Showing posts with label Real Estate Agents. Show all posts
Showing posts with label Real Estate Agents. Show all posts

Working with Realtors For Lease Options

There are two issues that involve realtors and investors:
1) Should I become a Realtor?
2) How can I
work with Realtors?

Working with Realtors:

Many investors think that real estate agents don't have the best deals, or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market. It is true that some of the best deals do get snatched up before they hit the market, but ……there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for 'traditional' or what I call 'retail' homes, not 'lease option' homes. These are two very different markets. The retail market is what 90+% of the people and investors understand. The Lease Option market takes up a portion of the remaining 10% of the market.

I look to work with Realtors that understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options. I do this by using several techniques. First, I have a letter that I send to a listing agent explaining the concept, second, I have a presentation that I do for my local real estate offices, and third I network and continually tell Realtors what I do. I hear investors tell me all the time that Realtors just don't understand or want to understand what they do. I can only say that patience and persistence pays off. Realtors aren't trained in unique selling techniques, they are trained in the 'Retail Market' which is 90+% of what is out there. As investors, it is our job to continue to help those around us understand what we do so they know when to call us.

The type of home I am looking for through a Realtor is one that the seller:
1) Doesn't need their equity out
2) Doesn't have any equity in their home

When a Realtor hears a seller say, "If my home doesn't sell soon I might have to RENT it!", then the Realtor should think of you. (assuming you have continued to remind them of what you do)

All you need is 2-4 good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms - viola! You are the proud new owner of a lease option.

One of the most important things for anyone is that they get paid for what they do. Realtors are just like everyone else in this regard. When I am taking on an option, I am asking the seller to wait 2-3 years to get cashed out. I don't want to make the Realtor wait that long. If I do, they won't even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front. This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. When you sell the home you will be asking for 3-5% down from your tenant/buyer, therefore, you are still minimal or zero down/out-of-pocket. If you aren't a licensed agent/broker and entitled to ½ of the commission, then let the Realtor "Double-Dip". They can get the listing agent portion down upfront from you and the selling agent portion when the home closes in 2-3 years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn't expect anyway.

Becoming a Realtor:

Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of 'comps' or comparables. This is the data you need to buy and sell real estate. If you have a great Realtor and you don't want to be licensed, fine, but I still think it is better to be licensed than not.

Some investors say it gives you more liability to be licensed. I have two answers to that:
1) What are you doing to create liability?
2) Don't you think a judge is going to know you are an 'expert' anyway when they find that you do real estate investments?

Some investors say that sellers won't sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and 'know what I am doing'.

My recommendation is to GET LICENSED!!!





 









 

Pocket Listings - Be an Insider and Profit

One of the most frustrating things early in my
real estate investing career was to see a “For Sale” sign go up on a listed piece of property, call the agent that same day, and hear that the property went under contract the day before the sign was even put out. Furthermore, these deals were often great ones that I would have snapped up given the chance.

What is really going on here is that the agent obtains a “fixer-upper” listing. The agent then “pockets” the listing, offering it to a few insider investor clients. One of these investors sweeps it up, and the deal never hits the larger market. By the time you see the sign, it’s too late. In some areas, a surprisingly high percentage of the houses sold fall into this category, with the agent selling the property before it is even on the market. Agents love to sell a house this way because they make the whole commission (no splitting with the buyer’s agent), and they keep their investor clients, who have listings to give them in the future, loyal to them.

This practice MAY be slightly unethical for the agent, as it is really in the client’s best interest to have the property out on the general market. For example, if the agent advertises the property on the computer MLS (Multiple Listing) system, and places a sign in the yard, numerous parties may want to make an offer, potentially bringing in a higher price. On the other hand, one might argue that the agent helps the client by getting a quick sale, and that the client doesn’t have to accept any offer that is not high enough.

As an investor, we don’t really care. We just want to be on the call-list for this type of deal. We want to wrap these deals up before anyone even knows they are out there. How do we do this? Here is our game plan.

