All Forum Posts by: Jeff G.

@Dick Rosen grow stronger! :)

For lower end properties do yourself an additional favor when dealing with doors. Depending upon the area you might do this for just your exterior doors or all doors on the property:

To Reduce Wear from Abuse

• Use longer than standard screws on the hinge plates of the doors you install.
• Increase the number of hinges you install from 2 or 3 to 5 or 6. This distributes force exerted on the door more evenly.
• Buy heavy duty strike plates and install those. Do not use the strike plate that comes with your door knobs. Use longer screws when affixing the plates here too.

In High Crime Areas

• Get a brass (or stainless steel) wrap around plate too. This makes the well-known "credit card trick" more difficult to execute effectively.
• Get a stainless steel door frame or an extremely sturdy (ash or oak) wooden frame. This makes it much harder to kick in the door.

@John Tan you should be more concerned about inflation. Your property may be worth more in dollars numerically but be of less value in an absolute sense when inflation is factored in.

Of late, T-Bills and CD's tend to have interest rates below the real rate of inflation. Don't worry about those. Do be prepared to re-adjust your rents as tenant's leases expire. Remember: if your investments are not gaining more than the real rare of inflation you're losing money.

I agree with @Virginia C. Huddleston I'm on the hunt for quads and triplexes myself. 

As a rule of thumb the more units a non-commercial property has the less likely it is to be in a good area of town. It's not a hard-and-fast rule, more like a sliding-scale of sorts. So, you'll want to balance your desire for number of doors against the quality of the neighborhood and the amount of pain required in extracting rent from your tenants.

@Ryan Keough is correct. Most banks want two years of financial records in order to proceed. For the purposes of residential real estate the income the property you're attempting to purchase generates will not help you. This is only true in commercial real estate, typically property with 5 or more units.

HOWEVER, once you have other properties in your portfolio for a few years their impact on your financials will help you make further acquisitions. Think of it this way, "Real estate is like climbing a ladder, watch your step the first one is a doozy." 

@David Cohen subject-to can be a good way to build your portfolio quickly. But be careful. Most of the people I know who do Subject-To transactions do so with a few added steps:

The Process

• They provide the seller with a Subject-To hazards disclosure form. Find one that is valid for your state, have a qualified attorney review it, and use it.
• They put the house in a trust and make the current owner the executor or the trust. A bank account gets setup for the trust with several months worth of reserves, etc. and the title gets transferred to the trust. All this juggling takes a bit of time The due on sale clause is not triggered, yet.
• A good loan servicing company is hired to make sure everybody gets paid on time. This is critical to keeping everyone happy.
• Once all of that infrastructure is put in place then the you're elected the executor of the trust by the end-end buyer. The Due on Sale clause is now violated. Which leads me to my next point....
• Everyone I know who has Subject-To in their portfolio and stays in the business acquires the property at price low enough that they could sell the property retail within 90's or less. This is used as a stop-loss measure of last resort should the lender exercise their right under the clause. Adjust that timeline accordingly if you're in a judicial foreclosure state vs. a non-judicial one.

Things You Should Know

• The Guru's will tell you that the bank is highly unlikely to foreclose. This is technically correct at present, but there is a vast difference between a statistically unlikely event and a statistically impossible event. Banks do occasionally foreclose on Subject-To deals. Typically, this happens when something goes wrong with payment processing and they have a reason to start looking at what's going on.
• Also, as the economy changes note that should the Federal Reserve ever raise interest rates significantly during the lifetime of the subject-to agreement the lenders will have a vested financial interest in foreclosing because they can re-issue the loan at a higher rate of return.

I haven't personally done a Subject-To deal. I want to get more Wholesaling deals under my belt first. But, that's personal preference on my part. If you feel comfortable proceeding come back and tell us how it went!

