like more precise targeting, the present lead-flow would stay the same, you’ll get your same twenty real prospects and achieve your goal of doing four deals next month.

But assuming that’s not something you have control over right now, the other way to double your income in the next month is to double the number of qualified prospects you talk to and make offers to. So instead of getting 20 qualified leads to call, you would need 40.

Your plan to get forty qualified prospects would need 10 to come from expired listing mailings, 16 to come from flyers in target neighborhoods, 4 from business cards handed out everywhere, 6 to come from signs placed in the ground at high traffic count intersections, 10 to com from classified ads that drive people to the website. Total: 46 prospects. Cool! That’s six to spare.

With this number of leads coming in you have what is needed closed four deals and reach your goal of doubling your net income. Actually, it’s more than doubling because your fixed expenses don’t increase with the income.

You should have a monthly plan. Schedule thirty or forty minutes out of one day to make up your monthly plan and see how you did last month. Schedule this time and keep to it. Don’t do any work or take any calls during this time. Keep it strictly for planning. If you do this and you allow yourself to get into the whole spirit of planning, and making things happen on purpose, you will easily double your income in twelve months.

Your Monthly Plan Should Include The Following

1) A goal for total net income.
2) A goal for number of deals signed up
3) A goal for number of appointments made.
4) A goal for number of qualified, interested sellers.
5) A goal for total number of leads.
6) Average net income from each deal.
7) The number of prospects you have to generate to reach your goal.

A detailed plan to generate the number of prospects you need. Your plan doesn’t have to be typed out or put into a computer. It can be handwritten on paper. It doesn’t have to be pretty.

Scratch pad plans are good enough. The important part is that you do a plan every single week and keep on top of things.

This is a simple thing to do, but it is just as easy to not do. Blowing it off is the equivalent of you absolving yourself of responsibility for your business. On the other hand, taking the time to think through your goals each month, both for income, and marketing activity, then committing them to paper will make things start happening by plan and put you in control of your business.

Well, you can get all that together if you want. It doesn’t hurt to have those resources. But it’s not necessary to have a huge pile of cash and perfect credit to buy a house cheap and resell it for a profit. It’s especially not necessary in the preforeclosure market. Preforeclosures are houses in the default phase of foreclosure; where the bank has filed initial foreclosure papers but the sheriff sale or trustee sale where the bank auctions off the property, or repossesses it if no-one buys at the auction, hasn’t occurred yet. Buying during the preforeclosure period is one of the best ways for anyone to get involved in real estate investing. With little more than a few hundred dollars and some specialized knowledge you can buy a house at a substantial discount and resell it retail picking up a five figure profit check in the process.

Don’t Believe It?

Well, let me give you seven reasons why it’s true:

1.) When people are in default on their mortgage they have stopped making payments to the bank. So when you are negotiating with the seller, and the bank, right up until the point where you buy, no-one is making the payments. For novice investors worried about holding costs this is a huge advantage.

2.) Preforeclosures are a very well defined niche market. One of the most deadly mistakes rookie investors make is trying to be a jack-of-all-trades, going after any and everything they can lay their eyes on. The result of this lack of focus is they are soon back at their jobs. By being a very defined market, preforeclosures allow you to develop focused marketing campaigns and standardized processes to get deals completed and closed.

3.) One of the fundamentals of real estate investing is contacting and talking “only” to motivated sellers, and avoiding all the rest. Sellers in preforeclosure are some of the most motivated sellers you will find. Their world has been turned upside-down, they are about to lose their house, and their motivation is such that they just want out of the house and the bank off their back. By buying houses from people in preforeclosure, creating 30%+ equity spreads on houses often in good condition is not a difficult thing to do.

4.) Buying houses in preforeclosure enables you to create unusually large equity spreads. Recent economic uncertainty has caused a lot of foreclosures, and rising rates will cause more in coming years. If banks had to take back all of the properties that went into foreclosure the FDIC would shut them down. They know this, so they try not to take properties back they don’t have to. By requesting the lender discount what is owed on their payoff, large spreads of equity can be created on houses that are totally “maxed out” with loans. This can’t be done on loans not in default.

5.) Because lenders are under pressure to liquidate bad loans rather than take the property back, large discounts can be negotiated. After becoming familiar with the issues that cause lenders to discount, larger and larger discounts can be achieved as you hone your negotiating skills.

6.) If your plan is to buy and hold the property, having good enough credit and financials to get bank financing excludes a great many people from getting into real estate. On top of that, if you do get a bank loan, your financial exposure is at it’s maximum when everything is in your own name and personally guaranteed. Buying houses in preforeclosure allows you to simply take over the existing financing already in place. No qualifying needed. You can take title to the property in a land trust, begin making payments on the existing mortgage(s), and still get all the tax advantages, appreciation, depreciation without any of the risk of being personally liable for the mortgage and the property.

7.) If you have ever bid at auction for property at the courthouse steps, you are only too aware of the competition breathing down your neck. Lots of mind games. The 40 thieves are talking trash to you trying to get you not to bid. If you are Larry Bird, no problem. Make sure you have $500K on your credit line though. However if you are not the ‘Bird’ and you don’t pack half a mil’ of credit, you can sneak in and avoid this NBA showdown by buying the house during the preforeclosure period… before the auction.

Make no mistake about it, there are many ways to make healthy profits in real estate investing. But when you look at how easy preforeclosure makes it to buy houses cheap and resell for five figure profit checks, all the while helping people out of agonizing life circumstances, it makes little sense to pursue real estate investing any other way.