In 2004, I held a mini-workshop on the topic of effective mail marketing. At the time, I had already been using my own system for several years but I needed to help the students come up with a letter of their own, otherwise most of the homeowners would have received identical letters and none of them would have been effective.

One of the students was a mother and mostly worked at home. She had a big smile as she asked me to read her letter and wanted to get my thoughts on it.

I read it fairly quickly but it took an extra 30 seconds for me to look up at her because I was horrified with what she had written.

It was awful. It was horrible. It was beyond tacky and I didn’t remember ever seeing a letter that was as bad as hers was. The letters she wanted to send would all be going to homeowners currently in foreclosure. My experience with homeowners in foreclosure has shown me that “gimmicks” and “cute, happy” type letters are not very effective.

What my student had come up with was a letter that had a 3-inch piece of string taped over the words, “Tie this string around your finger to remind yourself to call me.”

I shook my head and asked her if she was really serious about sending it out. I went on to tell her examples of what has worked before and what hasn’t. At one point I remember that I had told her that her letter was quite possibly the tackiest foreclosure letter I had seen and pleaded with her to not send it.

She was such a sport for taking my harsh critique, as it was obvious I had really hurt her feelings (I ended up calling her the next day to apologize for being insensitive).

She sent it anyway.

Out of the 100 or so she mailed out, she got over 20 replies! For those with a marketing background, I am sure you are as amazed as I was. The average response rate for pre foreclosure mailings is about _ of one percent. In other words, one reply out of 200 and her letter got an amazing 1 out of 5!

My opinions and beliefs on mail marketing changed forever after that student taught me that valuable lesson. She taught me that no matter how bad a letter may seem… Send it! If ONE person responds to an awful mailer that results in a deal…Then it was a great success!

Since then, anytime a student asks me what type of letters work best… I tell them that any letter can work. I also tell them that what doesn’t work is… Not trying!

To end on a lighter note…
That student called me a few months later and told me she had sent out a letter that included the words, “Call me because I am your Life Saver.” She had taped a single, wrapped Life Saver to each letter. I asked her how it worked and she told me that the Post Office returned every single letter because the machines at the Post Office couldn’t process them. Considering the lesson she had taught me before that…I was happy she didn’t listen to me and tried anyway.

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Tags: invest, marketing, real estate investing, real estate investor, real estate marketing

Perhaps I’m showing my age as I rapidly approach the half-century mark. But I clearly recall a time when there was shame attached to being in debt. I grew up in a working-class neighborhood of modest homes at a time when people never seemed to move. It was a major event if someone moved in or out and there was constant whispering about the couple who ultimately divorced. Occasionally there would even be a rumor that someone was having problems and needed to take out a second mortgage. Gasp! Oh, the horror and the shame!

That was back in the time before credit cards were rampant and you actually had to go to the bank to get cash (for you younger ones, there was a prehistoric time when ATM cards didn’t exist). People worked till 5pm but banks closed at 3 o’clock. You actually had to plan your spending so you wouldn’t run out of cash on a weekend since the banks were closed. Perhaps people weren’t as fiscally irresponsible since they needed to be somewhat conscious about their spending.

Fast-forward a few decades and the picture is very different. Many of the financial problems we have today can be traced to easy credit and fog-a-mirror mortgages. People used their home equity as their personal piggy bank thinking the boom would never end. It seems that people didn’t learn to be financially responsible because it wasn’t necessary. We’ve gone from the “save for what you want” of a generation past, to the “I need, I want, I have to have it now” of today.

Lather, Rinse, Repeat

Credit providers have been extremely successful in their marketing. Today people don’t seem to stop and think. Take that 0%, easy finance plan for that major purchase, it’s the same as cash! Why buy a $15,000 car when you can lease a $30,000 car for the same payment? Owe more on your old car than the trade-in value? No problem, we’ll just roll the remaining balance into the payments on the new car. Have you run your credit card debt up into the stratosphere? No problem, we’ll just refinance for the eighth time and pay those bills off yet again.

So what do you do after you’ve done the financial version of “lather, rinse, repeat” so many times that your payments now exceed what you earn every month? Easy! We’ll just declare bankruptcy. There are so many lawyers out there advertising for this business that it is no longer the scarlet letter it once was. The “B” word was once whispered because there was such a stigma attached to it. Now filing for bankruptcy is so open that no one seems to care.

What Happened To Accountability?

It seems as if we’ve become a nation of victims. So few people take responsibility for their own actions. “It’s not my fault, it was the greedy___ (fill in the blank).” It seems everyone is out to blame the real estate agent, mortgage broker, salesman, etc. Now these “victims” are waiting for the Government to bail them out. The Government, a picture of fiscal responsibility itself, is only too happy to oblige. Of course, the people who live within their means and use debt responsibly get nothing, but what else is new?

