Have you ever seen the movie “Boiler Room?” If not, check it out! One of the best scenes involves Ben Affleck doing a group interview. He works for a less than reputable brokerage firm and tells a fresh batch of recruits like it is. One of the first questions Affleck asks is whether anyone had already taken the Series 7 Exam. When one of the guys pompously raises his hand, Affleck shows him the door saying, “We don’t train old brokers here, we hire new ones!”

When I got started as a real estate investor, I had zero experience in the real estate field. None of my immediate family had ever been an agent. No mortgage brokers, appraisers, or real estate attorneys. I was quite green and had a fresh mind ready to soak up whatever was put in front in me. Having no background, when I first came across the idea of “Zero Down Real Estate Investing,” it was hard to comprehend, but I did not have any preconceived notions to hold my thinking back. I was like the newbie in “Boiler Room.” It is often times easier to learn a new concept when you don’t have to unlearn ingrained ways of thinking and doing.

If you look around at a book store or if you google, “No Money Down Creative Real Estate Investing,” you’ll see an array of information on the subject. I still hear plenty of people refute the claims saying that it doesn’t exist and can’t happen. Anytime I hear something like that I simply say to myself, “Well, they’re right, it doesn’t exist and can’t happen for them.”

Most of the time, the people that don’t believe in the “No Money Down” claims are the ones that have been trained in real estate the traditional way. And I can’t blame them. Had I learned the way that they did, I may have the same mental blocks that they have.

One of my next posts will explain several different ways to structure a “No Money Down” deal. But before I go, think on this one. Just because someone says that they have bought property with no money down, doesn’t mean that there weren’t funds required to close the deal.

Often times, “No Money Down” just means no money out of your pocket.

Two of the most famous gurus on the subject are Robert Allen and Carleton Sheets. I will go into more detail on books, courses, and seminars soon.

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No Money Down Secret of Success from an Expert Creative Real Estate Investor 

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This is the list that other investors in your area don’t want you to know. We are going to give you a list of marketing ideas that takes most investors years of dedication to figure out and a whole lot of money!

This is just a start of things you could do to have motivated sellers beating down your door in this market. Let’s get right down to it:

1. Bandit Signs - Yes, those oh so beautiful signs that you probably see plastered all over your city (or maybe not if you’re lucky). There is a reason they are there. They work! We always went with the standard, “We Buy Houses,” yellow background and black writing. Our signs were in the shape of a house and had a local # that forwarded to a voice mail system. We found that the local # brought in more calls than having a toll free #.

2. Direct Mail – There are many different types of lists that you can mail to that could have your phone ringing off the hook. Patience is the key though! Sometimes it takes 7 or 8 “touches” with the list you’re mailing to in order to get an appreciable response rate. Here’s a few quick suggestions: out of state owners, expired listings, landlords, properties that have been transfered, etc. The important thing is to just pick a list and get started. The best marketing advice I could give would be to TEST, TEST, TEST! Do more of what works and change what isn’t.
3. “Driving for dollars” - Take a different way home from your norm. Look for houses that could be potential deals. You’ll know when you see them. Grass has grown up over the house. 10 soggy newspapers are in the driveway. Totally lacks curb appeal. Broken windows are almost a sure sign! Write these addresses down and look them up when you get home. Call if you want or add them to your direct mail program. Look for the correct mailing address for the property owner in the tax records so you can get your letter in their hands.
4. Estate Sales - Another great place to pick up great deals. Many times the heirs are left with something that is more of a headache than a blessing, and they just want to get rid of it ASAP! You can also negotiate some favorable financing often times in these situations because they’re just ready to sell it and any money coming in is gravy to them.
5. Internet Classified Sites - There are many Internet sites out there like Craigslist where you can post FOR FREE telling the world about your house buying services. We have done a few deals off of free websites on the Internet just by taking 5 minutes to put a post on their site. This is especially great for beginning real estate investors because the price is right!

We challenge you to think of some more ways to bring in business by commenting on this post.

Let us know what you think.

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Recently, I wrote about Developing a Solid Financing Arsenal. After reading one of the comments from our readers, it sparked an interesting question in my head, “How does an investor’s financing arsenal effect their choice of exit strategy?”

When I use the words “exit strategy,” I mean WHAT IS YOUR PLAN? Because you better have one especially in this market!

