Making Money Without Ever Leaving My House! As the market has changed so has my overall investment strategy. The old mentality of flipping properties is just that...old thinking that is not going to make us the money we need to justify the risk (Days on Market are just too high). There is so much opportunity (at least here in Arizona) to not take advantage of today's marketplace. Foreclosures are everywhere, homeowners have finally realized that the value of their property is over inflated, and FINALLY, they are motivated to make a deal!
As an investor with a Degree in Finance from ASU Magna Cum Laude (shameless plug), I understand the power of leverage, but they just briefly touch this subject in real estate school. So a great question to ask is: How can I buy below market properties, not on the MLS, using little money down, NONE of my own credit, and make HUGE money?
The Answers: Wholesaling, Agreements for Sale (Land Contracts), or Options! Today I will talk about Wholesaling. This is where I make the majority of my income. I created www.kleverinvestor.com to wholesale seriously discounted properties to investors, to educate them on the power of leverage and creative financing, and to create a continuous income stream while I waited for my buy-n-hold portfolio to mature.
Step One: Build A Buyers List. Over the last 5 years I have built my buyers list up to almost 60,000 names, email address, and phone numbers. At first this might sound impressive, but you really only need a handful of experienced investors that don't have the time (or their time is just too valuable) to spend hunting down great deals! These will be your pool of buyers.
Step Two: Start Networking And Joining Other Wholesalers Lists. This is HUGE. The wholesale game (I am assuming its the same in Arizona as any other state) is a small community that knows of each others deals on a daily basis. Maybe they can't sell their property, but you just might have a buyer. Mark up their property to make a quick buck (more on the logistics of how to do this later). CAUTION: Don't fall for the game where someone sends out a property to the world, you then mark up their deal and send it to your list! Reason, and I promise this will happen eventually, one of your deals will come back to you 10-20-even $30,000 more than what you have it under contract for. It makes us all look bad. Real investors will not appreciate seeing the same property from 10 different sources with 10 different prices!
Step Three: Get Some Property Locators (Birddogs). These will be your eyes and ears on the streets. Let everyone know that you are an investor looking to buy properties for cash (even if you have none) and want to make a deal. Offer some type on monetary compensation if they put you in touch with motivated homeowners. ( Now, before you all get up in arms because bird dogging is illegal, the way I get around this is to have all of my Property Locators place the property under contract and sell me the Option to buy the property for say $3000.) Property locators might need some training on your systems, but after that, they do their own marketing to find these motivated homeowners. Finding good locators is hard, so once you do, pay them well! Step Four: Lock Down The Property And Flip The Contract.
This is where the intricacies of wholesaling comes in and it starts to become difficult for Realtors to understand. I am so disappointed in our real estate schools because they do not educate Realtors on creative financing (small rant....sorry). There are two ways to make money here. One, the "Double Close", and the other, just putting yourself on the contract as a Realtor. Both work well, but the "Double Close" hides what you are going to make from the end user, the other lets everyone know what you are going to make! I think an example will help you all understand the process.
A Property Locator comes to me and informs me that Hank Homeowner is about to go into foreclosure and wants to sell quickly for cash. My Property Locator gives me his information, and informs me he has quite a bit of equity. Hanks home is worth $250,000 and he only owes $170,000. The foreclosure is one month away and his arrears are $10,000. We sit down and Hank immediately says he wants to sell and wants $225,000. I believe his home needs at least $20,000 in repairs so I give Hank 3 choices.
1. I pay all cash and am willing to give him $184,000. ($250,000-repairs of $20,000 * 80% of that value gives me $184,000)
2. I pay Hank $5,000 in cash, and Wrap his mortgage in order to take over his financing, put him through a credit repair program, and let him rent the property back from me for 2 full years with an Option to buy the property back from me for $225,000. (More on this in my Agreement for Sale posting)
3. I pay Hank nothing, but partner up with him placing his home in a trust with me as the beneficiary, bail him out of foreclosure, and sell his house for as much as possible splitting the proceeds with him. (More on this in another posting) Hank chooses option one, but wants $190,000.....I say deal and let my Property Locator put the house under contract selling me an option to buy the property from him for $2,500 with a closing 14 days from contract. This is where the fun begins. I then blast out Hanks property to my investor database for $210,000 knowing I will accept $200,000-$205,000. One of my investors wants the deal for $200,000 so I execute my option, then I assign my contract to the end investor placing myself on the HUD as a Realtor getting paid $7,500 with the remainder going to my Property Locator for his option fee. I then repeat this whole process as many times a month as I can!
This is Cody Sperber saying get creative and good luck on your future investing adventures. Also, please go to www.kleverinvestor.com and join my investor list to see great wholesale deals from sunny Arizona.
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