All Forum Posts by: Lenzy Ruffin

Welcome to the community, @Byron Ma. It might be helpful in finding partners to share what kind of investing you're looking to do (wholesaling, rehab, buy & hold, etc). If you're not sure yet, check out the BP Ultimate Beginner's Guide and choose one strategy to pursue.

I forgot to mention that in some markets, it's the 65% rule. You have to find out what the number is in your market. 

@Christine Taylor

A formula commonly used by wholesalers is the 70% rule: MAO = (ARV * 70%) - repair costs

MAO is the Maximum Allowable Offer, which is the most a rehabber can pay for a property and still make a profit on the deal.

ARV is the After Repair Value, which is the retail value that the house will have after it has been rehabbed. This is the price that the end-buyer (the people who will live in it) will pay.

The first step is determining the ARV for the house in question. You do this by getting comparable sales (comps) from whatever source you can get them from. You take 70% of the ARV and subtract from that the estimated repair costs. The number you are left with is the MAO...this is the most that a rehabber will pay for the property. Since you're a wholesaler and not a rehabber, now you need to factor in a profit for yourself. So your profit, called an "assignment fee," is whatever amount below the MAO you're able to negotiate the homeowner to sell the property for. There's no formula for that part. The circumstances of the deal (seller motivation and equity, primarily) will dictate how much profit is there for you to negotiate for yourself.

Here's an example with numbers:

ARV: $200K, repair costs: $50K

MAO = ($200K * .7) - $50K = $90K

$90K is the most a rehabber will pay for this property. So the most you're going to be able to wholesale this property for is $90K. But you can't offer the seller $90K because then you will make no money. So you offer the seller $85K and they accept. You call your cash buyer and offer them the property at $90K and they accept. Now you've made $5K for your efforts. That $5K could be $25K. The amount you get for your time and efforts is entirely up to you; there's no formula for that. The golden rule is always good to keep in mind so you don't go around fleecing people who are trusting you to help them, but you are in this business to make money and it is fair for you to receive compensation commensurate with the size of the problem you are solving.

@Robert Rainey

Regarding reliability, one thing you should do is scroll through your list manually to make sure nothing in it jumps out at you as odd. I use Listsource and haven't had a problem. I also tried AgentPro and the lists they delivered were garbage. I pulled a list of absentee owners and noticed that in 75% or more of the mailing addresses, there was an apartment or a suite number. Sometimes, there was an apartment number and a suite number for the same address. And the same apartment or suite number was repeated quite a few times throughout the list. 

I could just eyeball the list and know that something was wrong with it. They told me that the county had provided bad data and it would be corrected with the next upload, which they couldn't give me a date for. I needed to do a mailing, so I went back to Listsource and pulled the same list and the data was good. Also, AgentPro's filtering system was broken for the entire six weeks I was a subscriber, so even though I checked the box to exclude LLCs, my list was full of LLCs. 

On the positive side, they promptly refunded my money with no hassle. I know lots of people use AgentPro successfully, but my experience was that they couldn't provide me with a single, basic absentee list with correct mailing addresses and no LLCs in the six weeks that I was a subscriber. 

I say all this so that you know not to assume your list is good just because you got it from a reputable provider. This may not be specifically what @Justin Silverio was referring to, but doing a manual scan of the list is one of the things you should do to ensure you have a good list. If I hadn't checked that list before I used it, I would have wasted at least one entire mailing.

@Ali Daiy

I'm glad you've discovered real estate now. I was just participating in a forum the other day about why there are so many former engineers in real estate. I'm glad you're learning real estate now. Your earnings as an engineer will supercharge your investing activities, if you do things right.

I caution you to not let your enthusiasm exceed your budget. Wholesaling is not "the way to invest in real estate with no money" that some present it to be. I look at your plan and I see lots of marketing expenses. Make sure your budget can sustain those expenses for at least twelve months. The key to marketing is consistency. If you run out of money in four or five months, then the money you spent during those months was almost wasted. Make sure you understand all the up-front costs associated with getting licensed, as well as the post-licensing costs and any recurring costs that come after that. 

Basically, sit down and figure out how much everything in your plan is going to cost to execute over the next twelve months and make sure you can afford it. If you've already done that, then go get 'em. Stay consistent in your marketing and do not quit.

Don't switch up your list, @Robert Rainey. According to the direct mail experts, that's a textbook mistake that people make. You have to define a good list at the outset and keep mailing those same people, month after month. You can expect a 1% to 3% response rate. After the 7th or 8th round of mailing, some magic happens and the response rate goes up.

Also, don't discount postcards. They don't require the recipient to open them. Keep in mind that whomever you're mailing is on a list that many others before you have used / are using, so your letter might not get opened because they get similar ones every day. Postcards get tossed just as easily, but at least you have a chance at getting some of your message seen. 

I'm not saying use postcards because they're not appropriate for every list. Probates, for example. For probates, a letter is more appropriate. For absentees, it's probably six in one hand, half a dozen in the other. Go with your gut.

Also, check out the guide on direct mail. It has everything you need to know.

https://www.biggerpockets.com/renewsblog/2014/04/0...

I've read a number of discussions on BP regarding the pros and cons of renting to Section 8 tenants. My personal synopsis of what I've read is that success/satisfaction with the Section 8 program distills to a handful of things:

1) Proper (rigorous) tenant screening.

