How do you approach pre-foreclosures? - Posted by Tim (CT)

import · February 22, 2004, 5:27pm

Posted by Doug Pretorius on February 25, 2004 at 14:17:26:

Yes, there’s no guarantee that you can LO a property within 30 days. So if you’ve bought the house yourself some period of vacancy is always a potential risk. However, in most cases you can find a buyer within 30 days.

That would be “LO assigned in 30 days”. Usually the buyer moves in on the 1st, which may be any number of days away. Some buyers will be able to move in immediately. Others will need to give notice.

Same goes for my market, very hot, most houses sell very quickly at or above asking price.

Rent is irrelevant in your kind of market (mine is the same, rent is very low compared to value.) In our markets you go by what people are paying to OWN, not RENT. Base the buyers payments on an interest rate that’s say 2-3 points higher than they would pay if they had great credit.

Example: $400,000 mortgage at 5% is about $2,150/mo (PI only) You might charge the buyer 7%, giving the seller over $500/mo cash flow. Taxes and insurance are added on top of this figure.

Add say $25,000 to the price tag as well, and the fact that the seller will pay no maintenance, and neither commissions nor closing costs, and you’ve got yourself a deal that’s hard to beat.

import · February 22, 2004, 5:27pm

How do you approach pre-foreclosures? - Posted by Tim (CT)

Posted by Tim (CT) on February 22, 2004 at 18:27:34:

O.K. I went down to the town hall and got a list of people in pre-foreclosure (lis pendens recorded document). I’m just curious to see what type of approach works for most people. My thought is this: Mail out postcards to all of the people. After a few days, follow up with a phone call (if I can get the number). For the ones where I can’t get their phone number, knock on their door. To be honest, my wife isn’t crazy about me knocking on the doors of distressed people. You never know who’s going to be answering the door. I think I’m a little wary of that myself. Now, I know most people on this board will say that you probably get your greatest return by going this direction (door-knocking). But, I’m not sure if making a profit is worth putting my life at risk.

Any thoughts? What do others do?

Thanks in advance.

import · February 23, 2004, 11:09am

Re: How do you approach pre-foreclosures? - Posted by D. Stewart

Posted by D. Stewart on February 23, 2004 at 12:09:39:

Tim - I certainly don’t have as much experience as many of the others on this board, but I found that you will get several responses to postcards alone. The ones that respond are the truely motivated sellers, so unless it looks like a deal with lots of equity, I wouldn’t bother knocking on doors.

import · February 23, 2004, 7:49am

Re: How do you approach pre-foreclosures? - Posted by Doug Pretorius

Posted by Doug Pretorius on February 23, 2004 at 08:49:01:

I know a lot of gurus tote pre-foreclosures as a good source of motivated sellers. But the reality is you need to be the kind of person that can sell ice in the north pole, at a good price.

These people are in extreme denial. Most do not believe the bank is going to actually take their house. Others would rather lose everything than allow an investor to make one red cent on their ‘misfortune’.

Personally I prefer to work with people and techniques that are EASY to sell. My greatest success has come from doing deals with the people most of the posters on this site would throw away as “unmotivated”.

import · February 23, 2004, 6:33am

Sales - Posted by Philip

Posted by Philip on February 23, 2004 at 07:33:37:

Tim,
You will be selling an idea and yourself to these people. I don’t know much about investing but I do sales.
Face to face is best. But it would not hurt TRY a phone call to see who is even listening, or if they are in deep denial and won’t listen to anyone.

Anytime you can, and it is reasonable, face to face is best.

Philip

import · February 22, 2004, 11:00pm

Wife wears the pants!!! - Posted by John (NY)

Posted by John (NY) on February 23, 2004 at 24:00:33:

Tim,

Who wears the pants in your family? You or your wife? Here are some ideas for you:
1- Take one of your buddies with you when you go door knocking.
2- Do a police record search on the home owner.
*3- Sit home and don’t do anything and wait for your real estate investment career to come knocking on your door.

import · February 22, 2004, 8:04pm

Re: Very Carefully - Posted by del-ohio

Posted by del-ohio on February 22, 2004 at 21:04:20:

I dont have any real advise for you, but this thought popped into my mind as I was reading your post.

A new product to market to creative real estate investors … bullet proof vests

I must be listenting to to many Jay Abraham Tapes

Del-Ohio

import · February 23, 2004, 11:35am

Re: How do you approach pre-foreclosures? - Posted by js-Indianapolis

Posted by js-Indianapolis on February 23, 2004 at 12:35:18:

"My greatest success has come from doing deals with the people most of the posters on this site would throw away as “unmotivated”. "

Can you elaborate on that? What leads are these? Where are you getting them? Just curious on what’s working for you, where others might be passing it up.

import · February 23, 2004, 7:55am

Re: How do you approach pre-foreclosures? - Posted by Tim (CT)

Posted by Tim (CT) on February 23, 2004 at 08:55:51:

Thanks for the reply. Just curious, what techniques and seller situations have you found to be most successful?

import · February 23, 2004, 1:07pm

Re: How do you approach pre-foreclosures? - Posted by Doug Pretorius

Posted by Doug Pretorius on February 23, 2004 at 14:07:13:

I’m talking about the people who most investors try to rip off and then call unmotivated when they say no. I’m talking about regular people who are just trying to move to another house. They’re the “junk” everybody tosses in the trash, or hands off to agents.

