How Valuable is One Lead?

People often ask me what the average response rate is when mail marketing to homeowners in pre-foreclosure. There are two answers depending on what the content of the letter is. If the purpose of the letter is to see if the homeowner is willing to sell, then the average response rate is one half of one percent (.005%). If the letter is offering to allow the homeowner to remain in their house, then the average response rate jumps up between 1% and 4%.

So if 100 letters are sent, you could expect 1 call every other month. The point is, every response is extremely valuable and it is even more important to answer the call and not let it go to voice mail. My opinion is, if they took the time to call you… They will take the time to call the next person in line as well.

What extreme are you willing to take that to in order to get a deal?

I recall a phone call I got on Christmas Eve, 2001. My Fiancee at the time and I were all dressed up and were walking out the door on our way to her mothers house for dinner. She had just stepped outside and I was closing the door when the phone rang. She stopped dead in her tracks, her head swung downward and she said, “Whatever you do… Do not answer that phone.”

I answered it.

A homeowner had received my letter and wanted to see what I was offering. Since it was Christmas Eve, there wasn’t much I could do so, I got their information and we agreed that we would get together the day after Christmas. My Fiancee was relieved.

About halfway to her mothers house I stopped the car and she asked what I was doing. Not remembering my exact words, I said something like this… “That homeowner sounded pretty confused and I would be willing to bet that I am not the only person they called tonight and I guarantee you that no one else will actually go visit with them tonight.” I remember she shook her head and said with her teeth gritted together, “Fine! Let’s go! YOU get to call my mom and tell her why we are going to be late and you owe me BIG TIME for this!” I agreed and turned the car around. I called the homeowner back and told them I was on my way and would be there within an hour.

Was it worth it?

It turned out that they had called four other investors and had made appointments with all of them for the day after Christmas…And I had told them that I would call them on that day. Had I not turned around and met with them when I did, I would have been too late by the time I called on the 26th.

I was able to reinstate their mortgage and they signed a Warranty Deed just a few days after I went to meet with them. Less than 4 months after that I finished the rehab and sold the house. When I got home from the closing, I showed the cashiers check that was for more than $12,000 to my fiancée, I asked her, “Do I still owe you Big Time?”

She looked at the check, gave me a smile and said, “That’s okay, I really didn’t want to go to my mothers house on Christmas Eve anyway.”

I compare real estate investors to Doctors who are On-Call. When a call comes in… Drop what you are doing, take the call and go meet with them right then, if at all possible.

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Tags: foreclosure, marketing real estate, pre-foreclosure, preforeclosure, real estate, real estate leads, real estate marketing

It is no secret that the business of buying real estate directly from the bank prior to it being foreclosed on is both in style and highly lucrative. The issue a lot of “Short Sale Specialists” have revolves around making the deal work on the front end. Time is our most valuable asset as Real Estate Investors; we can never get it back once it is lost. A lot of time is being wasted on the pursuit of hopeless short sale opportunities and I would like to take a few moments to share with you exactly how you can avoid wasting time.

In the business of Short Sales, your #1 enemy should be houses or condos that are pretty. I would consider a home to be pretty if the work needed does not exceed paint and carpet. Believe it! When I got started, I wasted several months of my time pursuing every single Short Sale opportunity without a screening process or a system in place for knowing my deal was going to work. Negotiating discounts on pretty houses is not recommended and it is not a viable business model. The lending institutions are stiff as nails on these types of properties and the best an investor would be able to do is 80%+ for the discount. Those numbers don’t work at all unless you’re looking for a personal portfolio of rentals and lease-option properties. The reality is that most investors are wholesaling. Even if you don’t consider yourself a wholesaler, you are still playing the middle man/woman somewhere in this business. A much stronger discount than 20% is needed to make room for your check to be cut. We want to be in the 35%+ discount range and in most cases that will not work with the pretty houses.

So what kinds of homes should you become best friends with?

• Ugly Homes
• Homes with large 2^nd mortgages
• Homes with a lot of equity

Sometimes there are areas that lenders do not discount and a little bit of research is required to determine what subdivisions to stay clear from and which ones to pursue.

We need to know:

1. How many homes are foreclosing?
2. How many homes are ending up at the sale?
3. How many homes have the opening bids at less than what is owed?
4. How many homes are going back to the bank?

