by Bill Bronchick
A limited partnership is a partnership that has at least one limited partner and one general partner. Most states require the filing of a certificate with the state in order to be recognized as a limited partnership.

The limited partners generally have no liability beyond their contribution to the partnership. If the limited partnership business fails, the creditor cannot go after the limited partners for debts (there are a few minor exceptions to this rule that are not difficult to avoid). Furthermore, limited partners are not personally liable for wrongful acts committed by the other partners. In exchange for this limited liability, the limited partners give up their right to participate in the control and management of the partnership.

The general partners run the management of the partnership. The general partners control the cash distributions to the partners. The general partners also have unlimited liability, as in a general partnership. Creditors of the partnership can look to the general partners' personal assets if the limited partnership's assets are insufficient. Furthermore, the general partners are liable to third parties for wrongful conduct within the partnership business (e.g., a "slip and fall lawsuit"). Thus, a corporation is usually better for pure liability protection for its owners.

The limited partnership does not pay taxes as an "entity." It files an informational tax return to the IRS. It issues a form K-1 to the partners who include the partnership income or loss on their personal tax returns. The partners must pay income tax on all gains whether or not the profit is distributed.

Creditors of individual partners cannot take a partner's place in the partnership. A creditor may garnish the partner's share of income (called a "charging order"), but has no right to participate in the management or utilize partnership property. Thus, if a limited partner's income is garnished by a creditor, the general partner (who should be under the limited partner's control) can frustrate the creditor by not distributing income to the partners. Since a partner is required to pay taxes on his share of the income whether or not the income is distributed, guess who gets the tax bill? You guessed it, the creditor! If your assets are held in a limited partnership, they are virtually judgment-proof!

The Family Limited Partnership

Let's look at a variation known as a "family" limited partnership. Suppose that you and your spouse create a limited partnership to hold your family's liquid assets. Your limited partnership contributions are all of your stocks, cash, CD's and mutual funds totaling $300,000. Your partnership agreement could state that your spouse will act as general partner with a 2% share (the size of the general partnership share does not affect the general partner's power to manage the partnership's affairs). You agree in writing that your contributions constitute a 98% limited partnership interest.

The partnership agreement could further state that the limited partnership shall have the right to buy out the general partner for his share of the partnership and appoint a new general partner to replace her (the "you" in this example is the husband; we are making the wife general partner because we assume that husband's risk of getting sued is higher; if the opposite were true, then we would arrange the partnership accordingly).

Let's say that you are sued and a creditor obtains a $50,000 judgment against your name. The creditor can attach your limited partnership interest but only to the extent of your income as a limited partner (called a "charging order"). The creditor who attaches a limited partnership interest cannot participate in the management of the partnership, and thus cannot force the general partner, your spouse, to distribute income. As general partner, your spouse stops paying the limited partners' distributions, because in her discretion the limited partnership would be better served to reinvest the capital.

One year later, the creditor still has a $50,000 unsatisfied judgment. Just to top it off, the partnership sends the creditor a form "K-1" for the creditor's share of your "phantom" income (In our example, the partnership assets are worth $300,000. At a 10% annual return, your share of income would be approximately $30,000 - the creditor would have to pay income taxes in the ballpark of $10,000! If the creditor does not pay the tax due on your undistributed share of income, the IRS may come after the creditor!). You will be in a strong position to force your creditor to settle his claim for a fraction of its value.

Let's say a creditor sues your spouse and tries to attack your spouse's general partnership interest. At that point, the partnership exercises its power under the partnership agreement to buy out her general partnership interest in the amount of $2,000 or 2%. The partnership then finds a new general partner. With proper planning, this may not be considered a "fraudulent" conveyance because the general partner received full compensation for her partnership share.

As you can see, the limited partnership is one of the few entities which affords control over your money, yet still provides you with asset protection.

"Family" LLC's - To Good to be True?

Another similar tool for protecting your wealth is the LLC or "Limited Liability Company." An LLC is like a cross between a corporation and a limited partnership. All of its partners (called "members") have limited liability and all of its members can participate in the management of the LLC without suffering any liability.

Any assets you hold in an LLC are protected from creditors in the same way your assets are protecting in a limited partnership (i.e., the creditor's remedy is limited to a "charging order"). In addition, since all members are shielded from liability, an LLC may be an excellent device for holding investment real estate - the members are protected from tenant lawsuits and the equity of the members is protected from other creditors.

by John Cash Locke

Back in about 1963 the market in Las Vegas was overbuilt with new homes. The builders were going crazy trying to figure out how to sell these new houses. Terms were being used like: the market is flat, the economy is in the toilet and the housing market bubble has burst. A lot like some of the stories you read from some of the investors in certain areas of the country.

As hard as the builders tried there seemed no way to sell any houses. This looked like the perfect opportunity for a creative real estate investor. I went to the largest builder in the city and asked him what his largest housing development was. He replied, “there was a sub-division with about 85 tract homes sitting vacant that he owned”. I said, “if I can sell all your houses in one day would you give me a free house?” You know how you get one of “those looks” like you don’t have all your marbles? His look did not bother me. He must have figured, what the heck, what do I have to loose? He agreed and we drew up the paperwork to cement the deal.

I picked a Saturday for the great give away spectacular. I ran ads in the newspaper, offering a Free Bar-B-Q with hot dogs, hamburgers, soda pop and all the great gourmet items. The headline of the ad read $5000.00 to $10,000 off the price of every house for the lucky ones only. How lucky are you? I had pre-arranged with the owner concerning the prices of the houses, so we were fine there. I instructed the tract salesman not to sell any homes until 1 p.m. It was a great turn out; hundreds of people enjoying themselves with a FREE meal.