Select Our Agent

When you have narrowed down the area you want to invest in, and you are familiar with the market, you need to create ties to an agent. The agent that you want to select is an agent that does a lot of business in our target area. You can find this agent by simply driving the neighborhood and seeing who has the most “for sale” signs up.

Send A Letter To That Agent With The Following

A) A statement that you are interested in buying investment property in that neighborhood. You don’t mind fixer uppers, and are looking to buy, renovate, and resell properties. The agent will realize that you are going to resell, and that you probably will need to list properties in the future. This gives the agent two chances for profit: The first when you buy, the second if you list with them when it is time to resell the property.

Include a business card with this letter. Optional: attach a magnet onto the back side of the card. Magnets to stick on business cards are available at Office Depot/Staples for a reasonable cost. Your cards can contain the information on which neighborhoods you’re looking for. (Example: “Interested in buying homes in xyz neighborhood to renovate and resell.")

B) Attach a letter from a mortgage broker showing that you are pre-qualified to buy an investment home in the approximate price range of the homes in the target area. In the alternative, get one saying that you have met with the mortgage broker, and the mortgage broker will be handling your financing needs for rental properties. Feel free to let the mortgage broker include some PR about his firm in your packet.

The mortgage broker will bend over backwards for you in the future because he will see that you are helping to build his business. This letter from the broker will make you seem like a real player, i.e. someone who can close on the deal and pay the agent. Mortgage brokers are happy to hand out letters like these to anyone with a pulse. That’s a big secret that most sellers don’t know, but now you do.

C) Optional, but recommended: Attach a newsletter that you come up with each and every month. In it, give information on helpful homeowner tips. You can get your raw information out of any number of books on the subject at your library or local bookstore. Rewrite the content in your own words so you don’t violate any copyrights. For example, you might have one on how to fix a roof leak, or how to select a contractor.

The articles should be valuable to her clients. Tell her that she can copy these and distribute them to her clients. (Leave the top blank so that there is space for her to insert her name with a word processor). Get one to her each and every month. It will keep your name front and center. Topics you can use include:
  • How to unclog plumbing leaks without a plumber
  • Replacing broken window panes
  • How to find good sub-contractors
  • How to avoid being ripped off by subcontractors
  • Why you should always keep gutters clean
  • How to select the right plants for your house
  • How to replace a cracked tile
  • How to paint a room
  • New loan programs and refinancing ideas (from your trusty mortgage broker!)
  • Basic yard maintenance
  • Question and answer format is great, i.e.:
Q: “My house recently had a new roof put on. Unfortunately there are some old water stains on the ceiling left over from the old leaky days. I tried to paint over them, but they keep coming back. What would you suggest?

A: Use a quality primer made to cover water stains, like Kilz. The oil or shellac based primer is the product that you will need to use, as opposed to a water based primer. Either of these products may be covered with oil or latex paint. (Check the packaging.) The odors on these primers are extremely strong, so be sure to open as many windows as you can and ventilate the area. You will want to make sure that any loose paint is removed before painting, and that the surface is totally dry. If the stains are especially bad, 2 coats of primer may be required. Because it can take up to 24 hours for old water stains to bleed through the primer, it is a good idea to wait before applying your finish coat.

(There is a good magazine called Family Handyman that contains some great articles you can use for inspiration and accurate content. It should be available at larger bookstores, and is available at Home Depot. Also see This Old House Magazine).

If You Buy Or Sell A Property, Let The Agent Know With A Letter

Note to her that you are still very interested in finding more properties in area x. This will demonstrate that you are a serious investor, and move you up in the pecking order.

If You List The Property, And Don’t Have A Particular Reason To List With Another Agent, List With The Agent You Are Cultivating

This will bind you to them. I’ve personally listed properties with an agent to establish a relationship even when I think I could have sold the house “by owner.” If that agent brings me 4 deals with $30,000 of profit each, the extra $7,000 I spent on a commission for one deal was well worth it!

