by Thomas Lucier

In this article, you'll learn how to use inexpensive property search methods that don't require your physical presence in order to be effective, but which allow you to be at the right place at the right time by:

1. Using the Internet.

2. Placing classified property wanted ads in daily newspapers.

3. Mailing letters to owners of vacant properties.

4. Obtaining insider information on properties that aren't advertised from your
own spy network of paid informants, commonly known as bird-dogs.

5. Paying finder's fees to people who tell you about properties that you buy.

Develop an Aggressive Five-Pronged Property Search Plan

In order to beat your competitors to the most profitable properties in your local real estate market, you need to develop an aggressive property search plan that involves the following five property search methods:

1. The Internet.

2. Property Wanted ads.

3. Bird-dogs.

4. Finder's fees.

5. Direct mail.

Use a Property Wanted Web Page to Find Properties Online

First and foremost, use what I commonly refer to as the great equalizer–the Internet–to search online for small, mismanaged rental properties. The most efficient way I know to do this is by having a property wanted Web page on your Web site that uses URL forwarding for a property wanted domain name. If you already have an existing Web site online, for an annual fee of around $50, you can have your property wanted domain name forwarded to a specific Web page on your Web site.

For example, when you use URL forwarding, or domain redirection, you can link your property wanted domain name, directly to a property wanted Web page on your existing Web site. This way, you avoid the cost and aggravation of building an entirely new Web site for your property wanted domain name. As an example, my company, Home Equities Corp, owns the URL or domain name, www.rentalpropertywanted.com, which has URL forwarding to the Property Wanted Web page at www.homeequitiescorp.com.

This means that whenever the domain name, www.rentalpropertywanted.com is typed into a browser, the URL is automatically forwarded to the Home Equities Corp Web site, which is the destination domain.

Link Your Property Wanted Web Page to Other Web Sites

Also, link your property wanted Web page to other Web sites that you, or your friends and business associates own. For example, on my Web site www.floridalandlord.com, there's a Tampa Rental Property Wanted button that's linked to the Home Equities Corp Property Wanted Web page. By doing this, I'm placing an online property wanted ad right under the nose of all of the residential rental property owners in the Tampa Bay Area who visit www.floridalandlord.com and want to sell their property.

All they have to do is click on the Tampa Rental Property Wanted button and follow the instructions to submit their property for consideration.

Use Classified Property Wanted Ads to Find Properties

I've been pretty successful over the years using classified property wanted ads to find non-advertised properties to buy. Most people call me because they don't have the time, desire or money to market their properties themselves. Or they don't want the hassle of listing their property with a real estate broker. Sure, I've received more than my fair share of calls from flakes, loonies and other assorted crazies. But I've been willing to put up with the hassle and inconvenience because I've usually found the type of property that I was looking for.

How to Write a Classified Property Wanted Ad

When writing your classified property wanted ad, use as few words as possible to get your message across. Nowadays, most papers have a four-line minimum with each line consisting of no more than twenty-six characters. To keep your ad right at three lines, write it out on graph paper that comes already divided into small squares. This way, you won't have to waste time dilly-dallying around trying to layout your ad.

The Best Place to List Your Property Wanted Ad

To ensure you get the best possible response from your classified property wanted ad, place it in the classified real estate section under various headings such as:

1. Rental property wanted.

2. Income property wanted.

3. Investment property wanted.

4. Property wanted.

5. Real estate wanted.

When to Run Your Property Wanted Ad

When's the best time to run your classified property wanted ad? You'll have to experiment by running your ad on various days in order to find out what works best in your area. For example, in Tampa, when I run one of my property wanted ads, it's usually only in the Sunday edition of The Tampa Tribune. Why do I run my ad only on Sunday? Because I've found that I get pretty much the same response whether I run the same ad for thirty consecutive days or just on Sundays. Plus, I save a small fortune in advertising costs. The kind of response that you'll get from your classified property wanted ad depends upon four things:

1. How well your ad is written.

2. The classified heading under which it's placed.

3. The size of the paper's circulation.

4. What you say in your ad.

Test Run Your Property Wanted Ad to See Which Ad Pulls the Best Response

I highly recommend that you test run the same property wanted ad for four consecutive weeks, and then change or tweak the ad copy, and run it another four weeks to see what variation of the ad pulls the best response.

Use Bird-Dogs to Find Properties That Aren't Advertised

What's a bird-dog? It's usually someone who comes into frequent contact with problem property owners within a specific neighborhood or area, and is in a position to learn about non-advertised rental properties that are for sale there. These types of hidden properties are never formally advertised as being for sale; their availability is only made known by word-of-mouth. A neighbor, a relative, or an acquaintance may be the only one who knows of a property owner's willingness or need to sell a small rental property.

Once you recruit these type of people into your bird-dog spy network of paid informants, you'll be in a position to receive valuable insider information on non-advertised rental properties without the general public, your competitors, ever knowing of their availability.

How to Recruit Bird-Dogs into Your Spy Network of Paid Informants

The best way to find bird-dogs to join your spy network of paid informants is to tell everyone that you come into frequent contact with, that you're looking to buy small, residential rental properties, and that you're willing to pay your bird-dogs a finder's fee when you buy a property that they've told you about. Here's a listing of the type of people you want to recruit into your network as bird-dogs:

1. Mail carriers
2. Trash collectors
3. Doctors
4. Dentists
5. Employees
6. Fellow club members
7. Fellow church members
8. Door-to-door salespeople
9. Delivery truck drivers
10. Tradesmen
11. Repairmen
12. Business colleagues
13. Co-workers
14. Neighbors
15. Friends
16. Tenants
17. Taxicab drivers
18. Utility meter readers

Offer to Pay a Finder's Fee

The best way I've found to motivate people to contact me with valuable information on non-advertised rental properties, is to offer to pay a finder's fee to anyone who tells me about a property that I buy. For example, my standard finder's fee is $500 cash, payable on the day that I buy the property. Why $500? That's because $500 seems to be the figure that gets the attention of most people.