There once was a time when defaulting on a debt could put you in jail. The Federal Government abolished debtor’s prison in 1833. Maybe it’s time to bring it back.

Tags: Credit, debt, real estate investing

I’m not sure about the rest of you, but this has been a LONG week for me. Personal issues aside, is seems like there is just so much happening in the world: Lunar Eclipse, US shoots down failing satellite, Kosovo declares independence, Castro steps down from leadership of Cuba, Ralph Nader is back, Clinton/Obama battle continues, McCain facing the heat, and on and on. Otherwise, for some reason, everyone I know is either in the midst of a battle with the flu, or some other ailment that no doctor can seem to figure out.

With that in mind, I thought we’d look at some of the important stories from other real estate bloggers out there:

• Is this the future of real estate search? - The Toronto Real Estate Intelligence Blog shares with everyone a new website called Rotten Neighbor which is designed to allow people to rate their neighbors so potential buyers can be aware of good or problem neighbors in their buying decisions. Frankly it seems like people could be asking for trouble with this one, IMO.
• Tax Shelter — Real Estate Investors Should Beware the Professional Investor Trap - The BawldGuy Talking blog presents a very thorough post that discusses the “benefit to successfully filing your tax return as a Professional Investor.” This is a Must Read!
• My Money Blog shares Subprime Loan Crisis Explained By Cartoon Stick Figures. This cartoon is the perfect analysis of how we got into the current situation that we’re in!
• According to The Real Estate Bloggers, it looks like Metal Roofs are making a comeback. I wasn’t aware of the trend . . . I’m sure I’m not alone!
• The Sacramento Real Estate Blog answers in a concise and easy to understand manner one of the questions every homeowner asks, What is Private Mortgage Insurance (PMI)?
• How Stimulating Will Raising the Conforming Loan Limit Be? - The 3 Oceans Real Estate blog takes a thorough look at how raising the conforming loan limit will truly stimulate the economy, and whether it’s really the right thing to do.

Tags: conforming, Economy, loans, mortgage insurance, neighbor, pmi, private mortgage insurance, real estate blog, real estate blogs, subprime, subprime loan, tax, tax shelter

I recently came across an article that put something so well and so clearly that I really don’t think I could improve upon it. Everyone interested in real estate investing would do well to check it out.

In “Why Do You Still Need an Agent to Sell Your Home?” author Douglas Gantenbein makes an excellent case for the thing I am most passionate about: homeowners getting the power back in their real estate transactions (i.e., selling their own homes).

Written all the way back in 2004, this article cited the then-statistic that “Americans will spend about $1.14 trillion buying 6 million homes this year-both [setting] records.” And of that $1.14 trillion, Gantenbein writes, an enormous chunk would go to realtors. Is this fair?

Here are some highlights from the article:

1. Realtor work doesn’t equate with realtor commission.

   “And what do Americans receive in exchange for that commission, which can total up to $24,000 on a $400,000 home? In many cases, not much. A realtor’s license can be had after as little as 50 or 60 hours of training (the person who cuts your hair probably has 1,000 hours or more).”

2. Realtors seldom work in your best interest.

I was flipping through Freakonomics recently and remembered this little anecdote from one of the authors’ real experience:

“K. wanted to buy a house that was listed at $469,000. He was prepared to offer $450,000 but he first called the seller’s agent and asked her to name the lowest price that she thought the homeowner might accept. The agent promptly scolded K. ‘You ought to be ashamed of yourself,’ she said. ‘That is clearly a violation of real-estate ethics.’

K. apologized. The conversation turned to other, more mundane things. After ten minutes, as the conversation was ending, the agent told K., ‘Let me say one last thing. My client is willing to sell the house for a lot less than you think.’

Based on this conversation, K. then offered $425,000 for the house instead of the $450,000 he had planned to offer. In the end, the seller accepted $430,000. Thanks to his own agent’s intervention, the seller lost at least $20,000. The agent, meanwhile, only lost $300-a small price to pay to ensure that she would quickly and easily lock up the sale, which netted her a commission of $6,450.

So a big part of the real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting the homeowner know that a house can be bought for less than its listing price.”

3. The NAR is an exclusive group that doesn’t want to give up dominance.

“Overall, the NAR has ensured that nearly all residential real-estate transactions still are conducted between two agents in cahoots. And they’re largely responsible for keeping commissions close to that 6 percent level when any normal law of competition would suggest they’d be lower.”

4. Therefore, FSBO has a lot to offer, in my opinion.

Using a quality FSBO company like Buy Owner puts the power back in the hands of the investor. It’s definitely a smart decision for savvy investors.

Tags: by owner, for sale by owner, FSBO, home, house, real estate, real estate agent, realtor, sell real estate

1. What is the process for Hard Money Loans?
   Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

2. What is the interest rate?
   The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

3. What Loan-to-Value are Hard Money Lenders looking for?
   Typically a loan does not exceed 70% of the after-repaired-value (ARV). This figure is calculated by an appraiser and consideration of repairs.