At exactly 1 p.m. , the helicopter flew in. Inside the helicopter were thousands of Ping Pong Balls with $5K and one ball with $10K (complying with the advertising laws) imprinted on them. The balls were released over the crowd. My plan was excellent, except I for forgot about the big whooshing blade of the copter. Ping Pong Balls went hither, dither and everywhere. Fortunately the customers were pushing and shoving chasing them down to find the lucky ping-pong ball. The sub-division was sold out that Saturday with back up offers on every single home.

Creative advertising works to sell your property. The next time someone tells you the real estate market has gone bust, rent a helicopter and take him or her for a ride

by Matthew David

If you’re going to make a lot of money for a long time through real estate investing, there’s just no way around it. You need to master marketing. The best techniques will work to consistently and magnetically attract motivated sellers to you.

Understand This: If you don’t have a consistent stream of motivated sellers calling you every week, then you don’t have much of a real estate investing business at all, do you?

Many of these techniques are free and you should at least begin with these immediately. All of these techniques work to bring sellers to you. As you master your marketing campaigns and generate a lot of money from deals, you can outsource these tasks to let your leads come to you on autopilot.

10. Expired/Expiring M.L.S. Listings

When listings expire on the MLS, you’re going to see a whole lot of the good, the bad, the ugly and oh yeah, the really really ugly. However, scattered through those listings will be some quality deals and some sellers who are motivated enough to work with you. A good realtor will provide these to you if you offer a fee per property you close on.

Approximate Cost:
$0 Up front, $500 per closed deal.

9. Online Classified Sites

There’s really two different ways you can use online classified ads to generate your leads. You can post your “We buy houses” ad amongst the homes for sale. However, you will have to be diligent in reposting it as it will get taken down consistently and often. Alternately, you can just copy and paste multiple sellers’ emails and send them the same “We buy houses” or “We do short sales” email. Use the “bcc” (blind carbon copy) line for inputting the email addresses so that sellers don’t see just how many people you’re really sending your ad to.

Approximate Cost:
Free

8. Business Cards

You should use every available opportunity to pass out your “We buy houses” business card. It works a lot like a fridge magnet in that, until you fridge is broke, you don’t call. When they need to sell their house, they’ll call you which may not be for months later. People know people and business cards are a great way to network. Hand them out at the grocery store, Starbucks and all the other places you visit. Simply ask that person about their job and when they return the question, hand out a business card with it.

The single best person to give your business card to is the mailman who will see many vacant houses on his or her travels which usually translates to a motivated seller. Do all the mail carriers in your city have your business card? Why not?

Approximate Cost:
If you shop around, business cards will cost you less than $20 and they are well worth the investment.

7. Classified Ads in the Freebie Newspapers

A lot of motivated sellers need to pinch pennies at every corner. One of the great ways to reach them is with an ad next to where they will be clipping coupons from the freebie marketing newspapers.

Approximate Cost:
$50-500/edition but it will vary depending on your local area.

6. Classified Ads in the Mainstream Newspaper

It’s been my personal experience that sellers don’t tend to view the “real estate wanted” section and so if you can convince the newspaper, you should get your “we buy houses” ad in amongst the FSBO listings. It works because they always open it to try and see their own ad and in searching through to find it, they’ll often find you in that search. If you can’t get them to put your ad in that section, the “money to lend” is another great section motivated sellers will use. Often, their first consideration is to try and refinance even if it is not possible.

Approximate Cost:
$100-2500/month depending on your local area.

5. Mortgage Brokers

There are tons of motivated sellers who are overleveraged calling mortgage brokers all day every day. Especially, if you do short sales, these are a great group of people to network with. There will be some rapport building required but it will be well worth your initial efforts. They may not turn over the sellers to you directly but if they advise your clients about your services and provide your contact information for you, that’s just as good.

Approximate Cost:
- Either you can pay them $500/deal you close
- Alternately, I recommend you simply offer that either you or your end investor will use them to obtain a mortgage when buying the short sale so that they will make their commission from that seller. In which case, the approximate cost is $0.

4. Flyers

You want sellers to call you without you actively pursuing them at every corner. Without a means of doing that, you won’t get paid. You should take advantage of every opportunity to post up an ad with pull off tabs. Make sure to take off 2 or 3 so it seems as if people are already calling you. It has a profound psychological effect when they don’t think they are the first person. Include your contact number on the main ad too in case all the tabs get taken. Ask around and see who will let you put these up. Make sure to target these places.

- Unemployment office
- Grocery store bulletin boards
- Laundromats
- County courthouse bulletin board
- Convenience stores
- Factory bulletin boards (this works in my area but may not be an option in your area)

Approximate Cost:
$10-20 depending on just how many you photocopy or print.

3. Bandit Signs

There’s a consensus with many investors that you need to spend a lot of money having a sign complete with a pole and official looking information. I don’t necessarily agree with that. We’re bombarded with so much traditional advertising that you always notice those “yard sale” signs because they’re different. That’s why our bandit signs intend to accomplish the same thing. Tape a bright color paper sign to a pole or tree at a busy intersection with “We buy houses” and your number, that’s it. What most yard sale signs don’t get is that your sign must be visible from the road so make sure it’s legible from at least 100 feet away.

Approximate Cost:
$20

2. Direct Mail

Take the time to head down to the county courthouse and get a “lis pendens” list. If you can get a probate listing, that is an asset as well. Ask around at your county courthouse because they are both real estate investing goldmines.

