Getting calls, but ... - Posted by Sally Fodern

Posted by Gary on August 28, 2003 at 08:25:17:

Thanks JS -
It is becoming appearant to me that REI is a “numbers game” - like panning for gold - you have to go through much sand before you find gold. Your last post on this subject gave me a hint that possibly, to the experienced, that isn’t the case -but alas- I think it’s still true.

Although I’ve lived in Missouri since 1988, I grew up in Danville, IN. I have fond memories of going to Gray Brothers Cafeteria (in Mooresville) and shopping at Lafayette Square (on 38th street). I’ve enjoyed reading your posts and appreciate your point of view on other posts on the board.
Thanks for the reply,
Gary

Getting calls, but … - Posted by Sally Fodern

Posted by Sally Fodern on August 24, 2003 at 23:52:33:

I’m just getting started, and figured the easiest and least costly advertising I could do to get started was bandit signs. So I got some made up, and have put out about 25 in the past few weeks. I’ve received about 8 calls so far, and the last 12 signs just went up the other night. Anyway, I’m pleased with the calls I’m getting. I’m surprised that each of them could be described as moderately to very motivated i.e. no tire kickers or curiosity seekers. So this is good. The situations are right - foreclosure, bankruptcy, classic don’t wanters, etc. - but the numbers just aren’t working out. All houses in the 100-300k range, and I could have probably made a small profit of 8-12k on at least 6 of the 8 properties, but I just couldn’t pull the trigger on any of them as the profits seem a little too small and not worth doing. Now I know that I’ve only got 8 calls so far and this is not enough to come to any conclusions, but am I on the right track? I keep telling myself that any one of them could have been a nice 20-30k payday … the numbers just haven’t been quite right. I mean, surely there is a lot of luck involved here too. Should I just keep doing what I’m doing? I’m learning a lot, but I guess the only thing I don’t like so far is that each person I have talked to is in a different situation, and I am scrambling like crazy trying to learn every little detail about every little situation and how to deal with it i.e. doing accurate comps, estimating rehab costs, meeting with various people, learning about bankruptcy, foreclosure, short sales, etc. etc. On one hand I know I am learning a lot, but on the other hand it seems like things would be a lot easier if I picked one strategy and tried to market to those people and focus on that strategy until I got really good at it. But I guess a motivated seller is a motivated seller and the specifics, property details, etc. are secondary. Right??

You’re doing fine … - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 25, 2003 at 02:00:11:

Sally Fodern-----------------

It sounds to me as though you are doing fine. You are avoiding a common beginner’s error: rushing into nonprofitable deals or trying to push non-deals into deals. Good for you having your criteria and sticking to them.

Good InvestingRon Starr

You’re on the right track. - Posted by js-Indianapolis

Posted by js-Indianapolis on August 25, 2003 at 01:25:43:

8-12k is squat on 100-300K. I COULD have made that on every deal I’ve looked at for the last 12 months, same price range. Then again, if there?s no room for error, there?s room for an 8-12K loss as well. Don’t worry about those ?deals?; they are always going to be around.

Now, what you’ve done is working, somewhat. You’ve got your phone ringing, which is more than 98% of the people who attempt this business ever accomplish. One of two things is happening now. Either these people don’t have the equity to sell to you for a fair profit, or you are not negotiating down to that level. Which is it? You can do things to work with both.

You so remind me of me, a year ago, when I started. I thought I’d try maybe this technique, or that one. Then, I talk to a few sellers, and find out; I need to be able to pull the trigger on any one of many techniques. You can’t fit a square peg in a round hole. If someone is facing foreclosure next week, you can pitch your lease option idea until you’re blue in the face, it’s not happening.

So what you’ve realized at this point is the real world is oh so different than book/seminarland. Ah, seminarland…where anything is possible. Sorry, I lost it reminiscing there for a second. Back to real world. You don’t learn this business through websites, books, and tapes. You can learn the words, but you won’t know the music. You need to get out and jam, and just find your groove.