With this kind of information about a particular market, you can do two things. You can take what the market will give you or you can move to another market. A big ship takes a long time to turn around, so unless you are going to jump, you are going to have to wait. You really don’t care how many go to the sale per se, but you really are concerned about what percentage of the homes that go to default actually go to the sale and how many of those go back. If see a trend of opening bids starting lower than the payoff on a home, those are super deals.

So it is very important to sift through the big questions. Another point you may want to clarify is the fuse on the properties – meaning the length of time between default and sale. Remember these: Is it really Ugly? Does it have a big second? Does it have a lot of equity? In some cases, you may not want to do a short sale because there is a lot of equity there.

**NEWSFLASH** If you do a forbearance agreement with the bank, they do not charge you interest. The definition of a workout is the ability to stretch out the payments on a home instead of paying the arrears in full.

The objective here is to create more time and resources to chase fewer deals that will actually give you a back end pay day. The key is staying away from the semi to fully blown pretty houses that are pretty much stuck at 80%+.

Blessings to your Real Estate Investment Successes,
Milton B. Yates

Tags: creative pre-foreclosure strategy, foreclosure, learn short sales in dc maryland virginia and dallas, preforeclosure, short sales, wholesaling

For thousands of homeowners across the country saddled with adjustable-rate mortgages, 2008 promises to be a financially challenging year as interest rates begin re-setting thereby drastically increasing monthly mortgage payments.

It is this problematic course of events in the residential market that has seen the number of foreclosures skyrocket over the past several months, with even greater increases expected in the New Year and beyond.

However, there is some hope for homeowners despite the dreary forecast of what’s to come, and as in any turbulent market, there is opportunity for investors who are willing to take some risks.

If you currently own a home that is, or soon will be, in foreclosure you have one favorable bargaining chip that should bring some level of comfort: Banks (and other lenders) don’t want to take properties back from borrowers. Why? There are two simple answers. 1.) The foreclosure process is very expensive for the lender and 2.) Banks/lenders are grossly undermanned and are not equipped to deal with the deluge of foreclosures that shall soon occur.

Recent published reports from industry insiders suggest that one very large bank, that shall remain nameless in this article, incurs an average cost of $60,000.00 in connection with initiating a residential foreclosure. That dollar amount includes property maintenance, attorneys’ fees, taxes, pay-offs to junior lien holders, etc. From a business standpoint, most lenders realize that it is wise to try and negotiate a payment plan, including some debt forbearance, with the homeowner rather than incur the expense of a foreclosure action.

Lenders lack manpower to deal with the volume of foreclosures set to take place in 2008. As a result, although most states allow the lender to initiate a foreclosure action once the borrower is delinquent 30 days on the mortgage payments, the national average before lenders take action is 7 months. Lenders just don’t have the personnel to deal with the volume in a speedier fashion.

This should be encouraging news to homeowners who have fallen behind in their payments. Many lenders are willing to recognize your financial woes (sudden unemployment, disability) and work out a payment arrangement that addresses your mortgage arrears. However, borrowers need to be proactive. Instead of avoiding your bank’s phone calls, take the initiative to communicate with your lender. It is important to be honest about your current and future financial status. Often times, the lender will accept a re-payment and/or forbearance plan that you would have never thought acceptable. Remember, foreclosures cost lenders a lot of money!

If you are an investor, then a residential market that is rife with foreclosures or soon-to-be foreclosures may represent a tremendous opportunity. Pre-foreclosures, which are often referred to as “short-sales”, allow an investor to purchase a property for an amount that is below what is owed to the bank. Although these types of transactions require specific documentation and lender approval, they may benefit both a purchaser and seller.

In a pre-foreclosure situation, the seller, who is delinquent in mortgage payments, has an opportunity to preserve (or at least reduce the damage to) his/her credit rating by avoiding a full-scale foreclosure proceeding. The buyer, often times an astute investor, may end up purchasing the property at a favorable price. Although this sounds very appealing to all parties, there are some pitfalls. Sometimes the debt forgiveness can result in income to the seller that must be reported to the IRS on a 1099 form. It can also take as long as 60 days to receive lender approval for a pre-foreclosure sale–such a long time period could affect a potential buyer’s interest-rate lock. Finally, most lenders impose strict requirements for a pre-foreclosure sale that must be met in order for the deal to close.