Here is what it comes down to:

The less options that you have to finance a deal, the less options you have for your exit strategy. The more options you have to finance a property, the more ways there will be to structure the most effective and profitable exit strategy to suit your investment goals.

For instance, you have a property under contract that looks like a good deal. The only financing resource that you have available is a private lender that will let you borrow the money for 4 months. At the end of the 4 month period, you must pay the loan off in full. If your only way out of this loan is to sell the property, you are putting yourself into a pretty tight corner. What if the small renovation that’s needed costs $5K-10K more and takes an extra month to finish? What if 2 other houses in the neighborhood hit the market at competitive prices right after you buy? What if you find out the property is really worth 5-10% less than you originally thought once you go to sell the property? What’s Plan B?

Since your only financing resource above is short term money from a private lender, you’re pigeon holed into having to sell the property whether you like it or not. And what if it doesn’t sell?

A Good Exit Strategy

Let’s say you have built up your financing arsenal to include a hard money lender, several longer term private lenders, an equity line on your primary residence, and you can qualify for conventional financing. Your exit strategy could include a Plan A, B, and C.

Plan A - Buy, renovate, and list the property for sale.

Plan B - Property doesn’t sell within time frame needed so you already have conventional financing lined up. You close on a bank loan to refinance your private lender out. You continue to market the property for sale.

Plan C - Property still doesn’t sell so you begin marketing the property as a rental. You have already done your homework. You can rent the property out and have a positive cash flow.

This is the cornerstone of good financial planning for your investments and THE WAY to develop long term business relationships with your financing team that just keep on giving.

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Anyone who has been in the rental business for more than three months knows the biggest problem…TENANTS, TENANTS, and of course TENANTS!!!  No question about it.

Who are these people who call you with all these lame excuses and situations that seem to unfold so effortlessly in their lives month after month?  Their consistent stream of BS is simply amazing! 

Here is the life changing kicker…you don’t have to put up with it! 

It all starts in the very beginning of your landlord-tenant relationship.  Define the rules and your expectations VERY CLEARLY and HOLD STRONG to them! 

The first time they call and tell you why the rent is going to be 5 days late, explain exactly what it’s going to cost them and why.  Do not come off of your late fees even a little bit, especially early in the agreement.  YOU MUST draw the line in the sand with them and stick to it, or they will walk all over you.  Once a tenant understands what paying late means, they will stop putting you behind other bills.  They will miraculously start figuring out a way to pay you on time.  They will continue to test you throughout the lease just like kids test their parents…don’t waiver!

This philosophy has drastically changed tenants’ mindsets about the way they pay us every month.  We have given too many tenants the benefit of the doubt over the years and have learned from our mistakes. 

Set the expectations early.  Hold your ground when they try to change the deal. Now you can sit back, relax, and enjoy the asset you’ve added to your portfolio.

Now, you’re managing the property instead of it managing you!

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I was speaking to an investor group in Columbia, South Carolina last night on recruiting private investors. That always seems to be a popular topic among beginning investors. It seems that many investors have a hang up when it comes to getting a deal financed. One of the investors asked me what I thought about using credit cards, and it got me to thinking not just about his question but about how to develop a solid financing arsenal.

Let’s just say that you find someone to finance some deals for you. You work out some terms and how the relationship will be structured. You hit the ground running and before you know it, your doing deals. You’ve bought, renovated, leased, and sold a few houses. You get another deal under contract and set up the closing.

Right before closing, you get the dreaded call. Your investor says, “Sorry but I’ve had some things come up, and it’s just not a good time.” Your heart drops because you don’t have a back up plan, and you have to break the news to everyone that expects the deal to close the next day.

You’re thinking to yourself, “Well, I guess that things like this just happen sometime. It was out of my control.” WRONG! You only had one source of capital and relinquished all control to them. He said no, and you had no place to go for the money.

Developing a Solid Financial Arsenal

There are two areas to look for capital: on the inside and on the outside.

Start by asking yourself, “What assets do I have that could be used to fund my real estate deals?” Do you have cash, equity in a house, stock you could borrow against, or room on a credit card? Total up everything that could be used and see where you stand. If you are structuring deals creatively with seller financing, often times, you’ll find that you don’t even need much cash to get a deal done.