The only reason they’re “unmotivated” is because you’re not giving them what they want. The ‘secret’ is to use a technique which allows you to give them what they want (or more), or you can take a risk.

I’ve bought houses from sellers with conventional financing for near market value. Totally the wrong thing to do according to the gurus, right? Well, surprise surprise, I’m making money. Is a cash sale near their asking price a hard sell? Of course not, that’s exactly what they want. But this does carry risk, what if you can’t LO the house? You could become a motivated seller yourself. This is just something you’ll have to decide for yourself.

Another way to work with these people, and eliminate all your risk at the same time, is to do some variation of a Cooperative Assignment. Now you can give them everything they’re dreaming of:

Sold in 30 days or less
Above market price
Above market rent
No commissions
No closing costs
Passive cash flow
You do all the work

You take down 2-3% of the price, or half the down and half the cash flow, as your assignment fee. You have no liability, you used no money (except for advertising), no credit, no partners.

True, you don’t make as much as when you steal some little old lady’s equity, but you do 10 times the volume at 1/10th the cost because you’re no longer throwing away 99% of your leads.

But I don’t expect anybody to listen. I think most people want it the HARD way, not the EASY way. It’s like anything, the truth is usually too simple to be accepted, it has to be more complicated than that! Give people what they want? You’re insane!

import · February 23, 2004, 1:08pm

Re: How do you approach pre-foreclosures? - Posted by Doug Pretorius

Posted by Doug Pretorius on February 23, 2004 at 14:08:09:

See my post to js-Indianapolis above.

import · February 23, 2004, 1:18pm

Re: How do you approach pre-foreclosures? - Posted by Tim (CT)

Posted by Tim (CT) on February 23, 2004 at 14:18:35:

I’ve never heard the term ‘Cooperative Assignment’. Interesting.

It sounds like what you’re doing is partnering-up with the seller on a L/O to a buyer? A type of derrivative of a “sandwich” L/O. If so, What type of “seller” concerns do you run into with this technique.

Or, did I misunderstand the post? Please clarify if I did.

Thanks again.

import · February 23, 2004, 7:19pm

Re: How do you approach pre-foreclosures? - Posted by DavidV

Posted by DavidV on February 23, 2004 at 20:19:01:

Doug, you are right on target about people not wanting to do the easy deals. A number of posters previously on this board have been ridiculed for their outrageous yet profitable ideas because the “experts” themselves have not done it. To this I applaude your courage.

Can you share with us how cooperative assignment works? Do I enter into a P/S contract, find a new tenent/buyer, then assign back to the original owner?

Thanks

import · February 23, 2004, 1:50pm

Re: How do you approach pre-foreclosures? - Posted by Doug Pretorius

Posted by Doug Pretorius on February 23, 2004 at 14:50:16:

I don’t know why but cooperative assignments aren’t talked about much here.

You’re right. You are working with and for the seller to move their property faster and for more money than any agent can.

Main concerns are:
“What if they tear up my property?”
Answer: These are BUYERS, not RENTERS, I’ve never had anyone do damage to a house. But just in case, your insurance should cover it, if not we’ll have the buyer get a home warrenty to put your and their minds at ease that no repairs will go unattended.

“What if they don’t buy?”
Answer: Then you make even more money. We can put a new buyer into the home, probably at a higher price, with higher payments. Or you can keep all the money the first buyer paid you and sell the house for the new appreciated price. No matter what happens…you win.

“I need cash to put down on my new house.”
Answer: You can refinance your 1st, or get a new 2nd mortgage to get the cash you need. The payments from the buyer will more than cover it all.

(Sometimes sellers can’t qualify and really do NEED cash to buy their next house. In this case you can still fall back to a Straight Option, and sell the house to a retail buyer. Or buy it with a partner and LO it yourself.)

import · February 23, 2004, 10:01pm

Re: How do you approach pre-foreclosures? - Posted by Doug Pretorius

Posted by Doug Pretorius on February 23, 2004 at 23:01:06:

Maybe I’m upsetting the balance? Maybe the experts are doing the easy deals, but selling courses on the hard ones? Wouldn’t that be funny, LOL! It doesn’t take much courage on my part, I’m on the verge of no longer posting here anyway.