You’ll know, when that first person calls and their house is somewhere under 60% of FMV, that it’s time to pull the trigger. It’s something you feel in your gut, as much as you know in your head, and in the figures in front of you. If you’re unsure, and know your market, that’s probably not the deal. But when you’ve got a seller needing $60K, via SOME technique, willing to do anything, and the place is worth $100K, you’re going to learn real quick how to put that together.

Congrats on your early success.

Re: Getting calls, but … - Posted by Brent_IL

Posted by Brent_IL on August 25, 2003 at 24:52:00:

You are right. Motivated sellers are the key.

I have no problem with making $2,000 on a deal, but I have to buy their property over lunch, or be in-and-out of the seller?s house in an hour, and we have to find a buyer and send them to escrow in the second sixty minutes.

My first attempt to become a successful creative real estate investor was fairly short. I believed that everything important could be learned in three-day seminars. I didn?t know what I didn?t know.

The second time out I knew a lot more. I dismissed the advice of seasoned investors would advised me to slow down and consolidate. I wanted to make deals. I knew everything. I became so overextended that a slight stutter in the market sent me tumbling into a full-scale crash.

Years later, the third time around, I sought to quantify my real estate activities. I knew that my skill was using a combination of financing terms to buy property. I did a few to collect cash. I decided that I would donate 90 minutes of my efforts or travel time to any deal. Every minute of time after that was mentally billed at a psychotic $1,000 an hour. Phone time, document prep, stalled in traffic waiting to go to a house, advertising, mental what-if scenario development, and pacing in front of a house when a buyer was late, all had the same billing rate.

To accomplish my goal, I had to focus on the most profitable processes that I had the competence to excel at, delegate everything else that could be handled by someone billing less than $1,000 an hour to a qualified and trustworthy person, and then factor in that expense. In the beginning, that someone had to be a person whose costs could be deferred until after settlement because there was no money to pay them prior to the closing of the deal.

Repairs? Nope, delegate. I don?t know how to do them anyway.

Landlording? No, the most expensive property managers don?t charge $1,000 an hour; I?d better get out of any deal quickly.

Pass out flyers? I could get 100 people for what I cost myself.

Eventually, my purpose was reduced to making in-person offers to owners that must sell, briefly coordinating with REALTORS® and attorneys, and re-selling the house or the deal. After a while, coordinating activities and property sales were eliminated from my schedule by delegating these to qualified professionals whose abilities were proven. I still talked to the lawyers about all but the most mundane purchases because I wanted them to know my intentions so that they could adjust the documentation to accommodate my exit plans. My time speaking with them counted toward the total.

Quite a few of the terms that I?ve incorporated into my purchase contract were buried in there so that I wouldn?t have to take the time to explain it. If I had 21.5 total hours in a deal, I expected to make a minimum of $20,000 at the close after all expenses (21.5 - 1.5 free (90 minutes) = 20 hours x $1,000). I counted future benefits, but discounted them back to the present using a modified-internal-rate-of-return investment rate.

Not every deal can be forced to yield a $20,000 profit. You must decide if you want to do them anyway. If I?ve gone to the trouble of locating the seller and meeting with him, I want to leave with something.

This was my method of increasing the probability that the deals that I got into were really profitable and not unseen alligators lying in wait. When I forced myself to comply, I stopped doing marginal deals just to do them.

This validation model is what works for me, but I have no mechanical skills, poor visualization techniques, I?m easily bored, and I like the wheeling-and-dealing aspect of making offers. Your mileage may vary.

Re: You’re on the right track. - Posted by Gary

Posted by Gary on August 26, 2003 at 20:19:56:

JS -
So you’re saying that you could have easily made a 6 figure income over the last 12 months with these “squat” deals and you’re not doing them?

What am I missing here?

Re: You’re on the right track. - Posted by js-Indianapolis

Posted by js-Indianapolis on August 27, 2003 at 23:05:00:

COULD, as I typed it in capital letters is what you’re missing. That also means there could have been a 10% market correction and I would have been left with SQUAT. 10% is high risk. Just the need for a quick sale, RE fees, and closing costs will put you upside down.

Technically, you COULD make 6-7% off any house on the MLS, if you don’t use a realtor. Not the percentage I’m looking for.