Some investors believe that you should send postcards and other investors believe that you should include a void check visible through your envelope. I believe that your ad just has to be different. We get so much junk mail that either postcards, visible void checks or handwritten (and then photocopied) letters will work. The bottom line is that it must get opened and it needs to be different from every day junk mail to have that accomplished.

Approximate Cost:
- $0.50-$1.50/mailout depending on type and quantity sent
- Search the people on that list using the online phone book and call them for free.

1. Calling FSBOs

I’m amazed still at how many investors are either afraid or don’t see the value in calling FSBO ads. I was able to do over 40 short sales in just over 3 months from simply spending a few hours every day calling FSBO ads. Before I knew anything about creative marketing and having your business run on autopilot, I knew how to get leads for free using this method. It really works.

Approximate Cost:
Free

Can you pick out the motivated sellers on the phone?

In all these cases, you’re going to need to determine just which sellers are actually motivated. You should say something like:

“Mr./Mrs. Seller, I’m calling about your property on 123 ABC Road. Can you tell me a little about the property?”
[Seller talks and you just be quiet and listen]

“Mr./Mrs. Seller, it seems like a nice place. How come you’re selling it?”

Unclear answer = Ask again another way. “Mr./Mrs. Seller, and what are you planning on doing if it doesn’t sell?”

Unmotivated answer = “Ok well that’s not what I do. I buy properties from owners who really need to sell and I help them out of those tough situations. If you find yourself in that situation in a few months, don’t forget to call me back. Thanks for your time. Bye.”

Motivated answer = Schedule appointment and close when you meet them. Get paid and do this all over again.

If you don’t have motivated sellers calling you consistently, your journey as an investor will be tough irrespective of how well you know your techniques. Real estate investing will make you rich if motivated sellers are calling you off the hook. The choice to build the strategic marketing campaigns that will make that happen is up to you.

by Preston Ely

Times they are a changin'.

Whereas in 2005 finding a buyer for your wholesale deal was easy, we are now faced with a much more challenging predicament. I have personally coined this annoying situation as "Reality."

"Reality" sucks. We all know this. Normally I can effortlessly bend it to my will, but it's actually putting up a pretty good fight this time. You see, what I want it to do is put things back the way they were a couple years ago. A couple years ago, if I so much as sneezed I would have rehabbers (buyers) lined up around the block thinking that was a secret signal that "the deal was in," or something. Here's a typical scenario from "back in the day" (which was a Wednesday by the way):

Rehabber #1: He sneezed. It's on!

Rehabber #2: Oh hellz yeah. It probably has at least $9,000 of equity in it just like the last one. I'm paying cash.

Rehabber #37: You guys are idiots. He has a cold. It doesn't mean anything (as he secretly shimmies his way closer to me while butting everyone else in line).

Rehabber #1: How do you have that much cash?

Rehabber#2: I refinanced my house and pulled the equity out. Duh. Where does anyone get money from these days? Idiot. I bought my house in 1999 for $125,000, and it just appraised for $750,000. I did a 125% LTV cash out re-fi with negative amortization at .0027% APR so my payment is only $1.75 a month. They wrote me a check for over $600,000. Cool huh? Have you seen my new boat?

Rehabber #1: But you only make $35,000 a year as a fire fighter.

Rehabber #2: I know. Isn't America amazing? I love this country. My payment goes up to like $19,000 a month at some point. I forget when. I'm sure it'll all work out. I think I'm gonna bid $10,000 over the asking price to make sure I get this one.

Ah the glory days. I'm not gonna lie - it was fun to be a wholesaler back then. And you know what? It's still fun! We simply have to adjust our sails and do things a little differently is all.

Up until about a year ago, the only thing I did to sell my properties was blast out an email to my investor's list. That was it. I would then choose between 19 different offers that I would receive on each deal. I'd always pick the buyer who I felt was going to be the least amount of hassle (namely - whoever was paying cash and closing quickly).

This is not enough anymore.

The following is exactly what you must do if you have any hopes whatsoever of making big money wholesaling real estate in this current market:

Create A V.I.P. Program For Your Buyers And Let Them Know About It

People love to feel special. I know I do. And they love to feel special because they are special. If they were hairy monkeys, they would love to feel like hairy monkeys. If they were squishy jellyfish, they would love to feel like squishy jellyfish. But they are not hairy monkeys or squishy jellyfish. They are special humans. And if we make them feel like special humans, they will like us more and be more inclined to buy.

Call All Your V.I.P. Members In Advance On All Deals

This is a pain, and it almost qualifies as work in my book, which is why I never used to do it. But oh well. We gotta do it if we want these houses sold.

The way a buyer gains membership into your exclusive V.I.P. program is to simply buy one of your properties, and close on time. That is it, and that is all. Simple enough? I have people all the time ask me to call them in advance when I get deals in. Well tell these people that you only do this for your V.I.P. members. Explain to them how they can be a part of this elite group. Explain to them that they are currently very "un-cool" by not being on your V.I.P. list. Show them how to be cool.

Give Your V.I.P. Members A Discount

Here is how it goes: You get a new deal in-house and decide you want to make $12,000 on the flip. Your purchase price with the seller is $100,000. Before blasting out the email and whatever else it is you are planning on doing to market the property, you call every single person on your V.I.P. list.

"Hey - Sam! Sammy Sam! Sammaaaayyyyy! What up, Dawg? Listen, I got this new hot, hot property that you have got to check out asap. I'm going to start marketing it tomorrow, but I wanted to give you the personal heads up because you're fabulous and I love you more than all the rest. It'll be sold for $115,000, but we'll give it to you for $112,000 since I know you can close quick. Check it out and get back to me, alright?"