If You Have Good Subs That You Really Like, Make A List And Give It To The Agent

Explain that you have used these folks in the past, and that their names might be helpful to her clients. Such lists are super-valuable to the agent because they help her to sell houses. For example, a house may be perfect for a buyer, but it needs repainting. The agent can tell the buyer that he knows a great painter who can handle the job, and potentially close the sale. This will also make your subs loyal to you. If your job or another client’s job must be delayed, yours won’t be if you are keeping a steady stream of referral business going to the sub. These subs will see you as so important to their business that they will also give you a great rate for your work.

I would use this technique with the top few agents in your target area. I now work with only a select handful of agents. All are totally committed to the success of my business.

How to Get Realtors to Work For You

How to get Realtors to work for you – the "scrappier" they are, the better. The secret is finding them. Here's how...

If you've gotten this far, you already know my take on
real estate investing: buy multiple housing units in low to moderate income areas that will immediately generate positive cash flow. It's a proven method that allowed a high school dropout like me to become financially independent by age 27, while lots of guys my age with Ivy League MBAs were still punching a clock.

I did this – and am still doing it 30 years later, and teaching thousands of people like you to do it, too – by buying distressed properties from distressed sellers. Maybe the properties just need a little love to spruce them up, maybe the buyer is desperate to get rid of them, and maybe it's a little bit of both. It's what I called "forced appreciation", and it's the cornerstone of my proven real estate investment method.

"Ok Russ," you say, "I get it. I’m ready to achieve financial independence, quit my chump job, and have the freedom and the control I deserve. I’m ready to roll."

But there's one thing still holding you back – you're not sure how to find those distressed properties and distressed sellers. When you're trying to get started, and you're still working for someone else, you don't have the time to search for them – and you may not yet have the experience to recognize them. So what do you do?

Find yourself a good Realtor, that's what. I don't mean the ones with their pictures in the paper, with their lipstick just so and a scarf knotted to one side around their neck, talking about a property's granite countertops and the neighborhood pool. These types are what I call the "cream of the crop" Realtors. Hey, they work hard and help people find lovely homes and they can make a lot of money at what they do. But that's not who you want when you're looking for investment properties.

You also don't want your nephew Louie who got his real estate license on the side three years ago and sells one or two houses a year for extra money. Nothing against nephew Louie, but he probably doesn't know much about the type of real estate investing you want to do. You're not in this to help Louie make money, you're in this for your own financial independence.

What you want is what I call a "scrap Realtor". What's a scrap Realtor? It's a Realtor who deals almost exclusively in low to moderate income housing, much of which is multi-family and most of which is sold to investors – which is what you want to become. Scrap Realtors know the neighborhoods, know which properties have potential – and many of them are investors themselves. You may think that the term "scrap Realtors" sounds insulting, but that’s the point – these guys don't care. They're not in real estate for the glamour or prestige; they're in it to make money. And so are you.

I've said it before and I'll say it again – nine out of 10 Realtors don't know anything about investment properties. Yes, they all have access to the same information on the MLS, but that's where the similarities end. Real estate is really about circumstances – what's the vacancy rate in the neighborhood? What is the rent now? What's going on with the seller that makes him or her motivated to sell (and possibly offer financing)? No computer system can tell you that – to get that type of information, you have to pound the pavement and build relationships.

Sure, once you're experienced and financially independent you can do that yourself – or hire others to do it for you. But when you're just getting started, a good scrap Realtor is invaluable.

You may have never noticed scrap Realtors before, but once you start looking I bet you'll see plenty of them. Their ads are smaller, and don't usually include a photograph. Their listings are usually for multi-unit properties, and are usually in the working class neighborhoods, not the hot parts of town. You won't see words like "charming", "quaint", or "cozy" in their property write-ups.

But these guys can help you make money. And if they're good, they'll be willing to spend some time educating you on opportunities in your area, because they know that once you start getting the positive cash flow that comes from a good real estate investment, you'll be coming back for more.


How to Find a Scrap Realtor
  1. Look for independent real estate agents. Most scrap Realtors don't work at Century 21 or ReMax. Independent agents are more likely to also be investors who understand the types of properties you’re looking for.