I use to offer $300, but since I've upped the ante to $500, I've more that doubled the number of leads I get monthly from people calling to tell me about small rental properties. The thing I like best about using finder's fees is that I only have to pay them when I buy a rental property. In the meantime, I've got the benefit of a lot of people looking for small rental properties for me without the cost of a weekly payroll.

Use the Internet to Advertise Your Finder Fee Online

On my real estate investment company's Web site, www.homeequitiescorp.com Property Wanted Web page, there's a $500 Cash Reward button that visitors can click on to learn about how they can earn a finder's fee of $500 in cash by simply contacting me with information that results in the purchase of a dirty, neglected, run-down two to twelve-unit residential rental property in the Tampa Bay Area. I also have my $500 cash reward printed on the backside of my business cards.

Four Reasons Why I Use Direct Mail to Contact Property Owners

Here are four very good reasons why I use direct mail to contact property owners:

1. Direct mail is easy to use. All I have to do is sit at my computer, point and click, hit a couple of keys and it'll crank out one of my standard letters to property owners that just needs to be signed, folded and inserted into an envelope. I use Microsoft Office Word 2003 that can merge names and addresses with letters. And, I use window envelopes so I don't have to fiddle around addressing them.

2. Direct mail is relatively cheap to use. I'm a penny pincher. Direct mail gives me the most bang for my buck. For example, I can mail out one hundred letters first class mail for right around $60. This includes the cost of letterheads, envelopes and postage, the whole shebang.

3. Direct mail is quick. I usually get responses from owners interested in selling within two weeks from the date I mailed the letters out.

4. Direct mail is effective. It allows me to make direct contact with owners of small, mismanaged rental properties without having to go through third parties such as real estate agents

by Nancy Chadwick

If it’s done correctly, a Comparative Market Analysis (CMA) can be the next best thing to an appraisal in approximating the value of a property. The purpose of the CMA is to analyze data from properties similar to the subject that have sold recently in order to project the realistic price at which the subject property would sell. RE agents and brokers tend to develop their own methodologies for doing CMA’s. I’m not an appraiser, but what I’ve always done is make upward and downward adjustments to the projected value of the subject based on features and characteristics of the comparables I use. Admittedly, these are subjective, and some are based on “gut” feelings while other adjustments come about through rules of thumb I have developed from experience. But putting a value on real estate is an inexact science at best, and this methodology has worked pretty well for me over the years in CMA’g residential properties. I use a completely different method for projecting the value of land and property with residential development potential.

How can you tell if the CMA is worth more than the piece of paper it’s written on? Here are some things to look for.

Location

The RE agent or broker who does the CMA should be very picky about selecting comparable properties. This means looking first for properties in the same neighborhood or subdivision since these are likeliest to be virtually identical to the subject. Differences in location can be very difficult to accurately adjust for, so the comps should resemble the subject’s location as closely as possible. If it’s necessary to look beyond the immediate surroundings, the search shouldn’t extend into other municipalities and school districts since property values there may differ significantly. Before I include a property as a comp, I drive by it.

Time

Next is the time element. When did the potential comps close? I try to use comparable sales data that is no more than 6 months old so I don’t have to adjust for older sales. However, this depends on current conditions, so if it’s a slow market, I may have to reach back farther in time. In addition, I only use closed sales, not those that are active listings or are pending closing. A sale isn’t a real sale until money and title have changed hands.

Housing Style & Use

Different housing styles can result in different values. So I try to stick with potential comps that are the same architectural style as the subject – 2-story, rancher, twin, townhouse, contemporary, split level, cape, etc. Land use or zoning needs to be the same or comparable. I wouldn’t compare a property zoned for residential with a commercially zoned property, even if the “comp” consisted of a residence.

Size

Size, both of the house and the lot, are relevant. For differences in house square footage (at or above grade areas only), I use a factor of around $35/SF. This is not intended to represent actual building cost but rather my estimate of the value that buyers in my area would place on the house size. Likewise, I use a value of about $10,000 per acre for lot size. So if the subject is on a 1.5 AC lot (and consists of only one separately deeded parcel), and one comp is on a half-acre lot, I would add $10K to the estimated value of the subject. Building lots in my area sell for much more than $10K, but in this example, the difference between the subject and the comp is just excess land area, not a buildable lot. If the subject or comp consisted of one or more separately deeded parcels (buildable lots), then the amount of adjustment would be my estimated value of the building lot.

Rooms

I also adjust for differences in the number of bedrooms and baths, as well as for family room or not, garage capacity, central air, public v. on-site utilities and basement.

Condition and Amenities

Adjusting for these elements can be tricky because my evaluation of potential comps is usually based on drive-by evaluations supplemented by MLS and database information and conversations with the agents involved in the transaction. Things I take note of include maintenance-free exteriors, decks, type of flooring, new or remodeled kitchens and baths and other capital improvements.

Age

There are many “other century” (18th and 19th century) structures in my area. If the subject, for instance, is contemporary (20th century vintage or later), I use a value of $1K for each year of age differential. E.g., the subject is 20 years old and one comp is 8 years old. I subtract $12K from the estimated value of the subject. On the other hand, if the subject is 18th century, I try to find comps from that same century, and use a value of $25K for each 50 years of age differential.

My CMA takes the form of an Excel spreadsheet. There’s one column on the subject and 2 columns for each comparable. The second column for each comparable contains the + or – dollar adjustments for each property characteristic (such as, age, lot size, house SF, basement, BR’s BTH’s, garage, C/A, location, utilities, date of sale, amenities & misc). The bottom line is the range of prospective sale values of the subject after the adjustments, positive or negative, are totaled. If I’ve done my job right, the prospective sale values should fall in a relatively tight range – the spread between the lowest and highest shouldn’t exceed 5%.

by John Hyre

One of the most common questions that real estate investors ask is: Which entity should I use? The correct answer usually depends on a large number of details…the exact nature and size of the business, the investor’s source and type of income, the number of family members, etc. This article will set out some general rules for picking a structure. Your mileage may vary based on your own personal facts and circumstances.

Rule One: Limited Liability Company’s (a.k.a. – LLC’s) are generally the way to hold rentals and most lease-optioned properties.