It's just that simple. You will sell more properties this way. Trust me. People are more apt to respond to a personal "insider" phone call about a "new" deal than they are to a mass email that goes out to 2000 people.

Make it happen.

by Vena Jones-Cox

In almost every seminar I’ve ever attended, a lot of time has been devoted to teaching attendees how to find good deals. Because deal-finding IS so crucial to one’s investing success, I recently decided to look back and see which methods have generated the most deals and the best deals for me. In reviewing the 150 properties I’ve bought or flipped over the last 5 years, I was surprised to find that many of the “traditional” sources of great deals haven’t worked for me, while some less obvious methods have been great lead generators. I’d like to share with you the results of my little inventory.

Good: The Multiple Listing Service. The MLS is essentially a catalog of all the properties listed for sale by brokers. Needless to say, some of them are good deals for investors, and some aren’t. The trick is to ferret out which properties have motivated sellers without making offers on all of them. I’ve honed this skill through years of translating agent lingo like, “Handyman’s special” (looks bad, smells bad, has at least one major system that doesn’t function), “needs TLC” (ugly, but not smelly, and everything works).

Why it works: Properties listed in the MLS are for sale. This may seem like an obvious statement, but some of the other methods touted as great ways to find deals involve locating owners, then finding out if they want to sell. Properties in the MLS also have the advantage that all of the information about the property is pretty much laid out for you - a major time saver. And, with the sophisticated, computerized access available to your agent, it’s a matter of a few keystrokes to view all of the properties that are handyman’s specials, or bank-owned, or in estate, or priced under a certain dollar figure - whatever you’d like to concentrate on.

Another reasons that the MLS has worked so well for me is that I am generally in the market for really ugly properties. Coincidentally, these are the same properties that most agents prefer not to spend a lot of time with. In many cases, they’re downright cooperative - particularly when I’m offering all cash and a quick closing.

Bad: Direct mail to real estate agents. In 1994, I had the brilliant idea that I might be able to find MLS-listed properties even faster if I simply let agents know what I was looking for. So I purchased 1,200 agent names from the Board of Realtors and generated a 3-part mailing send to every agent in town.

The theme of this campaign was this: if you, Ms. Agent, have a property listed that fits my criteria, I’ll make an offer and you get to keep the entire commission. Out rolled my brilliant campaign -all mailed first class, incidentally - and in came the phone calls. All 7 of them. That’s right. The week after the first letters went out, we got 7 calls. We had already made offers on three of the properties; two were out of our price range; and two were overpriced listings about to expire.

The next mailing generated even more results - about 15 calls - all basically in the same categories. The final mailing, a postcard, received no notice at all. Basically, I wasted about $1400 on a campaign that generated absolutely nothing.

What went wrong: I still think that this idea has some merit, but if I do it again, I’ll make some major changes. First, I’ll target only the 200 or so agents who list the types of properties I buy. Second, I’ll do a better job of writing the letters, emphasizing how the agent and his seller would benefit from working with me. Third, I’ll make my campaign a continuous one throughout the year, testing different letters for response and mailing the best to the same agents over and over. And lastly, I’ll personalize the campaign by following up with a phone call to the 50 or so best prospects. Oh well, live and learn.

Good: Ads in the Yellow Pages. For 8 years, I’ve had an ad in the “real estate” section of the Yellow Pages. Each year, the ad has had some variation of the wording, “I buy houses - all cash”. This ad only generates 3-4 calls a month, but for some reason the quality of the calls is better than those that are generated by any other method I’ve ever used. The sellers tend to be motivated, cooperative, and have unlisted properties.

Why it’s worked for me: I love that you deal with these ads once a year, then forget ‘em. While they’re pricey - up to $3500 per year - the phone company will generally bill you monthly for the cost. In addition, as one of the very few ads in the phonebook that promise to buy houses, I haven’t got much competition.

Bad: Advertised FSBOs. Properties For Sale By Owner, a.k.a. FSBOs, are a favorite for some real estate investors. I, on the other hand, have never purchased a property from an owner who advertised his property for sale rather than calling me.

I’ve found several problems with trying to buy FSBOs. The first is that some are not actually for sale. Some FSBOs are just “testing the market to see what kind of offer’s he’ll get. Other FSBO sellers are very motivated to sell, but don’t list because they want to keep all of the money from the sale. They don’t want to pay a commission - but they don’t want to take a lower price, either. And sometimes a seller chooses to try to sell their property by themselves because they owe too much to pay a 5%-7% commission, even if he sells it at full price.

If you are buying expensive homes creatively, these sellers are ripe for the kind of solution you offer. My strategy is to buy ugly houses cheaply and for cash, and I just don’t find this type of deal in advertised FSBOs.

Good: Flyers to Targeted Neighborhoods. Last year, I had 10,000 double-sided “I buy houses” flyers printed. I hired someone to put this flyer in the door of every one, two, or three family property they saw in my “farm”. Every 3 weeks, 3,000 of these flyers were delivered, and the response from qualified sellers was excellent. For a cost of less than $500, I made two deals that netted over $6,000.

Bad: Billboards in the same neighborhood. Here’s a lesson in messing up a good thing: hot on the heels of my massively successful flyer campaign, I decided to spring for four large billboards in the same neighborhood. The problem was that my marketing budget is only so big, and buying the billboards meant stopping the flyers. Still, I figured that the billboards would get more attention anyway, so I forked over the $1,800 and got…

Absolutely nothing. Not one single phone call. Not even from an unqualified seller. Not even a wrong number. Nothing.

