What to do after I find a lead?

Question

Let's assume I've found a motivated seller.  This person responds to a letter: they call, we chat about their motivation for selling, I ask about the property details (address, equity percent, condition, etc.), and I ultimately determine this is a good prospect.  Where do I go from here?  Is my first step to go see the house?  At what point do I send them a contract?  I'm really just trying to wrap my mind around the process I'm going to follow if/when I start getting calls from interested sellers.

Steve Vaughan · Answer

What's the purpose of using a LOI vs a purchase and sale agreement? What advantage is there to using one over the other?

@Dallas Martin  @Benjamin Barredo  I wouldn't use an LOI for wholesaling.  No point.  The only thing you offer is cash at a discount.  Just use a PSA.

I like using a letter of intent because I can personalize it and offer different options at different prices.  I can offer cheap for cash, more with seller financing and more still with a lease option.  By the time I draft the LOI, I know their debt load and payment amount, if any, and what they want to see happen.

When they select which option they want to move forward with (often forgetting 'no thanks' is a 4th option:), then I know how to structure the PSA or Option agreement.

I still remember presenting my letter of intent to a listing agent of a 3-family a few years ago.  She called back next day and said 'They picked option B.  I had no idea they would carry that way.'    We then did a formal PSA and moved to closing.  No back and forth or 'bring your highest' and best bs.

Another time a seller called back 4 months later and he liked option B also.  Had to ask what it was again because I'd forgotten.

Cheers and happy hunting!

Brian Gibbons · Answer

this is a "ready fire aim" approach. I really believe that you should have an attorney if you're going to be doing "terms deals" in Pennsylvania.

Here are my rules of thumb if you will...

If it's mostly "landlord tenant area",  a C D area then I will only think about buying and holding and renting out or wholesaling flipping.

If the property is more of an A B area, chances are it doesn't need a lot of work, it's a pretty house in a good area, not a lot of rentals, mostly owner occupied.

If it's a pretty house, then you need to have some tools such as subject to, wraparound mortgage, lease option, etc. to make some money.

New people need to know their "market rent" and their "fair market value" really well, and having access to sold comps is really helpful so that you can do your research.

If you're serious about this business, you will devote your time and walk through 100 properties as fast as you can so you know what "asking prices" are and to know what "actually sold prices" are

The fall and winter are excellent times to go after expired listings and canceled listings, and help the homesellers solve a problem using creative financing.

No banks and no credit strategies I prefer:)

Steve Vaughan · Answer

I think the initial steps are fairly similar whether you wholesale/flip or keep, but my pricepoint, terms sought and due diligence will differ.

We always qualify initially over the phone, then go see the house if we determine it won't be a waste of time.  If you're brand new - go see the house anyway.  Always something to learn and you can use the practice.

My offer (and even the contract itself) will differ depending on my exit.  If buying for myself, I usually use an LOI and offer 3 scenarios (cash, with seller-financing or a lease option).

If wholesaling, I may have a simple assignable PSA - pretty much just trying to get a certain price like 70% minus repairs (rarely works, IMO).  An LOI can be a little slower.  A wholesaler will want to lock it up on the spot.  I leave my LOI with the seller to consider.

In general, that's the difference to me.  Without @Mike Cumbie asking the critical 'what is your goal?' question I wouldn't have known what to add.  The offer itself is definitely different depending on what my goal is for that property.  Being flexible with your exit (having a pony that does more than 1 trick) gives you more options and a higher conversion rate!

Mike Cumbie · Answer

Hi @Dallas Martin,

We are missing what your goal is. This is listed in Starting out, however some people are assuming you are wholesaling it. Do you plan to fix and flip/wholesale/Rent out? The steps will vary greatly depending on the end goal.

Thank you

Peter Mckernan · Answer

Hello @Dallas Martin

I would go see the house, once you see the house then get the comps for ARV for the home (get three good ones), get a contractor to meet you at the home (if severe rehab needed), and once you have all that information then I would contact a agent/buyer/flipper to see about getting them to purchase the property.

Once get them on board write a contract up with all the necessary language and a correct price for a wholesaler fees within your area.

Dennis Canon · Answer

How did you determine it was a good prospect? DId you analyze the property and look for comps? Did you discussed price?

Next step is to see the house. Take lots of pictures or videos and ask lots of questions. Also, bring a contract with you so you can get it under contract.

Benjamin Barredo · Answer

@Steve Vaughan I got you on the LOI. I have a template for something like that. It has exactly what you said, several different options for the seller to choose from, each giving them more money but taking away the "instant" payday and giving the investor more time and a lot more ROI and cashflow. I like that. I'll implement that thing when I get more seasoned. For now I just want to flip.

As far as lease options and such, I'll attempt that if a flip isn't possible and it'll be my last desperate fight for the life-raft...but only if it makes sense, of course.

Jay Hines · Answer

You might want to consider investing in some good quality training.  If you are marketing for sellers and once one calls, you don't know what to do with the caller, you are wasting your money sending out mailers.

Conversely, maybe find someone at your local REIA who will work with you on your first deal?

Mike Cumbie · Answer

@Dallas Martin

If I was buying for myself I would have the following steps (in general)

1) Financing secured

2) Find property and put it under contract

3) Attorney approvals

4) Inspection within 7 days

5) Mortgage commitment (if using bank money)

6) Title work

Where if it was a wholesale deal it would look more like this

1) Find property and put it under contract

2) Find buyer before whatever inspection period expired (They are not going to trust your guy anyway)

3) Assign over to them

@Steve Vaughan also brings up a great point about the LOI. Contracts normally have a "life of offer" because they are binding. You have offered to buy something and if they sign here you guys are off to the races. You can't use that same money for anything else in case they do decide to sign. A LOI is nice if you are not in a hurry (and of course offering a nice low price). Let them shop around a bit trying to find something better. Let them sleep on it and ask friends/family. You as the person who wrote the offer can still shop for other things because it is a "lets talk letter". If you end up finding something else and spending the money you had earmarked for that... then so be it. It's the "slow hand of poker" in homebuying.

Brian Gibbons · Answer

I have a BP blog "make money with out credit or banks" that talks about lease options, sub2, wraps, private lenders, joint venture partners and more :)

What to do after I find a lead?

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