The asset protection aspect of entities usually matters little when selecting an entity. That’s because in most states, LLC’s are cheap, provide the best asset protection and are tax chameleons, meaning that they can select how to be treated for federal income tax purposes. So when I say that a corporation works best for you, what I really mean is that an LLC that elects to be treated as a corporation is the best choice in most states.

What really distinguishes entity types is the tax treatment accorded each one. As such, choice of entity usually turns on the applicable tax rules. In fact, tax rules will determine the best entity for rentals, because they are the little darlings of the tax code. Specifically, rentals:

* sell at favorable capital gains tax rates;

* generate depreciation deductions;

* generate tax upon sale that can sometimes be paid in installments, instead of all at once;

* can be exchanged for other real property tax-free; and

* may generate low-income housing credits

We want to select an entity that preserves these tax perks. Limited Partnerships (“LPs”) and Limited Liability Companies (“LLCs”) both achieve this goal better than any other entity. In most states, an LLC is cheaper and simpler to set up and run, so it is normally preferable to an LP. In addition to preserving rental property tax perks, LLC’s are the most flexible entity. Corporations have various restrictions on who can be an investor, what kind of income can be earned, etc. LLC’s are thankfully free of such pesky (and time consuming) issues.

Rule Two: S-Corporations are usually the best way to flip properties.

First, let’s distinguish S and C corporations. A C-Corporation is taxed on its income at special corporate rates. Any income that is paid to shareholders as a dividend is taxed again. This is the famous “double taxation” that applies to C-corporations.

For example:
Trumpco Incorporated earns $10,000 in taxable income. It pays a 15% tax on that income, or $1,500, leaving with $8,500 in after-tax income. It pays an $8,500 dividend to Trump, its owner. If Trump is in the 35% tax bracket, he will pay $2,975 in taxes on the dividend, leaving Trump with $5,525 of the original $10,000.

This double tax can quickly cost corporate shareholders more than 50% of their corporation’s profits. Fortunately, the income of a C-Corporation can often be finessed to reduce the double tax. Oftentimes, creative means of getting money to shareholders (e.g. – renting equipment to the corporation, taking salaries, etc.) can also eliminate one layer of taxation.

To offset the double tax (or the administrative cost of getting around it), C-corporations have a few unique perks enjoyed by no other entity. Employees (including shareholder-employees) can get certain benefits (e.g. - medical, favorable retirement plans, tuition payments) tax-free.

S-Corporations do not get the above perks, but they also do not have double-taxation issues. As such, they are “pass-through” entities. Following the Trumpco example from above, the $10,000 dividend to shareholders would only be taxed once, at the shareholders 35% rate. S-corporations are much simpler than C-corps, and therefore cheaper to operate. They are less flexible than LLC’s, but have one important advantage: S-corporation dividends are exempt from social security taxation if the S-corporation owners are paid a reasonable salary. This feature is quite important, because income from flips (as opposed to rentals) would otherwise be subject to a 15% social security tax.

For example:
The incredible Flipboy makes $80,000 in net income from wholesale flips done through an LLC. He would pay approximately $12,000 (15% of $80,000) in social security taxes. If he used an S-Corporation and paid himself a “reasonable” salary of $35,000, he would only pay social security tax on the salary, or $5,250. The remaining $45,000 in profits would be distributed without paying additional social security taxes, saving Flipboy $6,750 in social security taxes.

Limited partnerships are also exempt from social security taxes. Arguably, LP’s are not required to pay a reasonable salary, meaning that all of the LP’s profits can be sheltered from social security taxes. The catch: LP’s are significantly more complicated than S-corporations and therefore more expensive to run. The extra benefit of an LP over an S-corporation for flips must be weighed against the cost.

Rule Three: C-Corporations often make sense for high-income individuals with self-provided benefits.

As we stated above, C-corporation can provide certain perks and benefits tax-free. If you do not have a day job (or a spouse with a day job) that provides such benefits, getting them through a C-corporation can be very efficient from a tax standpoint. Also, I mentioned that C-Corporations pay taxes based on their own brackets. For example, the first $50,000 of C-Corporation income is taxed at 15%. For people in the 35%+ tax brackets, running $50,000 or so in income through the C-corporation at a 15% tax rate can be quite favorable. I say “can be” because C-Corporations are fairly expensive to administer. Remember, the benefits must outweigh the costs (e.g. – extra tax returns, bank accounts, etc.).

I rarely place a major business in a C-Corporation. Instead, I like to see secondary businesses put into a C-Corporation. For example, a C-Corporation that manages your rentals is paid what you choose to pay it (within reason!). You can pay it enough to fund your benefits, but not so much that double-taxation becomes an issue. If you put a major business into a C-Corporation, it may make “too much” income. At worst, the double tax kicks in, costing you big dollars. At best, your tax advisor finds a way to bail the income out of the company….and charges handsome fees for the favor! In my view, it is much easier to put the C-Corporation on an “income diet” than it is to “lose” the income later on (Sound familiar?).

Rule Four: Incorporate in Your Home State

I have yet to see a Nevada entity used to hold or flip properties that justified its cost. All of the benefits promised by Nevada entity hucksters (e.g. – privacy, no state tax) DISAPPEAR because you are doing business in YOUR state. Nevada entities CAN be used to reduce income taxes in SOME states by charging your in-state company interest – talk to someone familiar with YOUR state’s rules to see if such an arrangement is legally possible AND worth the cost and hassle. Do NOT accept the word of a guy who sells Nevada entities for a living. Shockingly, he will assert that a Nevada company will save taxes, promote privacy, make you better looking and cure cancer…all without having the first clue about the laws in YOUR state. To a guy with a hammer, everything looks like a nail!