Now ask yourself, “Who would be interested in provided funds for good deals in real estate?” Friends, family, other investors in the area, hard money lenders, banks? Almost everyone you will ever talk to is interested in making more money. If you can show any of these people that it makes sense to lend money to you because they will make more money by doing so, you’ve got a lender. And the only one that cares about credit are banks!

Developing a solid financial arsenal is all about options! When you have multiple options to getting a deal financed, you are in control which is exactly where you want to be.

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Tired of watching your properties sit on the market month after month after month with no real offers? Would you rather sell your properties in a few days instead of a few months? Well, to get a different result we must apply a different strategy. Auctions are a great way to get properties sold in a hurry!

But remember, not all auctions are created equal. There are few different types of auctions you should be familiar with.

We have “Absolute” auctions which are exactly what they sound like. That means that no matter what, that property is going to sell for something at that auction…even if it’s one dollar! This type of auction creates the exact environment you are looking for as a seller. They’ll be many buyers showing up to salivate over your property and compete with one another! Sound good? This type of auction generally brings the most people to the event because everybody is looking for a deal and they know that once that bidding starts, there is no turning back for the seller. The best part is, if you’ve done your marketing right (which is vitally important), the property usually sells for close to appraisal and sometimes above appraisal.

Also, there are auctions that start with a “reserve” price. This is different than the “opening bid” or “Starting bid.” This means that the bidding has to get up to a certain number for the transaction to go through. Let’s say you have a property that you’re auctioning that appraises for $100k, and you know that you have to get at least $60k for it to let the transaction go through. You could set a “Reserve” for $60k and if the bidding comes in at $59,999 then it’s no deal. Anything above $60k will trigger the auction to then be absolute in nature. Pricing the property with a reserve of $60k still gets people interested in showing up and bidding while giving the seller the security of knowing that it won’t sell for less than the reserve.

Where else can you create an environment of extreme competition among pre-qualified motivated buyers who are willing to put a no contingencies contract on your property that day and pay all the commission? Exactly!

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If you have been in the real estate investing arena for very long, you have probably heard the term “hard money” used a few times. To clarify this subject, let me explain exactly what “hard money” is, why investors use it, and my experience with hard money lenders in our business.

What Hard Money Really Is

First off, there are three things that signify a hard money loan:

1. Based on the Property – the loan is made based on the deal, not your credit and is usually around 65 to 70% of the after repaired value (ARV).
2. Short Term – usually anywhere from 3 to 12 months.
3. High Interest – 12% to more than 20% depending on who you use.

Why Investors Use Hard Money

Why would anybody want a loan that they have to cash out quickly that seems like it costs an arm and a leg?

I’ll tell you why! Maybe you have a deal under contract that you NEED to close a week from today. Try going to Bank of America on that one. Maybe your credit sucks. Maybe you are buying a house that is in such bad condition, traditional banks won’t finance it. Maybe you plan on buying a house, renovating it, and selling it within a matter of months. Maybe you already have a number of houses on your credit report and the banks won’t lend you any more money. These are all good reasons to bring in a hard money loan to finance a deal among others.

When you break it down, I don’t think that hard money is that expensive. It’s a cost of doing the deal. If you have ever bought a house conventionally, you have seen all the closing costs associated with buying the property. By the time everybody gets paid that had a hand in the financing process, you’ve shelled out at least a few grand. And how much is it going to cost you if you don’t get a good deal financed at all?

My Experience with Hard Money Lenders in our Business

After buying our first investment property, it was only a matter of 2 or 3 months before we found a hard money lender. There are people that claim to be hard money lenders but when it comes down to it, they want you to jump through every hoop and hurdle banks do. I do not consider these people hard money lenders at all. This guy that we found would fund deals at 70%, for six months, and charged 15% plus a couple points. To consider lending on a deal, he required an appraisal, a CL-100, and a heating and air letter. If it all checked out, the deal was funded.

In the last few years, I have built relationships with a couple other hard money lenders. I found one through networking and the other through a classified ad in the newspaper.

There are hard money lenders in every community looking for good deals to fund. They know that worst case scenario equals getting a property back and making all the profit the investor should have made. Even if you don’t plan on using one, get out there and find a hard money lender to add to your team. It could mean the difference between getting a deal done and watching another investor cash in big!