The Moral? Stick with What works
.
Good: Flapping my gums. Luckily, talking - a lot - is something I have little problem with. Laugh if you will, but my willingness to talk about what I do to anyone who will listen - or even pretend to listen - has made me a lot of money.

For instance, when my new hairdresser asked me what I did for a living, I responded that I buy and sell houses. His immediate reaction was, “really? How pretty do they have to be?” Long story short: I bought his unwanted junker house for $4,000 and sold it for $7,000 the same day. When my attorney wanted to know what type of assets I wanted to protect, I told him about my house-buying business. Four months later, he referred a client to me who sold me a $35,000 property for $12,000. You get the picture.

Bad: Using only one lead generator at a time. In my experience, it’s best to use at least 3 different ways of finding deals at the same time: preferably two you’ve used before with some success, plus one that you’re testing. Which brings us to

Ugly: Not knowing which of your deal-finding strategies are working, and which aren’t! If you’re going to spend money on flyers or ads or telephone pole signs or whatever, it’s very important that you pay attention to which methods are generating good leads, and which are duds. In looking over my own deals was very surprised to discover how many great deals came from attorney referrals - a strategy that I haven’t pursued aggressively, but will in the future. If you aren’t tracking your lead generators to discover which are working and which you should give up, you’re wasting time and money that could be put to use making you deals.

by Ben Innes-Ker

Go to just about any town or city in the country and you’ll find real estate entrepreneurs and investors like yourself working far more than they should for the return they are getting. And this despite all the promises of “fast cash” and “easy money” that sold the courses that got them into the business in the first place. You see, the reason many Real Estate Entrepreneurs don’t do so well is not because of lack of intelligence or their willingness to work hard. It is simply due to being focused on the wrong area of their business. We come out our training very “deal” focused, and not motivated seller focused.

If there is one thing that is the mark of someone experiencing problems in our business, it is that they cling to marginal deals. This is directly related to not having enough qualified leads to work with. You know. You only got two or three interested sellers even talking to you in the first place, so if you want to eat you better close those deals! And that sets up the worst of all scenarios; a desperate buyer chasing a luke-warm seller. The solution to this problem is to have a continuous flow of sellers calling you so that you have a choice of who you want to work with. With so many people calling, you are in the position of not needing any one of them. If any particular seller is inflexible or difficult to deal with, you can legitimately walk away from them knowing that you having another seller to move on to right around the corner.

Where this leads in your deal-making and business is after a while you only talk to the most motivated people with the nicest houses where there is the most potential for maximum profit, people who are almost pleading with you to take their house! After all, it makes little sense to speak to anybody else. These deals are the cream of the crop. People whose houses have diminished in value in their eyes because they now want something else more, and their continued ownership of the house is preventing them from getting that something else.

These are your motivated sellers. And they are the only people you should ever consider dealing with. Try calling a seller who is still emotionally attached to their house with an offer involving creative financing. Your offer is an insult to them. But it is a godsend to a seller whose life is elsewhere now and no longer wants his house.

Well how do we get so many people to call? And how do you get the right people to call? The answer lies in the basic principles of Direct Response Marketing, and Emotional Direct Response Copywriting.

As business owners our overarching goal is to make the most profit, incurring the least cost, with (preferably) the least effort. As Real Estate Entrepreneurs that means talking to motivated sellers as much as possible, avoiding time-wasting unmotivated people as much as possible, and using a system to deliver those results predictably and consistently for us. Nothing achieves this better than Direct Response Marketing! With Direct Response we decide who our best prospect is first, attract only them, then put a message in front of them that is more difficult to ignore than it is to respond.

A very successful direct marketer named Gary Halbert sums this up succinctly by asking a question. The question is: “if you were in business, say the restaurant business, and you could have one ultimate advantage over the rest of your competition, what would that advantage be?” People usually fumble around with things like best service, best food, etc. But no, that’s not it. The answer? “A starving crowd”. So obvious. So simple.

By targeting precisely the high probability sellers (i.e. the starving crowd) you want to go after, putting a piece of paper in front of those people with a message on it that speaks directly to a burning frustration they are experiencing, and then tells them exactly what to do to get relief from that pain, your odds of being on the phone with a motivated seller go way up, as the odds of you wasting time with unmotivated people still in love with their house go way down. That’s what we want. Only real motivated (”starving”) people calling us one after the other, uninterrupted, so we can concentrate on our most profitable business activity; CLOSING DEALS.

Mastering the basics of Direct Response Marketing will take you from wherever you are now to a rare place in the business world; having predictable, reliable, profitable marketing systems that will provide you with all the deals you want.

by David Whisnant

One of the strategies that is in almost every real estate course involves finding a torn-up and ugly property at a cheap price, pay someone $300 to clean out the personal belongings of the prior owners (if you even do that much), and then resell it to a homeowner as a “fixer-upper” with little or no work. This type of deal seems to benefit everyone. You get a nice quick profit, and your buyer gets the house for a good price.

We love flips, and we’ve done many. However, you should be aware of a potential hurdle that you have to get over on this type of deal. With the information in this article, you can sell your ugly properties for more money, and to the correct buyer.

If you are selling the home to a homeowner, you generally will need the appraisal by their lender to say that the house is in “average” condition. This means that the home doesn’t have to be cosmetically perfect, but it also can’t be a total wreck. Nor can it have significant repairs that need to be made. Basically, it must be habitable, as a reasonable person would view habitable.