Rule Five: Your Mileage May Vary

These are general rules. Your business, personal situation or state’s laws will often make for exceptions to the general rules. Get qualified advice!

by Richard Roop

There are no magic bullets in marketing, but I have developed a system which comes pretty darn close. I reported in the last issue of this eLetter about my new postcard campaign. Here's an update:

I mailed 10,000 oversized postcards to one zip code. I saturated every home with my message. The total cost was less than $3,000. We received about 35 calls, only .35% response. But I bought 5 houses out of 35 leads on the first mailing! The response rate should remain the same or improve as I remail to the same neighborhoods, allowing them to see my message multiple times, giving my self increased credibility. Plus some the postcards will be saved, and I'll get more calls from this initial mailing down the road.

I bought one out of 7 houses for sell. I usually buy one out of 10 to 15. The increase in closing ratio, I believe, was a result of targeting the right neighborhoods and getting my entire sales message (my famous "advertorial") in their hand… and my new headline. These sellers were much more prescreened than if that called on a sign, classified ad or a regular smaller size postcard.

** $145,400 IN CASH AND EQUITY IN ONLY 6 WEEKS FOR $3,000 **

Here are the actual results:

House #1: This house valued at $134,900 fixed up. It needs carpet, paint and some trim items. Seller owed $89,000 plus $6,000 in back payments. I purchased for amount owed (subject to) plus $500, or $95,500. We have it under contract with a tenant/buyer for $132,000 "as is". We got our buyer in with the first month's rent, $3,500 non-refundable purchase plus some repairs to be done prior to occupancy. We have a positive cash flow. Equity gained: $35,500

House #2: Seller owed $106,000 plus several back payments. I bought for what the seller owed (subject to), about $109,000 with $3,000 down. The seller used the money down to get the loan current. House needed carpet, paint, sod in front yard, roof (unexpected.oops!) and some misc. repairs. The house did not sell quickly "as is" so we are fixing it up. It is offered for sale for $144,500 fixed up. The repair costs are $12,000. Because of roof, this is a tight deal on a fixer upper. Equity gained: $23,900

House #3: Seller owed $94,000 on a first, $10,000 on a second and $6,000 in arrears. We purchase for the $110,000 owed subject to. After repaired value is $159,500. It needs $15,000 in repairs. Currently being offered at the after fixed up price, "accepting offers as is". We made up the back payments and paid off second with cash generated from buying house #5 below. Has not sold as is yet so we are about to rehab. Equity gained: $34,500

House #4: This house is in great shape and valued at $157,500 with terms. We took over a nice $110,000 first mortgage subject to, put $2,000 down and the owner carried back $20,000 with no payments or interest, due in 5 years. We held a "round robin" open house for one hour and found a tenant buyer with $5,000 down plus the first month's rent. We had it cleaned and the carpet stretched. We also spent $500 fixing up the front yard. Because of the $20,000 (deferred down payment," we have a nice positive cash flow. Equity gained: $25,000

House #5: Valued at $165,000-$170,000. It is on the market for $179,500 with terms. My office may have sold it yesterday for $10,000 down to a tenant/buyer. House is in great shape, nice neighborhood. Owner bought for daughter and it had been vacant for 4 months without being marketed. He owed $18,000 on a first mortgage. I offered him $63,000 cash and $90,000 in 5 second mortgages secured by 5 different properties including his house, 3 of the houses above, and one of my "keeper" rental properties. Terms on his equity is 6% accumulated interest, no payments, 5 year call and the right to substitute collateral. He is a retired military officer and did not need income but wanted interest on his equity. I got a new hard money loan for $123,000 at 11% and walked away from the closing table with $60,000 cash(!) less closing costs. Equity gained: $26,500

Total equity gained on 5 houses: $145,400
Cost of mailing: $3,000
(Better than the stock market?)

The cost per deal for marketing is $600 per house, higher than my average $350. But I spoke to less sellers, saw less houses and can EASILY repeat as often as I want, anywhere in the country!

by Tim Randle
First, let me state that I'm not an attorney and the rest of this article is just based on my experiences so I'd advise you to contact John Hyre at www.realestatetaxlaw.com to get some solid, specific advice on your particular situation.
Also, this article is not going to discuss land trusts, which some of you may have just stumbled upon. A land trust is not an entity. Although it is frequently used in conjunction with entities, it is merely a paper device used to shield property ownership from the public.
When I first got going, the recurring wisdom was that an investor should use a C corp for cash deals. By cash deals, I mean anything that throws off cash quickly. It might be a wholesale flip, retail assignment, rehab and retail, option, etc.
There were numerous reasons why this was and is recommended. First, the C corp offers great liability protection and allows the owner to take advantage of fringe benefits, thus draining the corp of excess profits through legitimate expenses.

What I've learned the hard way is that this entity is not necessarily better for cash deals than other entities unless you're doing serious cash numbers. By this I mean that the added benefits that a C corp offers are not available to you without a ton of cash coming in.

Stop and think about it for a moment. Are you going to generate enough cash to pay normal operating expenses like salary, marketing, funding, overhead, etc. and still have cash remaining to set up company programs for retirement, medical, insurance, education, etc.?

Typically, the answer's going to be "No", at least during the formative years. The primary downside to a C corp is that any losses, paper or otherwise, do not flow through to your personal tax return. You don't get to use them anytime soon.

When I started, the secondary recommendation for cash deals was an S corp because it did offer many of the same benefits as a C corp, yet allowed the owner to flow losses through to the personal tax return. Once the business was thriving then converting to a C corp was not difficult.

When I went through this research again about a year ago, the majority of responses I received was that I should use a Limited Partnership (LP) for cash deals with a Limited Liability Company (LLC) as the General Partner (GP). I've also heard others suggest using an S corp as the GP. Other recommendations included using an LLC by itself as the cash deal entity.

What about entities for the keepers? By that I mean any property that hangs around for a while and doesn't cash out soon. It could be a rental, lease option, or any property with owner financing, including subject to (Sub2). What I was told there was the same; that an LP with an LLC as the GP was currently best.

The point here is that if you do spend the necessary time to research this issue (and you should), you are likely to get each of these responses and possibly more.

My experience is that any of these suggested entities is better than starting with a C corp as I did. Factors that should play into your decision process include setup costs and any state-specific laws for each of the entities. For example, in my state, Texas, the LLC is much cheaper to set up than an LP. However, the LLC is also subject to franchise taxes on gross receipts over 150k and the LP is not.