Whether you are a homeowner facing a foreclosure or an investor waiting to capitalize on a depressed market, there are options that will allow many to survive, and even thrive, despite the turmoil that many have predicted as 2007 comes to a close.

Tags: bank-REO, distressed, foreclosure, lender, loan, mortgage, preforeclosure, REO, short sale

Since I got into this business in 1999, my main focus has been on pre-foreclosures. As many investors that have worked in that field know that it is a highly competitive business. The TV infomercials paint a picture that is often times not accurate. TV wants new investors to believe that there are tons of these properties to be had and all you have to do is go to the auctions, bid on them and PRESTO! You have yourself a great investment property!

Is it occupied or abandoned?

When a student of mine seeks my opinion of a prospective house, set to go to the auction, my first question is always the same…. “Is it occupied or abandoned?” What difference does it make? If it is occupied, all that you need to do is evict the previous owner and on you go…Right? Not always.

In the State of Texas, the average percentage of homeowners who are in pre-foreclosure, that have abandoned their homes is 15% (+ or – 2% monthly).
Do the math on this one. If a given County has 1,000 houses posted for foreclosure in a given month, then that means that about 150 of them are abandoned. So if you buy one of those at the auction, you can get started right away since you have full access to the house with the previous owners gone. You can wholesale it, if you like. Maybe you want to rehab it and then sell it? Some look to use it as a rental. The options are all there because there is no eviction needed.

Heed Caution When Considering Occupied Foreclosure Homes

This brings me to the story I would like to share. This is what happened to one of my students, after he bought an occupied house at the auction. The student, Bill, had told me a lot about the house he ended up buying. The problem was, Bill couldn’t give me any information about the interior condition of the house because the owner (before the sale) would not talk to him or let him see the inside. All of his numbers, etc., were nothing but projections to me.

I told Bill to offer the homeowners $1,000 cash if they can be out in a week. $750 if they can move in 2 weeks and $500 if they leave in 3 weeks. Guys, keep in mind, this is TEXAS! We can legally evict someone in about 21 days. If you are in Minnesota or California, it could take more than three months.

The homeowner refused all of his offers. I told Bill to go ahead and evict her.

Two and a half weeks later, he had won his eviction case and now only had to wait for the 5-day appeal period to expire & he expected to have her out in a week.

That is when all Hell broke loose.

Bill called me on the phone and he was frantic. He told me that the previous owner had appealed the case. That was a first for me. In all of my time in the foreclosure business, I had never heard of anyone appealing after the judge had ruled against them. It was pointless…Or so I thought. In Texas, after the judge rules in favor of the investor (or landlord), a tenant has 5 days to appeal it to the County Court…BUT…In order to do that, the tenant is required to post a cash bond. The amount is supposed to be equivalent to two months rent (or two mortgage payments), plus any court costs. In Bills case, the amount was about $3,300.

If any of you reading this don’t see the stupidity of the tenant, let me tell you why it is so unheard of for a tenant to appeal. They CAN’T WIN! No homeowner that has been lost their house to foreclosure, will win. All the appeal will do is delay when they have to move. The previous homeowner had to put up $3,300 for the right to stay in the house for a month or two longer. Once they lose at the County, the $3,300 is gone and they have to move.

The reason Bill was beside himself (in addition to the previous owner appealing) was because they DID NOT HAVE TO POST THE CASH BOND! Bill said that they had filed a “Pauper’s Affidavit” and asked me what it was. I had no idea. I asked around and no one could tell me what it was or why the owner didn’t have to post the cash bond. I finally called a Law Professor at the University of Texas and he said the following:

“Ah yes! The Pauper’s Affidavit! To put it simply, this person was supposed to post the cash bond but, the Pauper’s Affidavit allowed her to side-step it because she has the right to a fair trial. If she can’t afford the bond, then it would seem she wouldn’t get her fair trial.”

Here is the best definition I found for what a Pauper’s Affidavit is:
“A pauper’s affidavit is a sworn statement stating a person does not have sufficient funds to pay court costs for the filing of a new civil case. A judge must enter an order determining poverty.”

When the case reached the County, it was ugly but it was over fast. The County Judge was all over the previous owner. He wanted to know why she thought the outcome would be any different with the County Court? He told her that she lost her case in the JP Court and unless she could tell him one good reason for her appealing her loss, other than just to stall moving out, her quest ended right there!

