Joe: Hey, it’s Joe Crump. I’ve got another
one for you. This is from Max Sklower. Max, this is a very long question and I’m going
to try to answer as much of it as I can. So I apologize if I don’t get to all of it but
I’ll try to get through it here. Max: “I have a problem; first, in finding
people who are in distressed positions and who are about to lose their homes. I can subscribe
to a list of people in legal situations for a large fee. When I try to contact them, they
don’t reply or have moved and once in a while if I knock on enough doors, I might find them.”
Joe: First of all, don’t pay money for these lists. You can get stuff for free like this.
Basically this is a pre-foreclosure list with people who are typically 4 months or more
behind on their credit. You can get them cheaper. You don’t have to pay a large fee if you do
want them. But I find them to be a pain in the butt to work because like you say, they’re
hard to get ahold of. And if you knock on their doors, you might be able to get them
to answer the door but most people are in hiding mode — they don’t want to talk to
you. So the likelihood that these are going to be good leads is pretty small. I wouldn’t
screw with them. Joe: You want to get people who are going
to respond to your marketing or people who are trying to market themselves and sell it,
which are for sale by owners. Those are the people that we’re going after because they’re
putting an ad out saying, ‘I’m interested. I want to do this.’ Or, they’re responding
to one of your marketing pieces that say, ‘I want to do this. Here’s what I’m willing
to do. Here’s what I can do’. And then we can make an offer to those folks.
Joe: That’s much, much, much easier to deal with than folks who are hiding in their home,
not answering the door or not responding to any email because everybody is coming down
on them right now. They’re in frightened mode and they don’t want to talk to anybody. They
don’t want to deal with the problem or they don’t feel there’s any way they can deal with
the problem. Joe: Now, I’ve had students that have been
very successful with knocking on doors and if you can get to those people and you can
talk to them and you can show them that there are solutions, then great — do that. But,
I think it takes a lot more work. Go for the low hanging fruit first. Go for that stuff
before you go for this. And then he goes on: Max: “I can offer to buy them on a subject-to
and give them $500 or $1,000 money with 60 days to find a buyer. The problem is that
the buyers I found…” Joe: That’s not going to work for those people
because they’re late on their payments. Typically, 4 months is when they file a notice of default
(although all of the banks are a little bit slow at it these days). So, it’s not going
to work with those, but it might work with some of the others. But his question here
is, Max: “The problem is with the buyers I found.
Very few even have a decent down payment. Yes, I found some leads that are valid but
most of them have poor credit.” Joe: Those are the people we sell to, first
of all. We sell to people with poor credit because they can’t go out and get a mortgage.
That’s why they’re interested in buying on a rent to buy, whether they’re buying lease
option or subject-to from us — those are the people that make sense. And you’d be surprised
how many people have down payments. Joe: Now, there’s going to be a lot of people
who don’t. But in order to get an apartment — let’s say you’re in an apartment area where
it costs $1,200 to rent an apartment. They’re going to need to come up with the first month’s
rent and they’re going to need to come up with a deposit just to move into that property.
So if they want to move at all, if they’re not indigent, if they’re not on the street,
they’re going to have to come up with $2,400 in order to move into a rental property. If
they have bad credit on top of that, it makes it even more difficult for them to even get
into a rental property. But we can get them into lease option properties.
Joe: As long as they’ve got income, we don’t care about their credit. We want to know that
they’ve got income, that they’ve got a job or that they’re got money coming in from another
source that’s reliable, and if they do, that makes them more qualified for this.
Joe: So let’s say you had somebody that came along and they wanted to buy a property that
you’d tied up and all they’ve got is the first month’s rent and enough for a deposit; $1,200.
Use that $1,200 for a lease option fee and give that $1,200 (the first month’s payment)
to the seller and you’ve made $1,200 for doing virtually nothing. I mean, you’re tying up
the property and selling it. It’s going to take you 2 to 4 hours to do all of that, which
means you’re only making what? – $300 or $400 an hour; not too bad. But the likelihood is
that you’re going to find people that have up to $5,000 on a property like that, and
if you’re in a higher price ranged area, you’re going to find people with up to $20,000 for
the lease option fee. Joe: So don’t get too worried about this.