Confused? I agree it's not easy to know what the right course of action is. Do you need an entity or multiple entities established before you do some deals? Absolutely not. Why go to the trouble of setting up companies for a business that you may decide to discontinue? How do you know if you'll even like real estate investing until after you've done some deals? Why do you need to set up serious asset protection until you have something worth protecting?

My recommendation would be to begin to research the various entities for your state as you continue to work your investing business. In my opinion there's no need to make things complicated in the initial stages. If there's no obvious negatives to an LLC in your state, then perhaps that would be a good start.

I would not rush out and set up a separate entity for cash deals and a separate entity for keepers as I did. I would not set up an LP as my first entity as it involves at least two partners, one limited partner and one general partner. Entities are not set in stone. With the proper guidance and counsel from good attorneys and CPA's, you can make changes to your business plans as the business grows.

Again, this is not something you have to figure out when just starting. Find someone very knowledgeable about real estate investing, like John Hyre mentioned above, and begin to ask the tough questions so you can make informed decisions. As your business grows, your asset protection can grow with it.

by Peter Vekselman

You’ve located the property that you are potentially interested in purchasing, have looked at it, and determined that it meets your basic investing goals. Before you pat yourself on the back for a job well done, you need to establish its value to avoid potential financial disaster. If you take the word of the seller or the county tax rolls to establish its value, you could lose your shirt, especially in a real estate market that has seen values drop by tens of thousands of dollars within a matter of months.

Depending upon the kind of investor you are you’ll utilize one of the three methods of establishing the value of a property. They are:

Comparable Sales – If you’re investing in primarily single-family or multifamily properties with fewer than five units, by far the most popular method of establishing value is the comparable sales method. This method consists of locating recently sold properties that are substantially similar to the one you are considering purchasing and are located in the same general vicinity. A skilled appraiser typically has many years of experience in determining value, but you can do the same thing either by going to your county courthouse and compiling the information yourself or by working with a realtor who might be willing to provide these figures to you. You can also get a rough estimate of values in many areas by utilizing an on-line resource such as Zillow.com. Once you have your comparable sales figures you’ll need to compensate for any differences, such as the lack of a garage, fireplace, or even a swimming pool. In order to compensate for the differences in square footage of your subject properties, you can divide the sales prices by the square footage of living space to come up with a cost per square foot.

Replacement Cost – While not nearly as popular as the Comparable Sales method, another way of determining the value of a property is by estimating what it would cost to re-create the same property in the same area. You would need to determine building costs, the cost of materials, and also make allowances for depreciation of the property so that it is substantially similar to the property you are considering purchasing. If you’re experienced at estimating building costs accurately and are aware of the current cost of building materials and supplies, the replacement cost method may be one which you will want to utilize. However, it isn’t utilized very frequently. If the Replacement Cost method is one that you’d like to use to determine value, you could very quickly arrive at a figure by contacting a local contractor and asking them how much they would charge you by the square foot to build a home in the area of your subject property. Don’t forget to factor in depreciation to match the condition of your subject property.

Income Valuation Method – The third method of determining the value of a property is to use the Income Valuation Method, sometimes referred to as the Net Income Approach. This method is used to determine the market value of a commercial property or a residential property with more than five units. It’s a relatively simple process. First, determine what the gross income is for the property and then subtract all expenses, including debt service on an annualized basis. Multiply that figure by a factor of ten. The resulting number is about what your property is worth. What’s nice about this sort of property is you can increase its value simply by increasing its net income, reducing operating expenses, or both.

Once you’re able to determine the value of a property you can write an intelligent offer that doesn’t cause you to run the risk of overpaying for a property. Remember, though, that real estate prices are extremely volatile right now, so make sure any properties you use for comparative purposes are recent sales figures. If you have accurate numbers, you can write impactful, precise bids that stand a greater chance of being accepted and allowing you to turn average returns into explosive profits.

by Steve Cook

As most of you already know, marketing is the key to succeeding in this business. We have to market to buy and sell homes. Those who are best at marketing to buy a house, have a lot less work to do when it comes to selling their homes because buying right is 90% of the battle. You don’t need to be flashy, you don’t need to be an expert, you just need to be out there. It is pretty much common knowledge among most successful investors that “bandit signs” really work. You know the little signs attached to telephone poles or stuck on the side of the road that say “We Buy Houses”. They are one of the most effective forms of marketing that you can do and one of the cheapest.

But many of us have an ethical dilemma when it comes to bandit signs. They are illegal to use in most areas of the country. I can relate the concerns of you all because I have the same ones. As a result, I haven’t been putting out bandit signs because I don’t want to break the law. Some investors have decided to chance it and are willing to pay the fines because the rewards are so great. But there is a way.

First, I put bandit signs in the yards of all of my properties. If I control 10 properties at a time, I can get my signs out into all of those yards. I’m not always getting the best locations, but believe it or not, this works. I get calls from within the neighborhoods and, to tell you the truth, this may be the most effective place I’ve ever placed signs. They don’t get torn down and removed when they are in my yard. You can also consider asking friends and family to allow you to put your sign in their yard, or even pay someone to allow you to keep your sign in their yard if they have a high exposure location. Perhaps you can offer to keep the debris in the street clean in exchange for having your sign in their yard on the corner.

But more importantly, for those of you who want to plaster your signs all around town, there is a way to do so without having the sign police chasing after you. In most jurisdictions across the country, there is an unwritten rule that you can put signs out on the weekends. You can put them out Friday evening (after the sign police are off for the weekend) and take them back up by Monday morning (before the sign police come back to work).

New home builders use this technique everywhere, all the time. There are companies that have formed businesses around this. They go out Friday evening and put signs out all over town for the new home developments that are going up. When you see clusters for about 12 builders all in one spot at an intersection, chances are that one person put up the signs for all 12 of those builders. As an investor on a limited budget, you could put up your own signs on Friday evenings, and then take them up on Sunday. Of if you have the extra money to spend, track down one of the guys who is putting out the signs for the new home builders, and ask them to put your signs out as well.

by Richard Roop

Imagine Mailing 3000 Real Estate Marketing Pieces,
Targeted to Ideal Neighborhoods, for only $900!