And so it was over for Bill. Sort of.

Even after going through all that hassle, she refused to move and it took a Writ of Possession to finally put her out of the house. THEN…When Bill went to the house the following day, he discovered the A/C condenser had been stolen. The police found the unit…Two blocks away…In the woman’s PICKUP! Her legal problems continued from that point but, Bill finally had his house!

From the date he bought the house at the auction, until the day he gained legal possession of the property…Just under FOUR months had passed! Let me remind you that he paid cash for the house and having $100,000 sit dormant like it did for that long, really hurt his bottom line. Just to gain entry, was four months! After all that headache and financial burden, Bill came to me and asked, “Hey Jim, what could I have done differently?”

My answer was painfully simple… “Buy an abandoned house, Bill!”

Tags: abandoned, foreclosure, foreclosure-auction, occupied, pre-foreclosure, preforeclosure

Some people are all about business, and others are all about people and business. Jim is one of the latter.

Not only has he been an active investor in his own right, but he has also established himself as a mentor and a leader. He has created 2 different real estate networking groups and continues to help others invest and learn. Additionally, he’s the kind of guy who likes to get his hands dirty. If you don’t want to do that in this business, then you’re really missing out on some of the most fun aspects of it all.

Meet Real Estate Investor Jim Watkins

How long have you been investing in real estate?
About eight years. I started in 1999.

What attracted you to becoming a real estate investor?
My cousin showed me a foreclosure list and I got all excited seeing how much equity some of the properties had.

Are you a full time or part time investor?
Yes…And then some. In the past year I have rehabbed two houses myself, teach real estate investment classes and have a mentoring program.

How did you get started investing?
I didn’t know a single thing about real estate back then, armed with a foreclosure list, I went knocking on doors of houses in pre-foreclosure. Looking back on it, I think it helped not knowing anything because I didn’t know that it wasn’t easy and I hadn’t adopted anyone’s negativity or bad habits. So I guess you could say I learned the old fashioned way, I jumped in with both feet and learned to swim.

Tell Us About Your First Deal . . .
The Rat House. I took over the mortgage for a house that was in pre-foreclosure and secured it with a Warranty Deed. The square footage was only 1,100 with a 2-car garage but, the house was so full of garbage that it took five 30-cubic yard roll-off dumpsters to empty it. I call it the Rat House because it had once been infested with rats and the owners never cleaned it up. I pulled six mummified rats out of it. It was just disgusting. I tried to flip it initially but no investors would touch it.

I ended up doing the rehab myself and I ended up making about $12,000.

That deal has proven to be a blessing to my career. I learned so much about rehabbing from that house that I couldn’t have learned anywhere else. The funny thing is, because that house was so disgusting, nothing I have looked at since has surprised me. Did I forget to mention that the owners were still living in it when I bought it? The overall experience of that first deal was far more valuable than the money I made with it.

What is your area of expertise?
Pre-foreclosures and abandoned houses. More specifically, helping the homeowners in pre-foreclosure. Even though I teach about this subject, it is a market that is so easy to pursue and virtually ignored by investors.

What do you look for in an investment?
To quote Gordon Gekko from the movie, Wall Street; “A sure thing.”

Sadly, there is no such thing. Obviously I look for big equity spreads but more importantly I look at things that most investors don’t. I look at which direction the house faces. Houses that face East or West are hotter because of so much direct sunlight. I look at how much natural shade a house gets from trees. I look at the lot to see how the drainage is. I drive by the house at night to see how noisy the neighborhood is. I pay close attention to the condition of the neighbor’s houses and I try to talk to them as well. It’s not fun trying to sell a house when the neighbors have trash all over the place and never maintain their landscape.

It’s the little things inside and out of a house that can make a huge difference. Sometimes it’s the forgotten small things that can make or break a deal.

How many deals have you done in your career?
It’s hard to say. If I include deals that my students have done but I have had a helping hand in? I would say around 150. Deals that I have done for myself? I would say about 50. Keep in mind that I tend to do the labor myself when I rehab.

Do you have your real estate license?
No. I have enjoyed many advantages thus far by not having a license. At the same time though, licensed investors have benefits that I don’t have. Since the state of Texas has been on a rampage with real estate investing restrictions, I decided I will get licensed soon.

