This past Wednesday my wholesaling business officially went live! Although I don't have money for mailers or bandit signs quite yet, I have been receiving FSBO and Expired leads on a daily basis. I got myself set up with a nice desk phone in my home office and have started cold calling leads. I do have my real estate license, so I have been checking the Expired leads against the MLS to make sure they haven't been re-listed, and to make sure that the owner is not also the listing agent as I imagine that would be a little bit awkward.
Wednesday I called my first 23 people. Having never made calls like this before, I am still quite nervous. I am sure that if I stick to it on a regular basis, I will get the hang of talking with sellers and it will become like second nature. But for now, I am focused on learning from every call I make. I have been noting any objections and questions/comments that stump me, and coming up with responses to them. This has proven to be worthwhile on a few occasions and is certainly keeping me on my toes.
Anyhow, earlier this evening I made 6 calls all to FSBO sellers. The 6th caller was the most interesting. An older gentleman answered the phone. I asked him if the property was still available, and if he could tell me a little bit about it. The property is still available, and he described it as a 4 family house. The apartments all have separate electric meters and electric heat, the hot water is supplied by a single 50 gallon hot water heater supplied by the landlord, the house is fully rented, and according to the gentleman it is in close to turn-key condition. He also mentioned that tenant on the top floor manages the property, and the other tenants are kind of shut-ins (and a little bit messy/dirty).
So I asked my next question: "That sounds like a really nice house, and you said it's fully rented and in close to turn-key condition... Why would you ever consider selling it?"
His response was, "Well I'm glad you asked. I'm 76 years old, and I want to quit. I live 50 miles away and only drive to the house once a month to collect the rent."
We chatted for a little bit longer and I told him I was interested in taking a look at the property and would love to set up an appointment to see it. Before he agreed he said, "You forgot to ask me one very important question..."
"The price?" I asked, quickly glancing at the price on the computer. "I have it down as $179K." I told him.
He chuckled a bit, "Well actually I recently dropped the price down to $160,000 if you pay the closing costs."
The gentleman had to come out to this area next week, so he agreed to show me the house next Wednesday at noon.
So now I am both very excited and very nervous about my meeting! I plan to give him a ring Tuesday evening to both confirm the appointment, and warn him that I am 23 years old but look very young (that way he won't be surprised when there's a 14-year-old-looking kid on his front steps). I will bring an Offer to Purchase form, and a Long Term Lease Option with me to the meeting, but will likely keep them in my truck. I figure I'll talk to him and try to really get to know him, and have him show me around the house while we build rapport.
I am looking for any sort of instructions or guidance on what to do at this appointment, and what type of deals would work best for a "tired landlord" situation like this? I appreciate any random suggestions that people may have for me as well. My goal is to see if this gentleman will be interested in either some sort of seller financing, a long term lease option, or a subject to purchase (which I don't believe is a viable option in this particular case). He doesn't necessarily seem motivated to sell (besides wanting to hand over his reins as a landlord), but he may be in a situation where he wouldn't mind carrying back some of the financing or doing some sort of terms deal.
[I do have a few books that have specific steps to follow when meeting with sellers. i.e. build rapport, build motivation, then talk about numbers last (I'm sure there are a few steps that I missed in between). I am definitely planning on re-visiting those books prior to my appointment, but wanted to get this forum post up as soon as possible because BP always seems to get me really good information and feedback rather hastily].
Also, what is the easiest way for me check and see what the mortgage is looking like. Maybe there's some equity? Is there an easy way for me to check this ahead of time? I know I've read someplace where this information can be found, but I haven't needed to explore that avenue until now, so it hasn't really sunk into my brain quite yet.
Any suggestions on attire? Nice shirt and tie, or just a nice polo? I'm new to this and don't want to risk doing anything that may scare off the seller.
Ahhh nice job being honest and transparent, @Michael King
You may want to use "reluctant buyer" and "appeal to a higher authority".
And use "I'm not sure this idea makes sense, and I'd have to have my business partner look over the numbers (appeal to a higher authority) but WHAT IF I could give you a payment for a period of time, this payment would cover and part of that payment would be decreased from the purchase price in the future.
You did not ask the existing financing question, if the property is free and clear, you could position yourself to an installment sale, offer more than the seller wants but your terms of note structure and your payment amount.
I'm happy to talk to you about the negotiation.
Remember, older people want to leave a legacy, and they think about death.
And I have a thread about this here.
Hey @Michael King Great job getting out there and taking action.