This article will show you how to mail a three-page sales letter to sellers for only 30 cents each. That’s for everything including postage, list, labor, and printing. By only getting a .3% to .5% response, you’d get 9 to 15 sellers calling you from your mailing. And if you know how to buy houses creatively, that means one or two deals. In my opinion, if you cannot make $15,000 to $30,000 in cash and equity buying a house, it is not a deal. Now imagine doing that:

* Without printing envelopes.

* Without printing three pages.

* Without folding.

* Without stuffing.

* Without sealing envelopes.

* Without hand addressing.

* Without applying stamps.

* Without paying 37 cents for postage.

* Without trying to make it look personal.

* Without trying to get the prospect to open it.

* And without paying 3 to 10 cents per name.

I love direct mail because it can be narrowly targeted. Normally I suggest using personal-looking letters in plain white #10 envelopes, handwritten, or typewritten (or typewriter looking laser font) address, live stamp, and a very targeted list. Your cost for printing a three-page sales letter, folding, inserting, sealing, posting, and addressing will run you 70 to 95 cents each, including hiring someone to assemble and mail your package.

This is a good strategy for a good, targeted list of sellers. However, it may prove too costly for a shotgun blast to occupants or homeowners from tax records. By reducing the work and money needed to get your message out, you now can hit every home in a targeted neighborhood. You can dominate your “farm” area by re-mailing over and over to the same areas and enjoy these advantages:

Become a “Big Fish in a Small Pond”

* Become the first option sellers explore when they decide to sell.

* Hit the best neighborhoods or parts of town you want to dominate.

* Put your lead generating system on automatic pilot.

* Create a powerful presence and ongoing relationship with your targeted market.

* Follow up on past inflexible or unmotivated callers automatically.

* Callers will be higher quality and more prescreened, already knowing the benefits you can offer.

* Buy more houses from fewer leads.

* Qualify for the lowest postage rates available, usually around 15.2 cents each.

* Control how many sellers call you each week. Crank it up when you want…or slow it down when you’re on vacation.

* Focus your time on talking to sellers, prescreening deals, making offers and getting your houses occupied fast.

* Avoid the need to study, create, test, and setup different ways to get your phone ringing.

* Eliminate the need to call sellers off ads or signs, or compete for the killer “cash” deals listed with agents.

* Easily expand your marketing with the intent of flipping “excess” deals to other investors for quick cash.

* Avoid competing with other ads in the newspaper or yellow pages.

* Avoid paying more because another investor made a competing offer.

* Become a property value expert, increasing your confidence when making offers.

* Know how easy and quickly you’ll be able to get a house occupied from recent experience in your market.

* Build up and use an in-house “buyer’s list” each time you get a new house.

Form a solid “dream team” of professionals, which can simplify your life because they prefer to work in your farm area. These may include title companies, insurance agents, house cleaners, landscapers, handymen, contractors, real estate agents, property managers, appraisers, inspectors, fellow investors to flip to, etc. Save time and get a lot done with less effort. By cost effectively farming, you’ll be able to check on your houses, replenish flyers, meet with buyers, follow up on a contractor, and visit with a few sellers… all on one trip!

Create instant credibility. Sellers will see your message numerous times. And that might be the compelling reason they finally call you. The way you do all this for only 30 cents each is to saturate targeted neighborhoods with “oversized” postcards. Here is how to do it step by step:

Step 1

Write a lengthy message to sellers explaining the benefits and reasons why they should call you. Long ad copy works as long it talks about the benefits to the seller and it is not boring.

Use a letter that has already worked for you. Or check your inventory of courses that sit on your bookshelf. Or perhaps start from scratch. Your message should talk about all the different problems you solve for sellers and the benefits they get when you buy their house. Owners of my marketing course, How to Collect 5-Figure Paychecks Buying & Selling Houses, have a license to use the proven “ad text” that I now use in my postcards.

Step 2

Make sure you have a good headline to get attention and get your prospect to read further. In the past, I’ve used “Sell your house in nine days or less at no cost to you.”

I have since improved and tested my headline and I now use, “How to sell your house ‘as is’ at a fair price on the date of your choice.” This approach attracts many lease option, owner financing, and “subject to” deals. If your intent is to target lower-priced homes, likely to be fixer-upper deals bought with all cash, then your headline may be “We buy houses cash.” Your message should take on a personal tone. It should read as if you were sitting in front of the prospects talking to them one on one. Avoid having it read like a broadcast to a group of people.

Step 3

Lay out your message to look like a newspaper article. Design in a multiple column format. You can use a “drop cap” to guide the eye to the first paragraph. Avoid logos, photos, and graphics. I conclude with a signature line to make it more personal. Adding a P.S. is also good. Here is a sample lay out of my 11″ x 5.66″ oversized postcard:

In the example, you can see a few handwritten notes I added to the artwork before it is printed. This is a little trick to get more attention. More details on laying out your postcard are in Step 8.

Step 4

Choose your media. For this system we are going to use an oversized postcard. Postcards are cheaper to print, don’t have to be folded, inserted, and sealed. They don’t have to look personal to get opened like a letter. I’d never send letters bulk rate (now called Standard Mail) to save postage. My letters always get live stamps. However, you can use bulk rate for postcards, even use a bulk rate indicia (permit stamp).

And since you want address changes when mailing letters to a very targeted (hot) list, you’d use first class mail. For this postcard system we do not need these address changes since we are going to use a residential occupant (saturation) list of just addresses, not names. The result: you save time and money not having to pay first class or pay to have stamps applied.

I like using 11″ x 5.66″ card. The printer can get 3 on an 11″ x 17″ sheet. After calling a number of printers for bids I was able to get printing costs down to 5 cents a card. Another standard size you can use is 8.5″ x 5/5″ (half sheet) if you can get your entire message on it, but the larger size is costing me the same. Mailed first class, this card would cost 37 cents postage. Mailed bulk, it averages 15.2 cents.

