Real Estate Articles

R.E.I. How-To (Unit 2) | By: Chris Hake and Randy King

This installment is part of a multi-unit primer to get you started in real estate investing.  We can't address everything you need here in these short tomes, but you will get a flavor for this stuff to help you make a decision to move forward with more aggressive training or coaching.
Welcome!  Class is now in session.  In this multi-unit primer, we drill down into the hows and whys of Real Estate Investing specific to South Central Wisconsin and, even more specifically, what's happening right now.  Because markets shift so quickly, some of this information may not be totally accurate 6 months from now, but it will surely be enough to give you a solid footing.
What this is about.  At the Madison REIA, we provide people with critical information pertinent to doing this work in our area of the country.  We go deeply in-depth with our 7-session live and recorded training, but let's first focus on the foundational stuff in these training articles; more on the formal training later.
The Texts.  We'll be using three textbooks in this work; you can purchase them on Amazon or sometimes find them at Half-Price Books or other outlets.  The three books are:
•  The Millionaire Real Estate Investor, by Gary Keller and Dave Jenks.
   (Amazon Link)
•  FLIP: How to Find, Fix, and Sell Houses for Profit, by Rick Villani and Clay Davis.
   (Amazon Link)
•  HOLD: How to Find, Buy, and Rent Houses for Wealth, by Steve Chader and Jennice Doty.
   (Amazon Link)
(Note - if you are registering for an upcoming live multi-week evening course The REI Blueprint - Rehabs to Rentals, A to Z then DO NOT buy these books - they will be provided to you.)

Unit 2 - Prospecting and Marketing
There's no question about it - THE most important aspect of your work in real estate can be summed up in one word: marketing, which really includes prospecting and marketing.
No, really - it's true.  Contrary to popular belief, people do NOT just walk up to you and say "hey, Biff, you wanna buy my house?  Cheap?"  No, that does not occur, at least not usually, although there are some rehabbers that get "known" for their ability to solve problems, so.....
Ugh, it would be really annoying to try to have a romantic dinner with that special someone and have people come up to your table with a property description and wanting you to make an offer, sight unseen.  It's like people just throwing money at you, and it would probably pay for dinner.  Actually, probably 463 dinners.
Ha ha, that was silly, wasn't it?  After all, you wouldn't make an offer on a property sight-unseen, right?  WRONG!!  You sure as heck WOULD do that.  Wo, wait a minute - how and why?
Wup, wup - here we go with one of those golden nuggets; you mining it?  Here's why and how you would make that offer...
First, as a real estate investor, you always carry copies of mostly-blank WB-11 "Offer to Purchase" forms with you.  Mostly-blank because you have the common stuff already filled out, like your terms and your contingencies.
Secondly, it's as old as the hills, but you've heard the expression that you strike while the iron is hot - well, we're not shoeing horses, but the concept is the same.  When this person is ready to MOVE, you get that property under contract with an accepted offer.
But what if you buy wrong?  What if the seller's description of the property is way off and he accepted your offer for $42,000 more than you should pay?  Oh, no!  Catastrophe?
Ha ha (again), of course not.  Now, even though you had no financing contingency, no sale of home contingency, and even NO inspection contingency (eeeeek!), you do have ONE tiny little contingency written in (there's no standard checkbox for it) called the partner contingency.
All this means is that your partner (maybe a coach, a mentor, a business associate, but NOT your dog) has to approve of the offer to perfect the contract, that is - remove all the contingencies and make the contract binding on both parties.  The good news is that an accepted offer is binding on the seller while you're looking at all this.
So, you'll end up in another round of negotiations, clearly explaining why your sight-unseen offer didn't work, and what the both of you need to do to have it work.  You'll show your prospect a seller net sheet in the explanation of what you do to demonstrate why your offer is the strongest.  (Yes, you'll get that form in class.)
BUT WE DIGRESS.  And we do so because it's both fun to say that, and also to set the stage for the pre-offer work, which is your prospecting and your marketing.  You jiggy with that?  You down with it?
OK, so we solved the dinner dilemma, let's talk about prospecting and marketing.  If you don't have clients, you don't have a business.  Um, duh, right?  So exactly how do you get these customers?