The “average appraisal” requirement almost sunk a deal for us when we decided to flip a foreclosure that we bought and sell it “as is.” It needed $25,000 in work. With that work, it could be sold for $160,000. We paid in the 80’s for the home, and priced the house for $120,000 “as is,” receiving a contract the same day. The house was not perfect by any stretch of the imagination. Problems with the house included broken windows, rotten exterior wood, no light fixtures (all removed). Some interior doors were torn off their hinges, significant holes in interior walls, and there was no carpet (only plywood floors) in the den.

We typically would market a home like this to another investor, but decided to try to retail it (selling to an owner occupant). The house was in a really sought-after neighborhood, and we knew we could get top price for the property from someone who was looking for a fixer-upper to live in.

The loan process was smooth, and the buyer qualified with no problem. The only condition left for getting the loan was a satisfactory appraisal, which meant that the house had to be in “average condition” according to the lender.

The appraiser came out to the house and almost killed the deal. The appraiser graded the property as being in “poor condition.” His report stated that all broken glass had to be fixed, that the plywood floor had to be covered with vinyl or carpet, that the exterior rotten wood had to be repaired and replaced, and the holes in the wall needed to be patched and painted to match the surrounding walls. He also took issue with the dishwasher, which had been kicked in, and the central air conditioning, which did not work. His opinion, and thus that of the lender, was that all of these items had to be fixed before the loan could be made. I thought this might have been a problem with this particular lender, that their requirements were more rigorous than most. I called my personal mortgage broker and he confirmed that residential lenders required average condition as a rule regardless of whether or not the house appraised for the loan value in its current condition.

Of course, I did not want to have to make all of these repairs, and sell if for only $120,000. If I was going to do all of that, I might as well rehab the house and get the higher money that it would bring fixed up. The buyer whined and complained, and stated that he couldn’t see fixing these items at his expense prior to closing. He didn’t want to invest his time and effort in case the house couldn’t close for some reason, which was reasonable.

To make a long story short, I decided that the other appraiser was too picky, and persuaded the lender to call a different appraiser. Basically we reached the same result, but the a/c and dishwasher did not have to be fixed. We did have to fix the windows, cover the plywood floors, and perform some of the other repairs. I offered to fix the windows, and do half of the repairs if the buyer would install the carpet and handle some of the repairs. He agreed to do so, and we closed.

You can make these deals work out, but do whatever needs to be done to get the average appraisal before putting it on the market to flip. I know that I could have gotten more money for the property if I had done these repairs before selling. If I had known this information at the time, it would have put an extra $10,000 in my pocket. It was a good deal for me at the price it sold for, but doing the repairs would have made the process go quicker, and probably persuaded some more timid “fixer uppers” to bite at a higher price.

Sometimes It’s Better To Sell To an Investor, or Educate Your Buyer on the Right Type of Financing

When we have flip properties that really need a significant investment to get into acceptable condition for a lender’s appraiser, these generally need to go to investors. If you’re going to take the time to fix a long list of items, you might as well finish the job and sell it as a rehabbed property. Investor loans usually do not require the house to be in “move-in” condition. The downside of this is that most investors will not pay as much for the house as an owner-occupant might, but if you really don’t want to do much work to the property, this is the way to go.

The total wreck property can be sold to an owner occupant “as is” if that owner occupant gets a property rehab loan. Under such a loan, the property would be appraised for the value that it would have fixed up, and the loan would be based on that value with the repair money left in an escrow account to be disbursed as the repairs are made. In real life, the example would work as follows: the buyer finds a property for $70,000. Fixed up, it would be worth $100,000. There are $30,000 worth of repairs that need to be done. The loan would be made for up to 95% of the improved value, or $95,000. The loan would thus be made to buy the property for $70,000, with $25,000 left in escrow to be disbursed by the lender after their appraiser verifies that work has been done on the house. As you are probably starting to guess, these loans are not obtained by many homeowners. These loans are complicated to apply for, and to underwrite. Most homeowners don’t really know about them, much less how to get them. If you are trying to flip a property like this, getting some information from your mortgage broker on this type of loan to give to prospects is a must if the house is torn up.

Conclusion

The quick flip is one of the most fun transactions in real estate. You can make almost as much on some of these then if you rehabbed and resold the property. Generally, a fast nickel is better than a slow dime. If the property needs repairs, you may want to do a few of them before putting it on the market so that you can get an average appraisal. In speaking to different appraisers, these requirements are: absolutely no broken out or boarded out windows, coverings of some kind on plywood floors, and light fixtures in all rooms, or blank plates over where light fixtures are wired. Exterior rot must also be repaired if particularly bad, as on our home. If the property is totally destroyed, you might do better to sell to an investor, rehab it yourself, or educate your owner-occupant on how to get a rehab loan so that the condition of the property doesn’t kill your deal.

by Bill Bronchick

In today’s market where there are so many foreclosure and bank REO sales, figuring out the real value of a property can be difficult. The comparable sales method is the most commonly used — and still the most accurate one — to determine the value of single-family homes, condominiums and smaller rental buildings (two to four units).

Start by researching information about sold properties on your local government Web sites for your target area. Many tax assessor’s offices and county courthouses offer searchable online databases that allow you to view the prices for properties within a specific area. They usually list full details about the properties, including square footage. Plus, subscriber Web sites such as Electronic Appraiser (www.electronicappraiser.com) give you detailed information, particularly in areas where online data is scarce.

Free Web sites such as Zillow (www.zillow.com) also offer property data, but the information is less detailed than the paid sites. For example, the seller’s name may be missing, which could be relevant if the seller was a bank, as in the case of a foreclosure sale. If that’s the case, it ca’’t be considered a comparable sale because the property was sold in distress.