2) A willingness to commit to learning all the ins and outs of the program...in other words, committing the time and effort required to become a Section 8 expert. It seems that landlords who focus on and specialize in Section 8 don't have the problems that landlords who are more casually participating in the program do.

3) The quality of the local housing authority that administers the program. From what I've read, the housing authority can be anywhere on the spectrum from outright hostile to landlords to being a landlord's best friend with regard to dealing with bad tenants. 

I'm not looking to rehash the pros and cons of Section 8 in this discussion. What I'm interested in is input on #3 with regard to Prince George's County, MD. For those landlords who participate in the Section 8 program in Prince George's County, MD and do their due diligence as far as screening their tenants properly, how would you characterize the housing authority? Are they a good partner in administering the program or are they more of an adversary? Or somewhere in the middle?

I agree with what everyone is saying, particularly @Justin B. and @Steve B.. We never grow weary of solving interesting problems, but the continuing education treadmill does get old after a decade or two...particularly the IT certification cash/time monster that you have to feed periodically to work in some sectors. Then there's also the problem of the more knowledgeable you become, the less qualified your supervisors are to give you direction. It really becomes a daily exercise in frustration after a while. 

I think another thing that might draw us disproportionately is that once you do a little research and learn how money is made in real estate, you realize very quickly that the curriculum to learn real estate is nowhere near as complex as the curriculum to become an engineer. @Ali Boone has a post on here about doing rental analysis on a napkin. You can be 18 years old and use that formula to make money for the rest of your life. There's nothing you can fit on a napkin that will do that for an engineer. How many of us have spent years learning a technology or system that is no longer in use? Rental analysis is never going to change. I certainly wish this was something I knew when I got started. 

It's also possible that there's some affinity bias going on in terms of what you see. Like when you buy a car and then start to notice all the other ones on the road that are the same make/model. It's possible there's a similar thread on here started by a doctor who has noticed lots of other doctors in the industry.

Welcome, @Erik E.. You might want to try refining your networking request a bit. It sounds like you're enthusiastic about learning real estate, but that's not going to motivate anybody to invest their time to talk to you, especially if you're at ground zero in terms of your real estate knowledge. If you haven't identified what niche (just one, not two or three, just one) you want to pursue in real estate (target market, marketing strategy, exit strategies), you'll probably have a hard time finding someone to talk to you. What return can those folks expect to receive for their time investment? That's how the folks you want to talk to look at things, and that's the way you should, too. We all start out feeling just like you feel right now and the overwhelming majority of people quit. So the people you want to talk to are not excited about spending time with a new person who wants to learn real estate. 

My two cents on how you should proceed is as follows:

1) Read the Ultimate Beginner's Guide ebook that they give you when you sign up here on BP. Learn the different ways to invest and figure out which ONE you want to pursue.

2) Listen to BP podcasts that focus on that one niche you chose and the guest speaker will tell you exactly what you need to do to start marketing to generate leads.

3) Read "The Millionaire Real Estate Investor" and "The ONE Thing" both by Gary Keller. The ONE Thing will teach you how to most effectively and efficiently execute the strategies that you learn from the podcasts.

4) Find a local REIA and network there, too.

5) Be consistent. Once you identify a niche, a market, and a strategy, you have to execute your strategy on a weekly/daily basis until it pays off. Don't expect to make any money your first year. You might make money, but don't expect to. Anybody who tells you otherwise very likely has a program or system to sell you. This business boils down to lead generation (getting somebody who has a property you want to buy to call you) and building a lead generation system requires consistent action over a long period of time. You can't try a new strategy every month or every quarter. Pick a podcast where somebody outlines a process that you know you can commit to following for a year and do that.

Once you've figured out what you want to invest in, where, and how, and you have a track record of taking some action, you'll probably find it easier to get people to network with you. But you gotta do all that initial education and market research, etc. on your own, man. You're going to have a really hard time finding somebody who is willing to invest time in talking to you about those things. 

Also, this isn't advice coming from a seasoned veteran investor, so take it for what it is. I'm just a sophomore sharing some insights with a freshman. Good luck, man.

There are many of those properties in my area. I asked the same question at my REIA and learned that most of them are likely zombie foreclosures. That house you're looking at may sit just as it is for years to come because the owner isn't paying and the bank can't complete the foreclosure process because of defective paperwork due to the Wild Wild West lending practices that led to the recession.

Even if the bank does have its paperwork in order and can take ownership of the property and you can navigate the various departments to find the right person, they can't just sell you the property. As it was explained to me, there are laws or regulations regarding selling REOs that require the bank to "advertise broadly," which in practice means putting the property on MLS or one of the auction sites. They can't just sell it to the first person who makes them an offer the way a homeowner could. They have to make the property available for everyone to make offers and go from there.

So you're not going to be able to do what you're trying to do. There are a number of discussions on BP where others have had the same idea that you have (myself included) and then found out from the community that that's not how it works. You can't buy an REO until it's either on MLS or an auction site.

What you might be able to do is track down the homeowner and see if they want to cooperate in doing all that it takes to execute a short sale. If so, you could then reach out to the bank and see if they are willing to do a short sale and, if so, start the negotiations. 

You have to decide if it's worth it to put in all the time, money, and effort necessary to pursue this one property or if those resources are better spent on pursuing lower-hanging fruit.