What advice would you give to a beginning investor?
Be prepared to work. The media and all those home repair and flipping shows have really given the public a false impression of the industry. It’s a job. It takes work and I don’t care what anyone else says about that. The payoff’s can be substantial but it takes dedication and a good amount of common sense.

What was your toughest deal?
I hate to say it but that would be my current rehab deal.

There have been several mistakes made by the title company that still linger. For example, they collected back taxes from the previous owner for 2006 but, they didn’t pay the City or ISD portion. They paid it all to the County and now they are waiting for a refund. The problem is the penalties and interest have been increasing and the house is currently on the market. They also got the legal description wrong when they submitted it to the County so now I have to get that corrected.

On top of that mess, the house itself was the hardest rehab I have encountered and it was supposed to have been the easiest. North Texas had an extremely wet spring and summer and the humidity has been very high. All the exterior work was very difficult to do because the weather made working conditions next to impossible.

Now that it is for sale, I have had to deal with a neighbor four houses down that listed a similar house for $20,000 under market value and just lowered their price another $10,000. That’s hard to contend with.

And just last week I find that the air conditioning condenser was vandalized and the copper was stolen from it. It’s hard to sell a house when the upstairs loft is 110 degrees. It frustrates me when negative factors come up that I have no control over.

What would your dream deal be?
a dream deal? That would be one where the first closing goes smoothly with no glitches. Where nothing unexpected comes up during the rehab and the house sells for the full asking price within days of going on the market.
Unfortunately the end result with a dream deal is… Waking up.

Some deals go fairly smooth and some are difficult. To me, being able to do the work I do and advance as I have… Now that has been a dream come true.

Why did you set up a local networking group? Has it been effective for you?
Actually I have two groups. DFW Mentor is a mentoring program for investors wanting guidance and/or help. I started it so I would have a personal group of investors that I could go to with real estate needs and they, in turn have access to everyone else in the group. I don’t accept just anyone into the program though. I interview prospective students prior to them enrolling so I can get a feel for what they want to achieve and most importantly, I want to be as sure as I can that their character is good and that they don’t have a criminal history. There is so much fraud out there today. It’s important for me to surround myself with honest, trustworthy people and being able to offer the same to students is vital. I started DFW Mentor in 2004 and today the program has over 160 students.

The other group is IGOTEX or Investors Group of Texas. This is a brand new real estate investors networking club that will have its first meeting on October 9th in Frisco, Texas. In a way it is a larger version of DFW Mentor. The club will feature national and local experts as monthly speakers.

Is there anything else you’d like to share with the rest of us?
“It’s not what you know. It’s who you know.” I have found that to hold true.

If I can offer this advice… Do whatever you can to surround yourself with honest, trustworthy people in this business. I hate to hear about new investors that get mixed up with dishonest people who are involved with fraud. Fraud has really hurt the image of our business and it is usually just a few bad apples that ruin it for the rest of us.

I can honestly attribute my success and advancement in this business to having met good, quality people early on. It’s not always easy to find good people like that. So I would suggest to anyone new to the business to actively network and ask others about someone you might do business with. As George Roddy (mentor) once told me, “Bad news travels fast.” The dishonest people don’t tend to stick around very long. So protect yourself by asking around about someone. Good people are out there. Hopefully everyone reading this is or will be among them.

Any last thoughts? Have you found BiggerPockets to be helpful to you and your business?
Honestly, it’s not just a great real estate website. It’s also a great resource. The size of the site often times intimidates me but that is only because it offers a wide variety of investment topics. There are many other real estate investment websites out there but what caught my attention early on was the fact that Josh Dorkin (owner of BiggerPockets) frequently posted on the forums to let people know when someone posted valuable information. He also personally scans the boards to eliminate spam and sweep away self promoters. I have had his banner on my website for over a year and I continue to let people know about the site. As I said above, it’s important to surround yourself with good people. Josh and BiggerPockets IS good people.

Note: Jim’s Club, IGOTEX, can be found at: http://www.IGOTEX.com

Tags: DFWMentor, foreclosure, George Roddy, IGOTEX, Jim Watkins, pre-foreclosures, preforeclosure, real estate, real estate investing, Rehabbing