Be careful about using Web sites that offer a computer-generated valuation. These are called automated valuation models (AVMs), which aggregate sales data from comparable properties to determine an estimated price. While AVMs can be a benchmark for determining value, they can be off by as much as 10% or more. With a little research, you can pinpoint the value to as close as 3 to 5% percent.

The most useful computer database for getting information about comparable properties is the local MLS. This database shows the number of days on market and includes notes that indicate whether the property was updated, whether the seller offered concessions on the sale and so on. This additional data is generally not available through other sources, so asking a real estate agent or appraiser to help you will be crucial, because most MLS systems aren’t accessible to the general public.

While many factors come into play when you’re evaluating a residential property’s value by “comps” (comparable sales), the three key factors are location, size (square footage) of the home and the number of bedrooms and bathrooms. Obviously, you’ll need to look at many other aspects before you can pinpoint the exact value of a property, but these are the “big three”. You should be able to look at comparable sales involving properties with these three factors and get a good idea of the value of the property you’re selling

Location

Location is extremely important when you’re comparing sold properties. A professional appraiser typically looks at houses within a one-mile radius or less, and so should you. In the case of a subdivision — where the houses are all similar and built in the same time period — you need to compare similar houses with similar styles in the same subdivision to get an accurate valuation. If there’s a wide mix of properties in the subdivision, you may need to go outside of it to get comparable sales. Just be careful with “dividing lines”. Geographic lines such as opposite sides of the river, the park, or a main highway can be invisible dividing lines that put the property in another school district and may not garner equitable comps.

Square Footage

When determining a home’s value, be sure to evaluate the square footage. Note that appraisers typically look at homes that are within 20% up or down in square footage as comparables. Generally (especially within a subdivision), most homes fall within a fairly limited size range. Therefore, you should be able to develop a good gauge for the selling price of homes in those particular sizes.

Of course, not all square footage is created equal. Most people think that if a house has 1,000 square feet and is worth $100,000, then the 1,100 square-foot house next door would be worth $110,000. Wrong! The extra 10% in square footage equals only a few percentage points in value. If these two houses offer the same location, style, and number of bedrooms and baths, the 10% additional square footage won’t change the valuation much. Why? Because there is a fixed cost on a house based on the value of the land, cost of construction, sewer, subdivision plans and other factors. An extra few hundred feet of space involves very little cost — only wood, nails, carpet and possibly some minor electrical and plumbing costs.

Rooms

The number of bathrooms and bedrooms is more relevant than simply the raw square footage. In other words, a three-bedroom home with 1,200 square feet might be worth more than a two-bedroom home with 1,250 square feet. It also matters where the bedrooms and bathrooms are located – on the main floor or the basement. While finished basements can add value, the amount of that value is less than it is for above-ground living areas. Plus, this greatly varies depending on different regions of the country. In humid areas, below-ground living space isn’t as valuable to homeowners as in dryer areas of the country.

To determine a home’s value using comps, also look at the quality and number of bedrooms and bathrooms. Three-bedroom homes are generally a big plus over two-bedroom homes, but four or five-bedroom homes don’t add as much over a three-bedroom if they are roughly the same size in square footage. Likewise, two bathrooms is a big plus over one bathroom, but three or more don’t add as much value.

When comparing bathrooms, make sure you understand the different types of bathrooms and compare them correctly. A full bathroom includes a shower, bath, toilet and sink. A three-quarter bath has a shower but no tub, plus a toilet and sink. A half bath has a toilet and sink but no tub or shower. A three-quarter- or full-bath create roughly the same value, particularly if another bathroom in the house has a tub. A half bath has less value unless there are enough other bathrooms in the house. Also, a five-piece bath (separate shower and tub) generally wouldn’t add more value than a regular full bathroom with a combination shower and tub.

Other Factors

There are other factors to consider that affect the value of a home, but generally you’d give these less weight than the location, size and number of bedrooms and bathrooms. Some houses have one-car or two-car garages, some have carports and others have neither. The garage factors in some value, depending on the rest of the neighborhood. For example, if the neighborhood comps all have two-car garages, this can affect value as much as 10% on the subject property if it only has a one-car garage or no garage. However, if the houses are all small and there’s a mix of garage options, the garage won’t be as big of an issue. Likewise, a four-car garage in a three-car-garage-neighborhood probably won’t count for much either. One exception is with condominium developments. Parking spots or garages are generally sold with condominiums and can have substantial value, particularly in large cities where parking is limited to the street.

In addition to looking at properties sold in your target area, you need to look at properties that are for sale. While asking prices are not sold prices, it will give you an idea where your local market is heading - up or down. Also, keep in mind that if your strategy is to flip the property, the properties for sale are your direct competition and thus the asking prices are very relevant. For example, if you find properties that have sold for $150,000 but the current inventory on the market is prices at $140,000, the asking prices of your competition become just as relevant, if not more, as the sold prices of other homes.

If you regularly invest in the same neighborhood, take some time to build yourself a “due diligence” notebook of properties that have sold, are under contract and are for sale within your area. Have your realtor check the MLS every week for new listings and sold properties so that your information is constantly up to date. Remember, you are only as good as your data, and the more information you have, the more accurate your values will be!

by Bill Bronchick

The market is slowing and investors are drowning in house payments. Is there an end in sight? Probably not. But, is there something you can do about it? Certainly dropping the price until you get it sold it one way to do it. I've got a better solution - sell the house.

What amazes me is that most sellers don't sell their houses. They advertise houses, they list houses, but they don't sell houses. In a good market you can rest on your laurels, but in a soft market you have to be willing to do something different. Stop whining about the slow market and start selling your houses!

