Posted by Baltimore BirdDog on March 31, 1999 at 12:16:51:
Dear Chris,
You’ve clearly got a lot of enthusiasm and have spent the time and money to educate yourself, which is fantastic. Let me see if I can help.
From your post, it seems like you’re located in a semi-rural if not rural market and you’ve involved yourself in everything from wholesaling to lease-options to foreclosures in an effort to figure out what works in your neck of the woods. Let me start by saying that while you can make money with every strategy outlined on this site, the forces of supply and demand make certain strategies better in some markets than in others. With this in mind, here are my best answers to your questions:
>1. Do people think that it is reasonable to carry on in the local area, rather than trying to work DC?
First, I think it’s important to recognize that in a rural area, your supply of houses and therefore motivated sellers is somewhat limited. Buyers may not be a problem, especially if your area is being developed and is a hot market where a lot of people want to live. However, without much inventory for such things as wholesaling, rehabbing, lease options or foreclosures, your money-making opportunities will decrease.
That is not to say that people don’t make money in small towns. Some people do very well (you might want to search the site archives for “small town” or “rural” to read related posts). However, from what I’ve seen, while some of them use the methods you are test-driving, many of them make money with what surrounds them–vacant land. For example, they buy farm land, subdivide it, and sell the lots to homebuilders. If the area’s up and coming you might be able to convert old apartment buildings or single-family residences to condos/commercial space. Mobile homes might be the way to go if there are any parks near you. The key, as with anything, is targeting an area and knowing the values so you can recognize the bargains because we all know that you make money in real estate when you BUY. Also brush up on the sales/negotiating skills. They can increase your income exponentially.
If the more rural avenues don’t appeal to you, then I would suggest concentrating in DC. This would increase your wholesaling, rehabbing, lease-option and foreclosure opportunities immensely. You also might want to consider moving closer as well. You want to spend most of your time doing deals rather than driving back and forth to your target area.
>2. Has anyone any suggestions on how to put the Trust/ILC scenario in a more appealing way? Particularly about the concern that they will be liable for a loan, but have given away the collateral.
Taking control of a property subject to the existing financing can be difficult. It seems to require motivation on the seller’s part and the ability on your part to provide a simple explanation and sell them on the benefits of the transaction AND your credibility (e.g., your credit, good name, serious investor who knows his/her stuff, etc.). The need for your ability to sell and explain decreases as their motivation increases. As I’ve had it explained to me, some motivated sellers will do ANYTHING to get out from under their property. For example, many people who hunt down pre-foreclosure situations seem to use this technique effectively. Personally, I think taking control “subject to” is a great way to make money, but due to the number of moving parts involved in this type of transaction, I’ve made a business decision not to focus on it?yet. There are easier ways, at least for me, to get the ball rolling.
>3. Is it worth taking options on properties for, say, 15% below market value and trying sell them on? (There are tenants in the properties, usually on a month-to-month basis.) I can get people interested in doing this.
LeGrand’s book “Fast Cash with Quick Turn Real Estate” mentions this very technique. Haven’t seen the book in stores, but it’s available on Amazon.com. Great read with a wealth of information.
>4. Is there anything obvious that I could do that I am missing out on?
You need to narrow your focus. Become expert at one thing, then another, then another. Pretty soon, your toolbox will be so full you won’t know what to do with yourself.
Some other comments?
>I have run advertisements in the local papers?I will persevere with those anyway.
Ads take a while to be effective, especially if you’re not running them every day. With regard to buying houses, most investor posts I’ve read say they might only buy 2 or 3 houses per year from the ad, but the profits well exceed the cost of the ad. I suppose my point is to caution that your ad should be one way, not the only way, of finding motivated sellers.
>I?ve written to people who are advertising properties to rent, and had some interest in lease/options, but wasn?t able to get anyone motivated enough?
If they’re not motivated, put 'em in a tickler file and follow up in a few months even if it’s just with a letter/postcard. Time changes everything, including motivation. Until then, move on to the next deal.
>Foreclosures?I have been to auctions on the courthouse steps, but anything with any significant equity gets a lot of attention from retail buyers.
From what I’ve read, most of your opportunities at auctions will be in the junkers. Competition from retail buyers for the pretty houses will price them at or above FMV.
>So far the most successful approach in getting interest has been mailshots to out of state owners. With the people responding to my letters (about 4 to 6%) most of them have little or no equity in the property, and just want rid of them (particularly condos). I am trying to get them to accept a deal where they would transfer ownership to a trust, then assign the interest to me ? allowing me to sell on an ILC with a wraparound loan. There?s quite a lot of interest in the proposal, but I?m finding it difficult to close. I think it is a lack of experience in putting the right story over to just get them to go the final step?
Maybe try to sell them on a straight lease option. People understand rent to own much more easily than a co-benficiary interest in a land trust.
Hope this all helps you pinpoint your focus and generate some momentum. Good luck and let us know how you do!
-Jeremy