Top 10 Takeaways - Podcast 2 with Karen Rittenhouse
Hosts @Joshua Dorkin and @Brandon Turner and Guest @Karen Rittenhouse
1. We always say, start with a plan—a business plan—which we purchased a big business plan and we spent two months working on it back at the beginning. A business plan, just like your business, just like you, grows and evolves and morphs over time.
2. As an investor, I never went in aggressively to talk. I never went in to close a deal when I talked to sellers. I always went in to solve a problem. I always went in saying, what is it you need and how can I help you? People would tell me, this is what I’m looking for. This is my pain point. This is my issue. And I’d say, let me see if I can figure out a way to fix that for you. And then I’d get back to them. Because of course, I didn’t know anything anyway so I had to figure it all out. And I just would go back and say, I may not be your best solution but I am a solution and here’s what I can do. And if it doesn’t work for you, I just want to keep helping you. Feel free to call me, ask me questions, and I think it was kind of a mothering response that people liked and was comfortable with.
3. I would say half or less than half were desperate sellers that I bought from. But they always had an issue. They didn’t want people walking through their house. They didn’t want a ‘for sale’ sign in their yard. They wanted to know they could move when their new house was ready to move into. They needed to move quickly because they had been transferred. So many different reasons, that I would go, okay, I can do that. And they were willing to walk away from equity for that just because I made a solution. It didn’t have to be a desperate sale or a need.
4. For four years we bought almost exclusively subject to the existing financing. Over 100 ‘sub-to’ deals. That means you go in and you take over the financing that’s already on the home. A lot of people will say, well, the seller’s not going to let you take over a property and keep the mortgage in their name. But it is very legal. It’s on the hood. We would explain to people when we went in why we could pay more if we didn’t have to get our own financing and if we did take over their existing financing, and it was never a problem.
5. We have not had any issues with lenders foreclosing on ‘subject to’ deals. What we have found is, the banks do know what’s going on but they’re very grateful to have a loan that’s performing. In the beginning, it was a tremendous fear. Oh, my gosh, what happens if one does foreclose due to the ‘subject to’ mortgage? Because we’d hate to do that to the seller. Obviously, it was going to hurt the seller more than us. We did let the sellers know if this would ever happen , you would get the house back. We’ve already paid it down more and we’ve already repaired it. You’ll have an opportunity to come in and rescue your loan, but our priority was always to make their payments first. We didn’t want that to happen and it never did.
6. For someone who wants to start doing ‘subject to’ deals, first go online and read about it. Get all the information you can. Find an attorney who is comfortable with you doing that and will handle the paperwork doing that. In the beginning, that was one of my big dilemmas learning how to do it and also getting an attorney who understood it and was comfortable. In our subject-to documentation, we have two places where the seller signs saying, I understand you are not ultimately responsible to make my payments. And then our attorneys have their own paperwork that they have the sellers sign saying now you know these buyers are not ultimately responsible to make your mortgage payment. So it’s all about disclosure, disclosure, disclosure. And paperwork.
7. We do all of our closings with attorneys. We want all of our seller to be comfortable. We make sure all of our paperwork is done and approved by attorneys willing to defend it in a court of law. I can’t stress strongly enough about making sure that you do everything through an attorney and having good documentation. I’ve seen investor contracts, especially rental agreements where they very much protect the investor, not so much the tenant. And you never want to get into court with a lopsided contract. You never want to stand before a judge with something you’ve done on your own. So I think one of the biggest, best things that we do is work with attorneys and get things done right going in.
8. I've discussed a lot of our offers over the phone because I didn’t have time to run around and telling you that it was going to work. So I would explain to them, I eventually had a form that I would start with the seller’s asking price and then I could deduct prices from there. I could deduct our closing costs, repair costs, things—so that we would get to the bottom of this form and at the bottom, it would come up with the number that I was offering. I always wanted to be able to show the sellers how I came up with my offer price so they knew I wasn’t just making up a number and they weren’t confused. And then I would say, this is what I can pay if I can take over your existing financing. Let me explain what that means. Let me explain why. And then would proceed with, if I go out and get my own financing, of course, it’s going to cost me more and I can pay less. So I would show them that taking over their loan, they would get the best deal. If I had to get financing, they were going to get less. And if they wanted cash, they were going to get even less. So a lot of people like knowing that they’re getting a better price. That’s the first comfort area.
9. Advertising. Oh, my gosh, everything works. Car magnets work. Every single thing you do works. Some better than others. Everything works. Do anything. Do everything. The only reason I can ride around with that tacky magnet on my car is because when I’m driving, I can’t see it. A sign company that made them for $50/pair and we even had a little one for the back bumper. Our favorite advertising is direct mail marketing. So starting out, I picked three neighborhoods. My own, first. Then, two other in the price point I was looking for and the condition and then the age I was looking for. And then I direct mail marketed to just those three neighborhoods. And basically, we buy your house, we can buy houses, if you know anyone who’s selling a house, please have them contact us. That way, it’s not personal. It’s not an affront to the person getting the postcard and that way, when they called us, I knew it was a house I was interested in because it was the neighborhood I was interested in. We ended up using Postcard Mania. They’re out of California. They ended up being one of our favorite resources, and what we did there was, we just narrowed down neighborhoods. So we narrowed it down by area. We narrowed down to price point. We wanted owner-occupied only, because we were buying from owners. Now, we also will do non-owner occupied, but we had three-bedroom or more, two baths or more, ten years old or newer. So over the years, we give different specifics but we just wanted to mail to these three neighborhoods and homes that met our criteria. Postcard Mania put the list together for us and they sent out the postcards. When we first started, we had 5800 homes that we mailed to. We made sure they were hit every six weeks in the beginning and we did that for four years. Then we backed it up for when we would hit them every two, three months. We hit them all a lot less often because it’s pretty saturated. We’re known in the neighborhoods. They see our signs go up and they come to our open houses so we’ve really become known throughout the years.
10. From now on, we’ve changed our strategy to where we don’t want to hold. We only want to sell. And because we want to pay off the however many number we’re going to keep and be done. Our goal is to totally be done and self-sustaining in three to five years. We want to get these mortgages paid off. For us, we want this to be generational. I want our children to get it. When they inherit, they get it at a stepped-up basis so there’s no tax involvement. We have everything set up through trusts. We have nothing in our own name. Everything automatically just flows and passes onto the next heirs. We also have business partners. We have business entities and structures so that eventually, we will be simply passive holders of the companies that we have going. We went from studying real estate—we thought we had a good handle—to studying business entities and wealth management. And we’re a part of national groups and national mastermind groups now, on owning and operating, structuring businesses, getting it to where it functions without you so that you can either sell it or just hold it passively.
* Bonus Takeaway - Get started and do something and you can figure it out as you go, for sure. Because you can’t begin to know everything starting out and going in, but little by little this year—next year, you’re going to know more than you do this year. Every year and every deal, you learn more and more and get better.
* Bonus Takeaway - I don’t tell anybody to look for the home run. We never looked for the big numbers. We were very excited, the few and far between times when they happened. We just looked for getting on base and keep moving around. A lot of people want more and get discouraged so then they get distracted by the next bright, shiny thing.
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