There's 5 tips for selling a house faster in a slow market:

1. Make Your Listing Look Great

Most MLS listings are boring, informative and don't sell the house. That's because most people leave it up to the real estate broker to create the listing, which is communicating with other brokers. Instead, take charge of your listing. Make sure the pictures are great, not average. Photoshop the pictures so there's excellent photos of the front, the kitchen and the most appealing features of the house. If there's a grey sky, wait until there's a blue sky. If there's a dead lawn in the photo, pick up that Photoshop paint brush and make it GREEN. When a buyer's agent is scanning the MLS with their clients, you've got two seconds to catch their attention and initiate a showing - make a good first impression!

2. Use Lots of Directional Signs

A sign in front of your house is good if you are on a main street, otherwise you have to get traffic by your house. Use dozens of directional signs from the nearest main road to your property. On weekends, tie bunches of balloons to the main sign on the road.

3. Use a Professional Sign in Front

Don't, I repeat DO NOT use the cheap sign you find at Home Depot, particularly the info tube that requires you to roll up your flyer. Invest in a solid metal-framed sign that has an attached flyer holder that makes it easy for people to pull out your flyer. If the house is vacant, have an arrow with the words "More info" pointing to the house, and put your flyer box on the stoop of the home. This will get people peeking into the home, which is what you want.

4. Get a Great Flyer

It amazes me how boring and technical most home information flyers are prepared. The lazy real estate broker usually prints the flyer in black and white off the MLS listing computer. Instead, use a full color flyer with excellent high-resolution photos of the inside. If you are not a digital camera buff, go on craigslist.org and hire a high school kid to shoot and edit some photos. Sell the features of the house, not the facts.

5. Sell People on the House

Most sellers show houses, and say, in effect, "Ya'll come back now". Let me ask you a question… is this what car dealers do? Of course not! The cardinal rule of a car salesman is to never let a customer off the lot. Why should selling houses be any different? If you elicit the right information out of the buyer to understand that he is in the decision making mode, push him to make a decision.

Can you remember walking into a car dealer thinking to yourself, "I'm just looking, I have not made up my mind yet"? And then, for some inexplicable reason, you left with a new car! Why? Because that salesman sold it to you, he didn't just let you test drive.

Not all buyers are ready to make a decision, but if he's been looking at a few houses for a few weeks, he may be ready to make a decision, even if he says otherwise. Be ready with a contract and try to get the buyer to leave you a deposit check, even if it is refundable. Get as much commitment as you can; instead of showing the property, sell it!

by Alan Brymer

I’m all about getting more for doing less. Not (usually) because I am lazy, but because by spending less time on one thing, it frees me up to do something else that I couldn’t have done otherwise. Or, by spending less on something, it means I have more money to spend on other things. And when you’re talking about motivated seller prospects, more is better.

Yet we investors continue to advertise in ways that require us to find and win over new customers over and over again, every time. Think about it — has a seller in distress ever sold you his house, and later, because you did such a great job the first time, decided to fall behind on payments again and sell you another house? It doesn’t happen (with the possible exception of finding a burned-out landlord who wants to dump his entire portfolio on you).

This means that time and time again, investors have to run ads, send out our message, build trust, and get people to respond. That sounds like a lot of work, and it is! Ask any business owner…What is easier to do — to win over new customers or to get a repeat sale from the same customer? The repeat sale is much easier because the hard part (ads, message, trust) has been done already. (And, of course, our “customers” are sellers who we buy from, not sell to, but the marketing principles are the same).

Running ads costs money and takes time. Over and over again. I want to suggest a different way to generate leads, that isn’t going to be the main method you use, but will probably get you qualified leads for years to come, with a minimal cost. I’m talking about referrals.

From whom? Not from people you have bought houses from before. Because even if you did everything you said you would, bought their house on the date of their choice, and even hired a moving company to help them get into their new home in style, Average Joes only know so many people. Motivated sellers are just good, regular people. They hardly know any motivated sellers anymore than you would if you weren’t actively searching for them for a living.

Our business is not normal. You won’t find many mailing lists of motivated sellers. There aren’t TV shows made for motivated sellers during which you can run commercials. There aren’t chat rooms where motivated sellers hang out and talk where you can easily find them. This is why I recommend fulfilling your promises to those you buy houses from, but don’t expect them to send a flood of referrals your way. They just don’t come across other people in distress that often, and they frequently move out of state, never to be heard from again.

So who can you get referrals from? People in a position where they meet potentially motivated sellers. Think about who they might be. I’m going to name a few types, but I’m sure I’m missing some (or saving them for my next course). So think of the reasons why sellers become motivated, and then think of the types of people who might know about their problems.

Wholesalers are obvious, and probably the most consistent producers of referrals since they are actively searching for them every day. And frankly, some of them are geniuses at finding tons and tons of potential deals. How they do it, I’ll never know. Why they don’t fix up and sell the houses themselves, I’ll never know (and will never ask). But they find them, so be sure to network with them as much as possible. The only downside is that they will want to be paid, and you might make $5,000 - $10,000 or so less than you would have, but so what, as long as your profit is acceptable.

Some less obvious types of people to get referrals from are bankruptcy attorneys, probate attorneys, realtors, and the person in charge of loss mitigation in small banks (big ones have call centers for that purpose several time zones away). I’m going to go into more detail later about the means by which you introduce yourself, deliver your marketing message, build a relationship with them, and get them to respond (does this process sound familiar?).

For the time being, just understand that it makes more sense to do the work with these people once, with some follow-up from time to time, and have them refer motivated sellers over and over again over time. This will allow you to get more (deals) for doing less (hustling and bush - beating), which, as I said, I’m all about doing in just about every endeavor.