4. How long is the loan for?
   Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.

5. What are the costs?
   All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

6. Can I get money pay for repairs?
   Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.

7. Does my credit matter?
   Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.

8. Do I need to put any money down?
   In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.

9. Can interest to be deferred to the end of the loan?
   Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.

10. How does Hard Money compare to a traditional non-owner occupied investor loan?
    This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.

Tags: After Repair Value, ARV, community first financial, Conventional financing for investors, Hard Money Loans, HML, Investor Loans, troy schuricht

A little noted report last month deserves a much closer review. It concludes that the subprime mortgage crisis is causing African-Americans to “experience the greatest loss of wealth in U.S. history.”

The report is from United for a Fair Economy and is called “Foreclosed–The State of the Dream 2008.”

According to the report, American blacks stand to lose some $213 billion because of the subprime crisis.

The report says that mortgage lenders have targeted the poor–in particular blacks–with high cost loans that they can’t afford.

Federal statistics quoted by the report appear to show that African-Americans are “more than three times more likely to have subprime loans.”

55% of blacks have high cost loans of different types compared with about 17 % of white homeowners.

The co-author of the report, Dedrick Muhammad, with the Institute for Policy Studies, in an interview, told “Democracy Now” that it is clear “that the subprime industry was focusing on the weak of our society and was trying to take advantage of people…”

Muhammad says that private companies are actually taking away “the little wealth that African Americans and Latinos have been able to develop over these last thirty, forty years.”

Tags: african-americans, black, blacks, Foreclosures, high cost loans, subprime, subprime mortgage crisis

If you are averse to paper work, formal agreements and legalese, get over it. You can’t avoid it and it’s vitally important. Think of your contract as a big safe to protect your huge amount of valuables. The subject here will be the contract – I’ll circle back in later posts to cover the specific actions of due diligence leading up to the contract.

I’ll assume you’ve started your due diligence pre-contract. You’ve estimated the value of the property you’ve chosen, you’ve done the groundwork for financing, schmoozing with a lender after the way was cleared through recommendations from connected friends and associates, you’ve settled on an area you’re comfortable with and an investment you can handle, you’ve sent the Letter of Intent to the owner and broad strokes are agreed to, and now you’re ready to put it all in a contract.

Don’t do this alone, especially not your first time. Use a real estate broker or an attorney. Contracts are fairly simple at first glance, but they can get complicated. You want to make sure you have everything covered and two minds are better than one, more so when one of the minds is experienced at this sort of thing.

The attorney or title company will ensure there are no title problems; however there may be hidden liens, so it’s always wise to speak with your attorney about insurance to cover the title. Most of the language will be built into a standard contract. You will have to decide things like time of closing, length of due diligence period, who pays for surveys, what type of financing, and such, and then there are special stipulations. Special stipulations are agreements between the parties not written into the body of the contract or language added to strengthen and clarify what’s in the contract or what’s been verbally agreed upon, such as what is excluded or included with the property. You might have met with the owner and talked about, say, certain equipment remaining with a building that will be used as a restaurant. Don’t rely on verbal agreements, make sure it’s written down and part of the contract.

When deciding on the due diligence period to be established in the contract, try to add time to your estimate to take delays into account, make sure you specify the days of the period are workdays and place a special stipulation that extensions are allowed if you can’t schedule all inspections within the period or if one inspection uncovers something that calls for a special inspection, such as signs of structural damage that would require a structural engineer to inspect an write a structural report.

Read the whole contract and understand it. Too many times people assume something is in the contract that upon further close inspection is not outlined clearly. Make sure if something important to you is not clearly stated in the contract that it’s spelled out clearly in special stipulations.

While most deals run smoothly, there are so many variables that it’s easy to find yourself in a misunderstanding that can kill a deal, waste your money or, worse, wind up in court. Take it from someone who knows, a tight, comprehensive contract is your best investment partner and guardian angel. You may have to amend the contract, so make sure you understand what the contract says about amendments and notices. They need to be in writing but how are they are delivered? By email? By phone? Fax? Hand delivered? By hoseback? Make sure you know what the contract says because you are agreeing to abide by it.

It’s also important to establish in the contract any representation. If you are being represented by an agent, make sure you have a representation agreement between you and the agent and that it’s clear in the contract. A listing agent you may have been dealing with represents the seller, even if they have been helpful to you and are really, really nice – unless you’ve signed a separate agreement where the agent is working as a dual agent (I don’t recommend this). This can get confusing if you’re not familiar with real estate agency representation, so I will explain this further in another post, but remember that the agent involved in the deal, if an agent is involved, is representing the interests of the seller if you have no agreement with the agent. If you are going to go through an agent it is best to have your own agent who is representing your interests.

Tags: agreement, contract, deal, due-diligence, escrow, real estate agent, real estate contract, real estate investing, realtor, title