Step 5

Choose which neighborhoods, subdivisions, or parts of town you want to dominate. I suggest 30,000 homes or fewer. It might even be better to choose 15,000-20,000. Since I know my marketing message works (six years of experience), and I know that using oversized postcards mailed to a saturation list works for getting the message out cost effectively, the only other element that has a major impact on your results is the areas you target.

Do you want ugly, low cost fixer-upper properties? Do you want newer homes with less in repairs and less equity so you buy them “subject to” for no money down? Do you want to expand your activities where you already have bought houses? Target the property you want by targeting the types of neighborhoods or parts of town which match your preferences. I would not target areas where most houses move very fast and lack enough motivated sellers or high priced areas, unless that was part of my buying plan.

Step 6

Find a source for “residential saturation” or “residential occupant” lists. My source is only about 1 cent each ($100 for 10,000 addresses) discussed shortly. Some investors can get lists of “homeowners” from county tax records for free. But you’ll pay more for postage when mailed bulk (18 or 19 cents each) and a lot of these are outdated (up to 30%) and will never reach the owner. Saturation mailings have one piece delivered to each house on a postal carrier route. So the downside is your message will go to both renters (a waste, except for referrals) and owners.

Plus, owners of vacant houses will not get your card unless their mail is still being delivered to their mailbox and they pick it up at some point. We can live with this drawback since we’ve kept are costs down super low. One way mitigate this is to add a pre-headline “Are you or someone you know looking to sell a house?” You can instantly get list counts and carrier route counts for a zip code or for a radius surrounding an address you provide. You can exclude apartments and post office box holders if you like, but be careful.

You want to eliminate entire carrier routes if they have a lot of apartments, perhaps more than 20%. You need to mail to every address in the carrier route you select to get the lowest postage.

* Click “Search by Zip Code.”

* Enter a zip code.

* Exclude PO Boxes. (if you wish)

* Click Get Count.

The result is a the number of carrier routes in the zip code you entered, plus the number of apartments and the total number of addresses. Now click “Select Carrier Routes” at the bottom. Copy and paste route numbers and counts into a spreadsheet (like Excel). Now go back and do it again excluding apartments. Copy and paste side by side into your spreadsheet.

Add formulas to calculate the difference in the counts and percentage of apartments. You’ll be able to identify which carrier routes have a lot of apartments. Deselect those routes when ordering your list.

Another way to identify targeted carrier routes is using a “carrier route map.” You can order them online by searching the Internet. A map like this can help you eliminate carrier routes close to industrial areas, busy streets or higher crime areas. In most cases, this step is unnecessary.

Step 7

Find a letter shop, mailing house, or printer who offers mailing services. You can look up in the yellow pages or online. Researching this may take time.You’ll want to get multiple bids and pricing for your project. Once you find someone it will be easy to repeat for future mailings… unless, of course, you’re unhappy with them and need to find a new one. Besides printing, the mailing charges will include:

* Addressing via labels or ink jet.

* Adding their mailing permit to your postcard artwork.

* Counting out and sorting by carrier routes.

* Completing the required postal reports.

* Delivering the sorted trays of mail to the post office.

Order your list on labels (extra cost), CD-Rom, or preferably, downloaded over the net. Then forward to your mailing house. Addresses in carrier routes change so you’ll order a new list each time you mail.

Step 8

Find a printer for your postcards. We’ve been quoted 4 to 9 cents each depending on printer, size, and quantity. You are doing good at 5 or 6 cents each. Here are some standard “oversize postcard” dimensions, again, standard depending on the printer:

8.50″ x 5.50″ (1/2 sheet or 2 up on 8.5 x 11, easy and low cost) 6.00″ x 11.00″ (bigger and more expensive but same postage rate) 5.66″ x 11.00″ (1/3 sheet or 3 up on 11 x 17, my preference)

The maximum size allowed by the post office is 6.125″ x 11.5″ but that’s a non-standard size and can unnecessarily increase your printing costs. Get bids using yellow card stock (10 point), double-sided, black ink. It works great.

Step 9

Mail only 3,000 to 10,000 cards at a time so you know you can handle the response and effectively follow up. I was a little overwhelmed last time I mailed 10,000 (bought five houses and captured $146,000 in equity), so I prefer to space out two 5,000 piece mailings over two weeks.

Step 10

Track your response. If you don’t buy a house or two from each 5,000 cards mailed or if you don’t get at least 10-15 sellers calling, you may want to test different areas.

Step 11

Make offers. Buy houses. Bottom line: I love the postcard system and all the advantages of it. It’s the main marketing I will be doing for myself, even though I have a half dozen other cost effective, proven ways to get the phone ringing.

by Nancy Chadwick

How Builders Evaluate Land

Some builders search for property strictly by geographic area. Others search for parcels that would enable them to reach particular buyer sub-markets (housing type, price range, lifestyle, age group). Either way, builders begin the investigation by casting the net into their areas of markets of choice and sifting through potential acquisition candidates. They have to pick through dozens of properties before they find one they think they can develop profitably. Sometimes they can tell quickly if a property is worth pursuing further. More often, however, they don’t know this until they spend varying amounts of time, effort and money collecting information about a site. In either case, their investigation focuses on obtaining answers to five fundamental but critical questions: What can I build? How many can I build? What can I sell them for? How long will it take to sell them? What are the costs?

How to Subdivide Land

Zoning governs the uses that are permitted on your property, but it doesn’t deal with how and to what extent you can subdivide it to create two or more parcels. For these issues, you would need to consult the municipality’s subdivision and land development ordinance. These ordinances that are amended periodically spell out: construction and design standards for site improvements such as curbs, sidewalks and streets; safety issues (grades, street widths, angles at intersecting streets); other issues like street lighting, grading and landscaping; and procedural requirements dealing with submission deadlines, size or paper and types of data to be shown on the plans.

What the Land is Worth

Many factors determine what a parcel of land is worth, including location, uses allowed by the zoning, the projected sale price of the end product, the number of lots, and the costs of development. Basically, the value of land for residential development is calculated on a per-lot basis, not a per-acre basis. The reason for this is simple. A 10-acre property may produce 5, 6 or 8 lots, but it won’t produce 10 lots. Some part of the property will be “wasted” because of physical and other conditions. Consequently, the ultimate value of the land depends on what the parcel will yield.