  2. Check out the classified ads in the paper. I don't mean the big splashy ads with photographs. I mean the small column ads that list properties for sale and express interest in buying properties. Many of these agents will work with investors, too.

  3. Ask questions. Making blind calls to real estate agencies can be intimidating. Here's a sample script to get you started: "Hi, my name is _________. I'm a real estate investor and I'm trying to find a real estate agent who specializes in income properties such as apartment buildings, duplexes, five-units, etc. We also look for properties that need cosmetic repairs. Is there someone in your office who fits that description?" When you get a prospective scrap Realtor on the phone, ask about his or her experience with private financing and seller financing. Ask about his or her's own experience investing in real estate, and their results over the last several years. The reactions and responses you get to these questions will give you a good idea if the Realtor knows about real estate investing – and if he's able help you learn more, too.

In my training and mentoring programs, I always include a session with a good scrap Realtor, so people get to see how these guys operate first-hand. It's just one of the invaluable things you can learn from our programs. Once you learn to identify and work with a scrap Realtor, you can find one in any town, city or state in the country – and start investing.

How to Cash In On Your Real Estate Contacts

Many investors make the costly mistake of considering real estate agents as competitors. They incorrectly see themselves out in the market competing for a limited number of deals-fighting it out with local agents and brokers to make money. This costs them time, and it costs them thousands of dollars from lost deals. The truth is that as an investor one of the most profitable
relationships you can ever develop is with a real estate agent. Think about it for a moment. As an investor your market is motivated sellers who don't need all cash at closing (and are willing to be flexible on the terms of sale) or who are willing to deeply discount the price of their properties for an immediate sale.

But the majority of sellers you talk with as you do your lead generation are NOT motivated sellers. As many as 90% of the sellers you talk with are not motivated enough to be flexible on price and terms like you need them to be. Most investors toss these sellers into the round file, and this mistake costs them dearly. Instead, pass those sellers you cannot help onto your real estate agent ally. He will be able to turn these sellers into a steady stream of commissions as he lists, then sells their homes.

Remember: most agents spend tremendous amounts of time and money to find the very people you turn up in such great numbers-homeowners looking to sell for all cash and who have the time to wait for a top dollar offer. If you can help your agent friend get just one more listing a month you are adding tens of thousands of dollars to his annual income! So what's your payoff? Actually, you don't just get one payoff, you get five!

Payday Number One: Expired Listings

A listing is an exclusive agreement a seller signs with an agent giving them the right to sell the home for the seller. This agreement is typically for 3 to 6 months and many times an agent is unable to sell the house within that time period. Have your agent ally search the MLS (Multiple Listing Service-a database of properties for sale that only real estate agents have access to) looking for properties that didn't sell and whose listing has expired. These owners are far more likely to have grown motivated and are ripe for you the investor to call and put a deal together on their house.

In many cases the expired listings will not have a phone number for you to contact the owner. That's good! If it were too easy then another investor would have beat you to the prize. Simply take the information and do your own research. You can use the street address and a reverse directory to look up the phone number. (One such directory is called the Cole's Directory and is probably available for you to use for free at your local library.) Once you find the phone number, give the owner a call and see if they are flexible enough for you to buy their property.

Payday Number Two: Listings Search

Have your agent friend do a search of the MLS for key words that indicate motivated sellers. The agent simply searches the comments field for words like: "lease-option," "flexible terms," "owc," "moving," "transferred," "estate sale," or "contract for deed." If a listing has these words in it chances are pretty good the seller is worth a phone call. Then you contact these owners and see if you can put a deal together.

Payday Number Three: Straight Referrals

Just like you are out there sorting through sellers, so too is your real estate friend. And when he finds an owner he can't help but who shows signs of being motivated, your agent can refer the seller to you. Better yet, ask your agent friend to pass along the owners name and phone number and give the owner a call yourself. This is a great source of deals that no other investors will know about! Best of all, when you get this third party referral you are getting a huge boost to your credibility. In essence the real estate agent is recommending you to the seller. This makes things much easier for you to put a deal together than if you were just coming in cold.