You’ve got the right idea for co-ops. You can do it either way…contract with the seller, assign to the buyer. Or option with the seller, contract with the buyer, assign back to the seller. The second way is more complicated and your option with the seller could be construed as a listing agreement. So the first way is probably the better way. Nevertheless, it’s being done both ways as we speak. – Wow that was almost a tongue twister

Co-ops are a lot of fun though. Everyone involved really gets the best of all worlds. Sellers get a quick sale at top dollar with no costs. Buyers get an easier and faster purchase, and it sure blows renting away. And what about the little ol’ investor? He/she makes a whole lot of money for sharing a bit of specialized knowledge.

Now ask yourself… what is the average sale price in my area? How many of those would I have to do to make a good living? How many of those can I do when I’m giving everybody involved everything they want, or more?

import · February 24, 2004, 12:37am

Key word here is specialized knowledge… - Posted by DavidV

Posted by DavidV on February 24, 2004 at 01:37:46:

Most that troll this board don’t have it. The board has become an informercial for products sold on this site.

I know and have met a guy that used to frequent this site and he profits 300-400K a year in flips alone. He is into commerical RE now and doesn’t visit anymore due to some of the regulars here.

Don’t get me wrong I owe much to creonline I just hope they’re listening to what people are saying.

Thanks and Happy Investing!

import · February 23, 2004, 11:23pm

Need a little more clarification please. - Posted by whyK

Posted by whyK on February 24, 2004 at 24:23:26:

Hi Doug.

I have been newbie for about three month. I only come across with “unmotivated” sellers. I am getting desperate. My area is very hot area. I am very much interested in what you are talking about here. But I am bit confused.

You wrote:

“You can do it either way…contract with the seller, assign to the buyer. Or option with the seller, contract with the buyer, assign back to the seller.”

On the first one, could you tell me what makes this technique “Co-op”, not a plain flip?

Thank you for your time, and please keep posting (Don’t go away!).

-whyK

import · February 24, 2004, 8:26am

Re: Key word here is specialized knowledge… - Posted by Doug Pretorius

Posted by Doug Pretorius on February 24, 2004 at 09:26:06:

Unfortunately I don’t believe there is a book or course specifically on co-ops. Probably because there’s no way you can make a 12 CD $2,000 course and $15,000 weekend seminar out of it.

The entire “system” could be covered in a 2 or 3 page brochure, including where and how to find deals

I hear ya though. Many of the top investors have been leaving here for years. Hopefully Terry and JP will do something about it before there’s no one left who can answer any questions.

import · February 24, 2004, 8:16am

Re: Need a little more clarification please. - Posted by Doug Pretorius

Posted by Doug Pretorius on February 24, 2004 at 09:16:26:

whyK, you know exactly what I’m talking about then. What do the experts tell you to do? Keep marketing and the motivated sellers will come. I believed…I kept on keeping on…and I met those desperate sellers. You know what? They were LESS motivated than the “unmotivated” sellers! So don’t worry, relax, no need to get desperate yourself. The answer is simple.

There are two definitions for what a “cooperative assignment” is. In the strictest sense it is nothing more than an assignment with the written approval of the seller.

But I prefer the broader definition, which is a way of thinking, rather than a technique. That is to say, you COOPERATE with the seller to get them the best deal, a better deal then any other investor or any realtor would ever offer.

THAT to me is the true power of this technique, and it is so simple to learn and use, by far the simplest in my opinion.

It makes me sick to think of all the co-op deals I passed up when I was marketing for “motivated sellers”. My advice is to stop throwing away those leads and start turning them into quick cash and cash flow for you and for the seller.

import · February 25, 2004, 12:48am

Re: Need a little more clarification please. - Posted by whyK

Posted by whyK on February 25, 2004 at 01:48:11:

Hi Doug.

Thank you very much for your reply. I appreciate you taking you valuable time to reply. I have gone through whole bunch of creative REI courses and books in the last few months. Based on that and things I learned here, I have been running ad on paper for the past three months or so. The rate of getting calls is very low. When I do get calls, they are in “unmotivated” category. I lost my day job about a month ago. I changed my focus to pre-foreclosures, but nothing is happening. On top of that I got a minor surgery which will prevent me from actively researching stuff for about two weeks. (Typing this post is very difficult.)

Now you are giving me some hope. (No pressure here

Please let me ask few more questions.

I am interested in seller/assignment approach. When you do the contract with seller/assignment with buyer, how do you set closing date? Do you just pick a date, say 30 days from today, and hopefully you find a buyer who can get a loan on that day? I wonder if that is a little bit difficult for buyers in some case.
What do you do to protect yourself from people going behind your back? One scenario I can think of is that one day after the contract with seller expired, they make a deal without me. (This is probably less of problem with option approach with expiration date set further out.) You can probably file a memorandum or something, but once your contract expires, that does not do any good.
On the separate post, you stated that “Above market price”. How can you achieve that? I thought one sales pitch to the potential buyer would be lower than market price, because you are not realtor.

Thanks again.

-whyK