There’s lots of people out there that have credit issues that would be good solid tenants
because they’ve got good income and good jobs but they have credit problems and they want
to buy a property. They want to have something nice for their homes, they’re good people
and we can get those people into a home. Joe: We can solve the problem for the seller
who’s got a vacancy, who’s got monthly payments going out every month, or they’re just losing
their rent every month, or they can’t sell their property, or don’t have any equity,
etc. We can get those people relief. We can get the buyers relief and we can make a chunk
of money ourselves by doing it. Joe: So we’re out there solving problems,
making a lot of people happy. And yes, you are right — there are going to be people
out there that don’t have any money. But one of the marketing techniques that I teach shows
you how to make it so that you don’t have to talk to those people and so that they’re
clearly educated before they ever get to you. They go into a certain follow-up autoresponder
if they don’t have the money so that when they do get the money, then they’ll be on
your list and they’ll be able to buy a property at that time. But they’ll know why they’re
on that list and they’ll see it as a value and appreciate it, rather than you just telling
them that they don’t qualify. Joe: When I was in that situation, when my
credit got trashed after my business collapsed, I know how humiliating that can be. I remember
going to try to get a car, and the guy treated me like dirt and wouldn’t do it, and to this
day, I will not buy a car from that dealership. So treat your people right, put them on an
autorepsonder, put them on a list, show them the path to home ownership, and they will
come back to you and they will work with you. And, they’ll give you a big hug when it’s
over. Joe: Jim Jarrell coined the phrase “The Crying
Quotient” — how many people cry and hug you when they close, buyers and sellers both,
because you solved their problem. It makes life a lot easier.
Max: “With the only house I wound up buying myself, I had to do a rent to own after having
it on the market for about 3 months. I sold it on a real estate contract and its coming
to me next month and may close. There’s profit there but a lot of leg work and showing in
person trying to sell it. That was 2 years ago.”
Joe: I’d like to know what a lot of leg work is and what a lot of profit is as well. To
think that they’re actually going to go out, if it’s a balloon payment, and actually pay
off that land contract, you might be kidding yourself on that, Max. They may not qualify.
If they didn’t qualify then, they probably won’t qualify now. So don’t get your hopes
up that they’re going to be able to do that. Instead, work out a way for them to stay,
maybe bump them up in price, maybe charge them a little bit, a lump sum like $500$ or
$1,000 just to stay in there or to extend their land contract. Try to work with them
to make that happen. Don’t tie up your money in a property like this that you don’t know
how to sell or that you can’t sell. Joe: If I buy a property with cash or if I’m
using cash or a loan, I know what my exit strategy is going to be and I know how to
get there so that I can always make this happen. What’s happened to you here is that you’ve
gotten stuck with a property that you didn’t necessarily want, because you wanted to get
that capital back it sounds like, and then buy another one. That’s not going to work
in this market as easily as it did back before 2007 when loans were still easier to get.
Joe: These days, I don’t sell to end users. I’ll sell to investors who have cash because
they’re easy to work with. And I buy properties that make sense for investors. So that’s going
to be important too — understanding what type of property you’re going to buy so that
when you sell it you have an exit strategy that makes sense.
Max: “Actually I’m not in the mood to buy anything else. I had two condos rented and
got tired of that exercise and finally sold both of them under real estate contracts.
With one of these, the buyer lost his job and I almost had to repossess that. It’ll
balloon next year as will another one I sold and it is good and will surely close next
year.” Joe: Boy, you’re covering a lot of good stuff
here. It’s no fun to be a landlord. I hate it. First of all, my property manager — she
loves it — she loves being a property manager. I have property managers in 7 different states
and they enjoy what they’re doing. But I hate it. I don’t want to be a property manager.
It sounds like you’re not enjoying it very much, either. And what I would suggest is
that you find somebody to manage these properties for you, whether you sell them on land contract,
whether you sell them on lease option or just have them rented, get somebody who’s going
to look out for them and when a problem comes about, they send out the maintenance person
for you and they take care of it. You just have to make sure that the deal makes sense
so that you can afford that person to do that; that extra 10% of the income to cover that
cost. Joe: Don’t manage your own properties. It’s
not going to be a fun process for you. Most of the rehab properties that I’ve been buying
lately were buying packages from landlords that are so burnt out on this process. I remember
going to close and we were buying and selling properties from this guy and I said to them
(and he had them for 20 years) ‘At least they’ve been good to you over the years. They got
you income.’ He said, ‘No, not really.’ — He hated it. He despised what he was doing. He
felt tied in and locked into them because he didn’t set it up right.
Joe: We went in and we were going to make some really good money on those deals because
we are doing it right. I wasn’t trying to screw him out of his equity — he let those
properties go downhill, he didn’t take care of them and he didn’t maintain them. They
were slums. By the time I got them, they needed a lot of work. We went in, we fixed them up,
and we made them nice places to live. I have the capital to do that. That’s why I’m doing
this way. I don’t suggest, if you don’t have the capital, that you do it this way in this
situation. Joe: That’s all I’m going to cover on this
for now. Maybe you can send another email with more questions later. Thanks a lot!