Payday Number Four: Fast and Free Access to Property Information

When you're out there putting together deals, wouldn't it be valuable to be able to call up your real estate contact and ask him for information like sales comparables, market rents, and rates of appreciation? If you're passing on several good leads a month to your real estate friend you will be amazed at how fast he will get back to you with this information he simply pulls up from the MLS. After all, if he isn't fast, there are many agents out there who are dying for your leads who will be much faster. The most important thing to remember when you are putting together this relationship to begin with is to always be willing to give value first. This means pass leads on to your agent friend for a short while BEFORE you ever call them up asking you for a favor. This will help you build trust into the relationship and cement your agent to working with you.

Over time this relationship will payoff handsomely for you. When you get the relationship going strongly you've just added a helper who is working with you to help you make more money. One of my students used this idea of networking with real estate agents to find a six year lease option on a $200,000 property with nothing down! If he can do it, so can you.

Dealing with Real Estate Agents

The real estate agents have a valuable source of potential deals for the real estate investor - the Multiple Listing Service. Unfortunately, real estate agents have a monopoly on this information, so they may be a necessary part of an investor’s game plan.

Dealing with real estate agents can be difficult as an investor. Agents prefer home buyers with cash to put down,
good credit and conventional buying power. Their interest is getting a commission with as little hassle as possible. Most agents have never done a creative real estate transaction with an investor, so they are not often receptive to unusual offers. Most agents equate a “nothing down” offer with a buyer who is not serious.

Offer a Reasonable Earnest Money. You cannot present an offer with a $50 earnest money and expect an agent to take you seriously. You can expect to pay at least $500 as earnest money to get their attention. If you are presenting a solid cash offer, you should put up more money. If you are concerned with losing your earnest money, consider using a promissory note.

Offer a Short Closing Date. Another way to get an agent to take you seriously is to offer a fast closing. Nothing makes an agent salivate more than the thought of a commission check in ten days. If the agent has another offer presented to him, he will usually advise his client to take the offer with a larger earnest money and faster close than an offer which is higher in price.

Insist on Presenting Creative Offers in Person. If you present a creative offer to an agent, it will not be represented to the owner in the same enthusiastic fashion. As stated above, agents do not like creative offers - they like conventional offers from solid buyers. If you want the owner to hear all of the great benefits of your offer, insist on presenting the offer in person.

Appeal to the Agent’s Greed Factor. Let’s face it . . . real estate agents are in the game to make money, just like anyone else in any other business. If you can offer the agent an incentive to make money out of the transaction, you will get his cooperation. If you present an offer which does not permit enough cash to come out of the deal to pay the agent, why would he cooperate with you? If you present a lease/option offer on a listed property, how will the agent receive a commission? You need to find a way for the agent to get paid, even if you pay him out of your own pocket.

Do Your Own Comps. Sometimes you will get the opposite of an uncooperative agent - an overzealous agent. Be suspicious of an agent who tells you what a deal you are getting on a property. If it is such a good deal, why didn’t he buy it? Don’t take his word as to the value. Ask for a printout of comparable sales (not listed properties). Be aware that information contained in the MLS computer was entered by the listing broker and may be exaggerated. If a comparable sale shows the same square footage as the house you are looking at, take a drive by and see if it is accurate. Do your own assessment of value.

Fax Preliminary Offers First. Don’t waste your time filling out a contract offer until you have preliminary approval. Most agents are not this formal and will take any offer in writing to the seller. Simply summarize your offer in writing and fax it to the listing agent. Once you have an oral approval, then take the time to fill out a contract and an earnest money check. NEVER put up earnest money until the offer is accepted!

Don't be Bullied by Uncooperative Agents. If you cannot finesse an agent, don’t be afraid to stand up to him. Some agents are unethical and will refuse to present your offer. Many times the agent will lie and tell you that your offer was rejected when, in fact, it was never presented. If this is the case, do not be afraid to go over his head to the listing broker. If the listing broker is uncooperative, deal directly with the seller (unless, of course, you are also an agent).