Make sure to walk the property, take pictures and talk to the owner to build rapport. You'll have a better chance of working out a deal if he likes you. With regards to negotiating. I think the higher authority would work well in this situation as @Brian Gibbons pointed out. Also, when discussing purchase options, start with the best option (seller financing) and work down from there. Seller financing will give you the best option to purchase or wholesale. You can tell him that seller financing will put him in a position where he will still collect monthly payments but will have none of the responsibilities. Also, seller financing is a great way to defer taxes with the installment method so he doesn't have to pay all at once.
But again, you need to understand if he owns the property free and clear first. Otherwise, you'd have to take the property subject-to.
Brian, I really liked your thread. I found it very useful. Do you happen to have the titles or the links to the threads that followed it? I like the bit about parking down the street and walking the two minutes. I wouldn't say I drive a poor vehicle, but rather a small pickup truck - practical for my needs, but not necessarily your standard business-type vehicle.
Now I'm planning on picking up a nice briefcase before Wednesday, but at the moment I don't have a ton of things to put in it. Pens and miscellaneous items like that are no problem, but to be honest with you I wasn't expecting to have an appointment set up after dialing only 29 people. It has been a goal of mine to get my business cards ordered within the month (waiting on a 1 line fine-print-type "licensed RE professional" disclosure from an attorney to put on the bottom of the card... Figure I better play it safe), and to have some nice glossy tri-fold brochures describing my business printed up within the next 2 months. The attorney is also making some final changes/updates to my lease option contract and offer to purchase. I better call her tomorrow and make sure they will be completed and ready to use by then. What exactly is a presentation sales folder, and a presentation sales book?
I also really like the idea of walking around taking pictures. Another forum post mentioned using a checklist and taking note of any repairs that may need to be done to the property. That way you can show the pictures and the list or repairs to potential buyers and try to work something out that way. What are your thoughts on that process? It sounded like the guy who wrote it wasn't signing deals up on the spot, but going home and crunching the numbers first, then getting back to the seller with an offer of some sort. I would think it would be smart to at least get a Letter of Intent formed, then do all the due-diligence, right?
What are the most important things to pay attention to about the property itself?
I've never actually laid eyes on a letter of intent, but had coincidentally asked the attorney about it a few days ago. Waiting for her to make the contract updates, create a one-line disclosure for me, and send over a LOI template. Anyone know where I could find an example Letter of Intent to take a look at and get a feel for how it's filled out?
And lastly, I assume I can find information on any outstanding mortgages at the registry of deeds right? Would it be a good idea for me to give them a call and see what information they can give me, and/or instruct me on how to find? I took a quick browse through their online site, but it seems a little tricky to navigate. I found the deed showing that the gentleman purchased the property back in 1985 for $30,000, but not too much other information.
@Michael King Great thread. Keep up the good work with the cold calls to expired listings. I'm in sales myself and I can tell you from experience that the more calls you make the easier it will get. You will quickly learn what works best.
As far as the most important things to look for... that's kind of a loaded question. I would deff take a lot of pictures so you can review after. I think your main concern should be the big ticket items, roof, foundation, hot water heater, furnace etc. Also, what works well for me is bringing our contractor along on properties that we like, that way we get a good estimate and scope of work upfront. If you know anyone handy that may be an option.
Awesome! Thanks for the response Rob. I look at houses all the time, so I'll know to check all that stuff. I think I was just concerned I would miss some big important thing that investors are supposed to keep their eyes open for. That's a good idea about the contractor too. I'll keep that idea in mind for future appointments.
Hi @Michael King ,
Great job taking action. You're totally right, the more you talk to leads and deal with objections, the more confident and creative you'll become to help the sellers.
With this situation being your first, just know that being nervous is good. Keep doing what you're doing... Be yourself, honest, and build that rapport. As suggested earlier in the thread, make sure you know what the remaining balance of the loan is or if it's owned free and clear, which will give you an indication if there is anymore wiggle room in case the existing numbers don't work for you. You can find this information by contacting a local title company. Ask to speak to title service rep. Let him/her know that you're in discussion on a property, which you're planning to purchase and that you're looking for a title/escrow company to work with. Request a property profile along with the mortgage history (if you're in a state that uses closing attorneys then get the property profile from the one you'll be using). Local real estate agents can get this info as well.
Most importantly, make sure the numbers work for you. Just because it's 100% occupied and the price was reduced doesn't mean it'll cash-flow for you. Maybe because it's owned free and clear and the current owner can afford to keep rents low, it still cash-flows for him, but at that purchase price, it may put you in the red. So, make sure the financials work for this deal at this purchase price or negotiate a price that will.