Why Location is Important

We’ve all heard about location, location, location. But why is it so important? The answer is very simple: location is the only thing about a property that you can’t change. Wait a minute, you say. That’s not correct because you can move the house. That’s true. Maybe you can (although it’s often not feasible and it’s expensive to do). But even if you can move the house, you won’t change the property’s location because you can’t pick the land up and move it. It’s the land that gives the property its location, not the house. The house isn’t permanent. Only the land is permanent. For better or worse, you’re “stuck” with a property’s location. Location determines many things, including the current zoning, the types and values of properties in the vicinity, and the presence of public utilities. And if you’re thinking about developing a property, these issues can mean the difference between success and failure. learn

Land Features and Constraints

Your ability to develop a property hinges on several factors. The most obvious one consists of the man-made and natural physical conditions of the property. In addition to existing structures, man-made features could also include past or present land uses that have changed some physical aspect of the property, like regrading, creating a pond, or contaminating soils and groundwater. Natural features basically consist of everything that is not man-made, including topography, parcel size and shape, wetlands, rock and floodplain. Man-made and natural physical conditions are usually referred to as “features and constraints” because they have a tremendous impact on the ability to develop a property.

Not Just Price

Strange as it might seem, if you’re thinking about buying or selling land and development property, price is the last thing you should be focusing on and not the first. Why? Because price is relative to just about everything else relating to the property. This “just about everything else” that’s more important includes not only the suitability of the property for development, but the types of contingencies included in the purchase contract, such as a period of time to investigate the property and collect information. The wording of terms and conditions can make or break the deal and consequently, terms are often more important in the land transaction than price itself.

Some Terminology

As Is Where Is Sale: One in which the buyer is purchasing with no contingencies or fewer than the customary development contingencies.

Building Envelope: That area of a property remaining after marking off the front, rear and side yard setbacks being the portion of the property within which a structure can be built.
Conservation easement: voluntary limitation or prohibition of future development on property in exchange for owner receiving tax relief or other monetary benefit.

Deed Plot Plan: A “to-scale” plan generated from the legal description contained in the deed.

Impact Fees: One-time fees charged developers by local governments to fund the impact of the development on existing systems or facilities, such as fire protection, roads, schools and utilities.

Subdivision Plan: Collectively, a set of plans submitted by applicant for subdivision approval; first sheet in the set of plans that is recorded after all of the municipal requirements have been satisfied.

by Alan Brymer

In the first part of this article, we covered why it’s much easier to find multiple deals from the same person, and how the satisfied sellers you have bought from only know so many people to refer to you. In this part, I’m going to go through some strategies to use to build relationships with the people who are in a position to refer more motivated sellers to you over time than anyone else — Wholesalers.

As you probably know, you can find some amazing deals from other investors in your area who sell them as-is, or assign a contract they have with a seller to you for a fee. Some of these guys are amazing at finding a large number of deals every month. Because having someone call you with a deal that they have already found, prescreened, and negotiated with, this is one of the easiest ways to find deals there is.

Become the first one they call.

But are you going to be the one they call as soon as they have a deal available (or at least one of the first few)? One challenge is that most wholesalers know other investors, and there are a few ways they could decide who to contact with a deal. They may have a small core few that they tell about deals, who they know can perform without jerking them around. If this is the case, you want to be one of those few (or the only one).

Many wholesalers have Investor Lists, too, which can range from 10-20 to hundreds of other investors in the area. They might contact their core investors first and then send it out to their whole Investors List a few days later. Your goal is to find out about the deal before it’s announced to their entire list. You can do this by:

Getting into their group of core investors by proving that you have the funds and speed to close when they want, and that you’re not going to be anal about everything or nickel and dime them. The easier you are to work with, the sooner you will tend to be contacted.

Being proactive and contacting them first before they tell the world about their deal. For example, if you send regular emails or follow-up frequently with the wholesalers you know, you might ask if they have any good deals in the works. They may be in the process of getting an offer accepted by a motivated seller, in which case you can pre-arrange for them to give you the chance to buy it as soon as they have it under contract. If nothing else, their incentive to do this is so they won’t have to take calls from 10-20 other interested investors about it later on — this way is much easier for them.

Wholesalers who only accept the highest offer

Some wholesalers are a little more mercenary and will assign a deal to whoever will pay them the most — period. This stinks for you because, well, competition sucks, and you have to rush, rush, rush in order to see the house, make an offer, and get it assigned to you.

I don’t know about you, but Rush = Hassle, and I prefer having less hassle in my life every day of the week. I don’t like being part of a bidding war at all, and the chances of your offer getting accepted are slim, because there are usually other people on the wholesaler’s Investor List who are willing to pay too much, or at least more than you.

The disadvantage to the wholesaler of doing it this way is that the people who are willing to pay the most are often peculiar, or nitpicky, or have to get bank financing, which takes 30 days to do if you’re lucky. That’s a long time to close (especially when a motivated seller is calling the wholesaler daily, asking when they’ll get their money). You could point this out to the wholesalers you know, and mention that they’ll have a faster and easier sale if they come to you first, rather than creating a mini-auction.

This may change their mind, or it may not. But keep asking them to notify you of deals, even if they only care about who will pay the most — you can always say, “This is the most I can offer” and see what happens. I’d rather have more leads brought to me than fewer. Who knows? The wholesaler may get burned a few times by novice investors who could not close, or who made the process miserable, and they start contacting only a select few about houses.

The Magic Formula for Getting Deals From Wholesalers

Here’s a formula to keep in mind, to find more deals through wholesalers:

# of Wholesalers x Frequency of Contact x Depth of Relationship = # of Deals

The more you meet, the more will notify you of deals. The more you contact them, the more likely you are to find out about a deal of theirs before anyone else. The better you know them and the more they trust you, the more likely they will call you before anyone else. The great any of these three things are, the more deals you will do.