Some Resources

• HOW TO INVEST ‘SUBJECT TO’ AND OVERCOME THE “DUE ON SALE” CLAUSE | EREI 28
• BP Radio Podcast 002: Starting Out with Karen Rittenhouse – Subject To, Direct Mail, and Investing from a Woman’s Perspective
• BP Podcast Show 70 buy subject-to, with wrapped mortgage, selling owner financed

Good luck @Brie Schmidt 

I suspect the tenant is lying. But, permit me to play devil's advocate here for a second. If the previous tenant had no bed bugs and the current tenant now claims she has them it's possible that your problem tenant is telling the truth... having brought them with her from her previous residence.

You might confer with your problem tenant's previous landlord to see if she made any similar previous claim--if you're permitted to inquire along such lines in your state, check with your lawyer--this could be useful. If there was a legitimate problem you know to be on guard. If, by contrast, she made a similar bogus claim and the previous landlord can provide documentation of this fact it can only help you.

Oh, and FYI once you're done with this mess you might look for a flat fee eviction attorney in your area. This could help you control costs when dealing with evictions. Consult Google or ask around.

Welcome to BP @Brandon Monaghan 

You really should have a high-level overview of what real estate investing entails and what options are available to you. It's a bit dated but Carlton Sheets CD set  is a reasonable 15,000 foot view of how all this works. It can be had on Amazon for around $5.

Another really good resource is the Epic Real Estate Investing podcast. The first 20 or so episodes are more or less a step-by-step guide to getting started. Go look it up on iTunes and take a lot of notes.

Once you have a high level overview and have a sense of what kind of investing options work best for your specific situation go find the different Bigger Pockets episodes that cover those options in depth and take even more notes.

Once you have an understanding of the processes involved take the plunge. 

@William Johnson understand that "No" is often "No, not yet" when dealing with sellers. I send follow-up letters to every "No" that I can at the end of the month. Often sellers think they can get a much higher price than the market will permit and so they think your offer is unreasonable. When they get tired of unqualified buyers trying to purchase the property and you keep sending them letters on a periodic basis guess who wins in the end? You!

You don't need to be "aggressive" just firm on your price with lots of follow-up. Be prepared to articulate (nicely) why your price is the way it is. If you know why you've set that price and why it's a fair offer you'll be more confident in sticking to it.

I'll give you an example in progress from my own business:

I sent out  batch of yellow letters and got a call back from a Reltor about a property in a nearby town. The property is tiny but on a decent lot. But the house has been unoccupied for 4-5 years, is infested with mold, has a lot of structural damage from water and ice due to multiple roof leaks, and the septic system hasn't been used since the previous owner passed way.

The property generates a lot of interest... from first time home buyers attracted to the lower price-point. But, the property can't get a mortgage because it's not fit for human habitation. So, if you're a first time home buyer with no rehab budget you're just not going to be able to get the house. The seller wants 80k for it, I offered 35k, they countered at 60k which is still too high because of the extensive amount of rehab required. I'm going to keep sending them offer letters for 35k-40k until they change their mind. Unless some other cash buyer comes along I stand a really good chance of getting this property under contract... eventually. If the property were in better shape I could offer more.

Wholesaling is like chess: it requires patience, deliberate action, persistence, and above all you must think 4 moves ahead. 

The fortune is in the follow-up.

Hello @Rick Patriarca 

When I go physically meet a client I have several forms with me. 

Purchase Contract

This is the (assignable) contract to purchase. The contract I use is one page long. It's simple and easy to read. I use this form to lock the property up under contract at a cash price low enough to give you about $10,000 of meat on the bone (more if possible) and the end buyer lots of meat on the bone after that.

Assignment Contract

This is the contract that comes with me to the Title Attorney's office. This is what the end buyer signs to take my position in the contract. Yep, you guessed it, it's one page long.