Based on my personal experience, I would go with seller financing. I don't know how much you could put down but a down payment would help your chances because it shows your commitment. Once you know that the numbers work, you're ready to make the offer, and you could sense that he likes you and wants to work with you, then ask how he would feel about being the bank. I would go with, "You know, I'm really interested in taking this property off your hands so that you can enjoy your retirement as soon as possible, only it might be a little challenging and time consuming to get the right financing for a novice investor like myself from a traditional lender. Would you be interested in being the bank and carrying the note for a very short period of time? I would manage it the way you've managed it, you would be getting a retirement check every month without the management and travel hassles, and after a few months of showing my management efficiency, I can then go to a traditional lender as an owner to refinance and cash you out. And, I'm willing to put (however much you can) as a non-refundable down payment to show my commitment to you and my future." Then listen to what he has to say.
Remember, he wants to retire, think how you can help him with that, but at the same time, don't set yourself up to fail in the process. Hopefully this was helpful and the deal goes through. Good luck, I'm sure you'll do great!
Hi @Tim Soto ,
Thanks for the response! The appointment went fine. I wasn't nervous at all, and we built rapport throughout the appointment, but I was a little bit surprised by the state of the property after he had described it as close to turn-key. The property was occupied with some 'questionable'tenants. I went at noon time. All the tenants were home with the shades pulled shut, the two apartments on the first floor smelled of cigarettes and were rather messy. One of them had people sleeping in it, so I was only able to peek into one of the bedrooms. The second floor apartment was larger, but kept very messy; i.e. pet hair everywhere, spilled food, and the very heavy scent of unwashed clothing/bedding and cat spray (the tenants had 3+ cats in there). The third unit was kept a little bit better than the other two, but slightly cluttered. The hallway spaces and throughout a few of the apartments were floored with cracked tiles (not ceramic tiles but like the type they use in Walmart). The owner said the cracks were because he didn't lay underlayment because he thought the subfloor would be fine, but the imperfections in the subfloor caused the tile to crack. There was dirt and clutter throughout the building, and all 4 of the apartments needed some updating/repairing. The gentleman kept showing me the "new" plumbing he had put in, which ran rather callously through various areas of the house (not boxed in or neat looking). It just came across as very shoddy - rather than having stickers or nice little plaques to label the apartment numbers on the doors, they were drawn on with permanent marker...
Long story short, it was good experience, but I am still trying to figure out the best course of action. He mentioned he may let me list the property for him, but I don't feel he would get the amount he is looking for and would hate to waste both his time and my own especially since the property is about 25 minutes away from my home.
The comparable sales of 4 Family properties in Gardner are going up and down like a heart monitor from year to year. Every other year since 2008 they've sold for around 60K, then the next year up to about $109K, then back down in the 60's. According the the pattern, 2015 is in a '109'-type year, but it is very hard for me to tell realistically what the property is valued at, especially with all the work that would need to be done to make it presentable, and the effort of putting some different tenants in there. (I am slowly working on familiarizing myself with rehab and updating costs).
Being one of my first deals, I am not looking to hold the property for too long or take on another landlord project, but rather flip the deal to another investor or retail it. Not sure this is the ideal property to do that unless I could get it for a really good cash price with a buffer for the work that needed to be done. But where he is asking 160K, I think he is being very unrealistic with his price. I don't think it would be worth it to list the property, or buy this early in my career, but I do believe it was a good experience!
Also, being a newbie, I may very well be missing something here too, so suggestions are always welcome and appreciated!
Also, I've been really thinking hard about this house, and have delayed getting back to the owner. I told him I would let him know either way. Any suggestions on how to tactfully tell him my thoughts?
Firstly, well done sir! I am so impressed by your willingness to get out there, take risks and admit what you don't know. You've received some great advice from some really seasoned investors @Rob L. @Justin Silverio @Brian Gibbons .
Based on the comps you shared and the condition of the property, it sounds like he is being very unrealistic about the price. Your instincts are correct, he doesn't need to sell.
I would just give him a call and let him know how nice it was to meet him, thank him for his time and let him know that the deal does not meet your criteria. Don't be afraid to ask for a referral.
Keep up the great work Michael!
Okay, sounds good! I appreciate the help! In the meantime I'm going to brush up on how to figure out rehab costs and hopefully pick up a book or two on seller financing deals. Just read another one of my posts where contributors got a little bit off topic, but I realized how much I don't know on the subject of the financing.
Also, @Andrew Davis ,
I figure I may as well ask you while I've got you right here... What is a tactful way to ask someone for a referral?
@Michael King you can find mortgage information at the Worcester County Registry of Deeds. You can search by property address or owner Name. Here is the link
Thanks Paul, that's actually what I wound up doing. I pulled up the registry of deeds and found all the information I needed. Their site was pretty easy to use too... I'm not very technically savvy.