As any 4th grade marketing primer will tell you... OK, there's no marketing books for 4th graders.  Do you know why that's so?  Have you ever tried negotiating with a 4th grader?  Let's see a show of hands of those that have negotiated with a 4th grader and actually came away unscathed.  That's why there are no books.
So the first thing you need to do is identify your target market, and there's many ways of doing this.  You might assume that really beat up houses in obvious disrepair are what you're looking for.  OK, that's a start, but it's certainly not all the possibilities.  In that case, you've identified possible distressed properties and they are for sure targets.
Consider that just as easily as you found those houses, other rehabbers have as well, and everybody going to start sending letters.  Now, you're in competition - but wait - that's not all, Ron Popeil; there's more.  Sending letters is only ONE way to market to those properties.  You could put a door-hanger on the front door, a sticky note on the glass, or even knock on the door.
Now if door-knocking scares the shorts off you, what you gotta know is that it scares the undergarments off 99.9% of all people.  So, if you're in that 0.1% of folks that actually does it, you might meet a nice person with whom you start developing a relationship - that puts you LIGHT YEARS ahead of everyone else.
We had a national speaker come through here last year, his name is Tony Youngs and his big claim to fame is door-knocking.  He took a dozen REIA folks door-knocking in Madison and it was amazing.  Even with a whole entourage of people standing on the sidewalk, he had great conversations with people.  It was a sight to behold.
Once again, we digress, and once again it's because we like saying that.  Back to the marketing show already in progress.  What's cool is that if you decide to target "clearly distressed" properties, that there's a whole bunch of ways that you can market to those people, and MANY ways that others just will not do, putting you ahead of the game.
Isn't this fun?  Darn tootin' it is.  And we haven't even scratched the surface of ways that you can market and have a freakin' blast doing it too.  Sure, it may stretch you, but as it does, it expands possibilities for you in all areas of life.  You'll gain confidence and a real sense of serving others.
What other ways are there to market?  Well, one thing to keep in mind is the difference between a distressed property and a distressed individual.  You could drive down the street and notice an Escalade in the driveway of a beautiful craftsman home, admire it, but blow it off.  What if the owner of that house just lost both his wife and his job?  Could you help someone like that?
We want to take a sidebar here to stress something perhaps more important even than marketing.  It's a bit of a throw-back to Unit 1 on Mindset, and it is this:  In everything you do, BE the person who is there to offer a service that HELPS people out of difficult situations.  You will sleep a whole lot better, for sure.
Yeah, we DO NOT "low-ball", we ARE NOT "scum", we DO NOT "prey" on people at their lowest moments, and if you are someone that eventually joins the REIA coaching program, you'll find out pretty quickly that we do NOT tolerate that kind of predatory nonsense.  Get the best possible price, and be fair and compassionate.
Many of us that have been doing this for awhile can actually call people that we have bought houses from and go have coffee and catch up.  And these people are grateful for what we did - no bank or REALTOR would do what we do - they just can't.  If you learn nothing else, learn THAT.
Back to the program.  Another really interesting way to market is called "farming".  Just like the name implies, it's a way of taking an entire "swath" of an area and planting seeds to see what grows there.  Only your seeds are usually letters (although door-hangers, sticky notes, and door-knocking also work).
This is where your REALTOR partner comes in.  Ask them to use the MLS Tax Data for the county you want and to provide you a comma-separated values (CSV) spreadsheet (or Excel file) that contains the following information (they will set up a template for future use):
Property Address
Owner Name
Owner Address
Once you have that, you'll use some Excel tools to extract and "parse-out" individual data fields so that you end up with this information:
Property Address Number
Property Address Street
Property Address City
Owner First Name
Owner Last Name
Owner Address Number
Owner Address Street
Owner Address City, State, Zip
You will also want to set most of the fields to what's called "sentence case" so that only the first letter is capitalized (yes, method to madness coming up).
We break it all out like that so we can use Word to create a letter that will look like this:

Mary A. Smith
7654 Tulane Dr.
Fitchburg, WI 53713
Dear Mary:
My company is doing some work in your neighborhood, and I noticed your property at 1234 Parakeet St. in Fitchburg  It is exactly the kind of property that I like to buy, and I'm wondering if you might be interested in selling it...

So the point is, you get to construct a very personal letter using the owner's name and the name of the street on which the property resides.  And you might also notice that we DO NOT ASSUME that the "Property Address" is the same as the "Owner Address".  Mary Smith might be renting that property.
Ding, Ding!  If Mary Smith is renting the property at 1234 Parakeet St. (you know because her address is 7654 Tulane Dr.), do you think that she may be sick of being a landlord?  Is this another possible "distressed" situation?  You bet your booty.
See how this stuff just starts showing up as you drill down into it?  Are you getting excited now?!  We're still scratching at the surface of all this stuff.  You can't IMAGINE how cool the possibilities are underneath all this.
OK, another sidebar...  So, the normal "return call" rate on farming letters runs 1-3%.  So if you sent out 1,000 letters, you should get 10-30 calls from those letters, and maybe 5 of those will be possibilities.
Someone in the REIA (we won't embarass him), was in the Spring 2016 REI Blueprint class, then jumped into the coaching program.  He's a database guy, so he crafted a way to look at publicly available data, created a "farming" list from a small sub-set, then sent out letters, and found himself with an 9% response rate.
In a word, "Holy Crap".  Yeah, yeah - that's two words, but because he got such a high hit rate, the possibility of him getting to "yes" was substantially increased, and shortly thereafter, he got an accepted offer and closed a month later.  He will clear over $16,000 in a wholesale deal.  Would that work for you?
Draggin' it back on track here, what other marketing channels are there?  Well, a whole bunch.  Another popular method is to purchase lists from list services.  You can get all sorts of lists, like "vacant property", "high equity", "free and clear" (no mortgage), "rental", "probate" (death of owner), and much much more.  Some list providers let you customize your list based on really bizzare combinations of things: "everyone in Fitchburg that's owned the property for more than 30 years, has no mortgage, and is not renting."
We talked about the big 3 marketing techniques, driving for dollars, farming an area, and buying special lists.  We've sent all these prospects letters and are waiting for calls.  Let's step back a second and talk about what a letter is.
Huh?  Well, there's various types of letters that you can send.  Common ones are the "yellow letter" and the "business letter".  The "yellow letter", as its name implies, is printed on yellow, lined, notebook paper, and frequently uses a handwriting font for printing.
Many investors will personally sign each letter, so you can see the depression of the pen in the paper, further adding to the credibility of the letter as "non-bulk", especially when you did all that stuff we talked about above using the person's name, address, street, and all that.
For this kind of letter, you want to do two more really key things - remember, all we're trying to do at this moment to get your letter opened...
1) Put a sticky return address label with a cute personal touch.
2) Hand-write the person's name and their address.
3) Use a personal postage stamp, not metered postage.
Where do you get sticky return address labels?  Well, Click Here for a supplier that we have used with very good results - and inexpensive to boot.
Of course we know that's 3 things.  Just wanted to see if you're paying attention.  If your hand already hurts thinking about hand-addressing all those letters, don't worry.  First, try it yourself - it may not be that hard.  Second - there are plenty of places where you can farm this out, including children who want a bigger allowance, and professional companies.
Now if you're using a "business" letter, you'll just do everything on the printer except maybe hand-sign it.  Yeah, you're asking "which one works better?"  Well, it's real estate, right?  The one answer that works for ALL real estate is "it depends".  And so it does.
Which brings us to the next topic in the letter marketing area - followup and frequency.  Just about everyone who had done this successfully, will tell you that you need to send the same person 5-7 letters before you get a success.  Of course, this is an "average" kind of thing, but in general we find that you should contact the same person about every 30 days or until they tell you to stop.  And, there are some that will respond on the first letter.
Still, you would not believe how many people respond on the 5th or 7th letter.  By then, you're almost a buddy.  Oh, and the key to this is that you're sending a different letter each time.  Certainly, you can reference (and SHOULD reference) the prior letters, because believe it or not, if someone is trying to get the courage up to call, this can push 'em over the edge.  You sound like a normal, thoughtful person.  Don't let us down on that point.
In the end, there is only this - it's a matter of timing; timing that you have no control over.  If your letter just happens to be in the right place at the right moment, you will get a call and a chance to be of service to someone.  All you can do is to improve your odds of being there at that right time.
We are fortunate in Wisconsin, and especially in Dane County, to have some really great online resources to look for distressed properties and distressed situations.  A little much to drill down into here, but you should look at what's available on Access Dane and CCAP.  Other Wisconsin counties have similar resources to Access Dane, and CCAP (Wisconsin Circuit Court Access Program) is statewide.
We talk more in detail about these online tools in the REI Blueprint class where we have the time to do so.  And we'll also talk later about Laredo, which is the interface into the recorded documents at the Registrar's office.  This is where we can look directly at mortgage documents and determine exactly what someone may owe on a property.
All of these online access tools can also be used to feed your marketing efforts, because what shows up on these services can be indicators of the state of a property, or the state of the owner.  Much of what you find here is really "behind the scenes" stuff that most people don't know about, and they don't know how to use.
For example, you could look up everybody that's been served with a Lis Pendens (from Latin "Suit Pending").  In the U.S., the Lis Pendens is used almost exclusively to notify someone of the lender's intent to foreclose on the property.  You could initiate a short-sale action on behalf of the owner, if they are willing to play along.  And now you know how to find them.
Here's another one of those "trust us" moments for you:  The most successful marketers know that you have to keep the pipeline full.  You start work doing your marketing with lead generation going in at one end and actual leads coming out the other.  Frankly, this is one damn leaky pipe, too - not a whole lotta stuff coming out the other end, and if you stop lead generation, your business stops.  Then you have to re-start and ramp up again.
Here's a wacky thing - just in case you don't find most of this stuff wacky - leads can come from anywhere, really.  Sometimes they come from referrals, from people who know what you're doing.  So how do you capitalize on that?  Who do you need to tell what you're doing?
You'll have business cards and maybe a web site, but one KEY aspect of this method is having a memorized elevator speech.  No, this is not a debate on the pros and cons of Otis, Haughton. Westinghouse, Montgomery, or Dover.
There are plenty of resources online that will help you with this.  It's also one of the exercises that we work with in the REI Blueprint, focusing on elevator speeches for real estate investors and the various people that you will encounter.
Alrighty then, we've covered a lot of stuff in this installment.  If your eyes are not bleeding yet, well, that's a good thing.  And you'll have this email and the online version to go back to as a reference.
We're going to close with this thought:  We want you to make an informed decision about whether or not this is something you want to do in life.  It can be supremely lucrative, you can help a lot of people, AND, don't kid yourself, it's a lot of work.  The good news is that if this is work that you love, you have the best of all worlds.
Chris & Randy
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