Flex Option Contract

When you've been at this business a while sometimes you'll get calls from wholesalers telling you that they have a property under contract and it's a good deal--but they're having difficulty moving it. I keep these on hand for just such a call. A flex option, in this case, would give me the option (but not the obligation) to purchase the wholesaler's property. I'd mark it up slightly ($2,000-$3,000) and shop it to my cash buyers under two conditions (1) I know the wholesaler well enough to trust that everything is on the up-and-up (2) he provides me with a copy of the original contract and supporting documentation such as a scope of work, etc. This form gives me equitable interest in the property, so I'm not acting like a Realtor without a license. This contract is also 1 page.

Subject-To Hazards Disclosure Form

This is to let the seller know in writing of the risks associated with selling their property subject-to the original financing. That is, to let them know that the original lending institution has the right (but not the obligation) to foreclose on a property under such conditions. Yes, it's one page also.

Contract Addendum

For those times when one page contract just won't do!

That's pretty much it. You probably want to also bring a yellow legal pad to take notes with, and a smart phone to take pictures. 

@David Savoy welcome to BP!

If you're just getting started, read like it's going out of style.

If you really want to do this, great. But realize "No [or low] Money Down" means none [or little] of your money to buy the property. Marketing takes money. To start using direct mail with any statistically significant chance of success you'd need to put a few thousand dollars into it. 

It sounds like that kind of expenditure may be beyond your reach. But, all is not lost:

• In addition to the BP podcast you may want to look up No Limits Podcast: 90 Days Do or Die where the podcast host uses his brother as a guinea pig and starts him off wholesaling with a budget of about $3,000 for marketing. This is the podcast series that made me decided to jump into wholesaling.
• If cash is especially tight you might try "driving for dollars." Consider starting a "Sunday drive" family ritual... with the dual purpose of looking for abandoned houses while you're out.
• If you decide to take that approach you should probably read the Bigger Pockets Driving for Dollars Bible. Take notes of addresses and look up the owners in public records and send them a yellow letter. When sending yellow letters like this make sure the property has 50% equity or more, otherwise it's not a Wholesale deal.
• I use this http://publicrecords.netronline.com/ as an excellent jumping off point for finding public records.
• You can estimate equity by taking the number of years the property has been owned by the current owner and dividing it by 30 (the term of many residential mortgages.) This assumes the owner hasn't used their house as an ATM machine.
• If driving for dollars isn't appealing (or isn't going to work with 4 screaming kids in the back seat) then you might mail owners of properties (with the requisite amount of equity) that are currently in the process of evicting a tenant. Often, you can look these records up online.
• For Pete's sake, track everything. I use Podio for my CRM. It's free for a single user account. Feel free to PM me if you want details on how I have it set up.
• Make sure to present an offer to every caller that you can. Most deals are't had on the initial call. By follow-up, I mean send an offer letter for every caller that you can.

With a low volume of mailers it will take you time (months) to get your first deal under contract. Even at a snails pace you're likely to spend $100-300 per month on paper, printer toner, gasoline, postage, and cell phone minutes, etc. But, it CAN BE DONE.

Just don't quit your day job and don't spend money for food/rent/gas on mailers and you should do okay.

When you get your first deal:

• Do take your family out for a nice meal, and have a cold beer while you're at it. You've earned it.
• Talk to your tax adviser and figure out how much you're going to have to pay Uncle Sam this quarter.
• Take a reasonable amount and give it to charity so as to say "thank you" to the ultimate source of all your wealth. 
• Take the rest of the money and pour it into marketing--all of it--for your first deal or two. From there you should be able to extrapolate a marketing budget and stick to it.

One last word of advice: make peace with two immutable facts:

• You will tick people off by mailing to them. Some of them will call you up and leave nasty-grams in your voice mail box. It's a fact of life. Heck, I even had one of my mailers (a standard yellow letter) result in a call from the police--yes really. That conversation was awkward, but it was proof my mailers were working.
• You will screw up. You will lose deals because you forget (or don't have time) to get back to someone fast enough. You'll fumble in some other way. It's part of the learning process. Do yourself a favor an accept that now.

You can do this if you're persistent, organized and determined.