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It goes without saying that divorce can create some horrendously nasty financial situations between two people. Emotions and money never mix very well, but when two people can’t stand each other and the only thing binding them together is a house they can’t stand…then there is a delicate art that goes along with handling this situation perfectly so that everybody wins.

Like it or not, you will come across this situation time and time again in your real estate investing career, so I think it is an important one to address right here, right now.

I always try to remember to step back from the situation. Remember that our job is to facilitate the transaction of selling their home to us. We are not Dr. Phil (or Jerry Springer in some cases!), and we can’t solve all their problems. We specialize in solving real estate related problems, and we tell them that’s what we’re there to do.

I think one of the funniest (or Saddest, depending on sense of humor) situations I’ve ever had to deal with was a this older couple (like 75 yrs old) getting a divorce who HATED…HATED each other! They sat on opposite sides of the living room and made me walk back and forth…back and forth…back and forth to get all the signatures that I needed that day. I swear I think I lost 10 lbs that day! All the while they were muttering things back and forth to each other and me. It was ridiculous!

Just a few days ago, we had a similar situation with a couple. She was living in the house with the kids and he had already moved out. I had to meet with each of them separately and work out the deal. The house was going through foreclosure and almost ready to go to the courthouse steps. The Deed was in both of their names, but the mortgage was just in his name.

So, really the wife had no reason to work out the process other than $$$. She was holding all the cards in this transaction. He obviously wanted to sell ASAP and get this out of his name no matter what. So, when I met with him it was a very different conversation. He didn’t even want any money or anything other than getting her out of his life and being done with this property. He signed the deed over and all the other purchase paperwork necessary. Then I meet with her and figured out her motivations. Once I explained what exactly the situation was with the house (needs tons of repairs, about to go to auction in 10 days, etc…) she agreed to accept a promissory note for $4k due if and when we purchase the property.

In exchange for this note, she signed a quitclaim deed and all the other purchase paperwork. Done deal. Win-win-win for everybody involved. We ended up getting a great deal on the property, he got her out of his life and she got some money to help her get a new place and get back on her feet.

Some key things to remember in dealing with these situations is to make sure that both parties know what your relationship is with them, that you are there to do a job and that you will show equal respect to both sides. You are not “siding” with one or the other. Many times you will be contacted by one party then will have to approach the other. I let the other know where I’m at with the person who contacted me to build rapport and to get them up to speed and on the same deal making page.

Also, make sure that…

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We we first began in real estate, we were a couple of broke college kids. We had done our first deal while in school and had embarked to follow our dreams of making the big money. Being that we had little to no capital, we were interested in low-to-no cost marketing techniques to get the ball rolling. In comes “Door Knocking for Dollars.”

One of the first courses that we bought was on short sales. It was an extremely rudimentary course but ultimately, it got us our next deal. The course taught us, among other things, how to go to the courthouse and research public records to generate a list of properties that were in the foreclosure process. And this list was FREE! Other than our time that we spent compiling the list and the cost of gas. Once the list was in hand, we had three choices. We could send the prospective client a piece of direct mail, we could seek out a phone # and call them, or we could muster up some courage and go knock on their front door.

With the research that I had done, it seemed that for the best results, getting in their face and knocking on their door was the most effective strategy. And, this avenue also seemed to have the least competition.

So, we decided that if knocking on doors was the most effective strategy, that was exactly what we would do. Comfortable or not. We forced ourselves into action by holding each other accountable for visiting a certain # of houses per week. Having an accountability partner has always been a key way of getting things done in our business. If you don’t already have one, I would suggest getting one immediately.

Our primary goal with every house that we knocked on was to simply get our foot in the door. That was it! If you get immediately turned away and all you do is leave your information, the chances of you doing business with them is slim to none. We knew that if we got in the door, we improved our chances ten fold.

Here is a basic script to get you started:

Knock, knock, knock…

Investor: The company that I work for was doing some research down at the courthouse and thought we may be able to help out with your property. (This is where you shut up)

Homeowner: What are you talking about? There aren’t any problems with the property.

Investor: Well, I understand. Our company saw that the house was a little bit behind and we typically work with homeowners who are frustrated with the way their bank is treating them and are tired of the hassles, phone calls, and letters that are associated with situations like this. Would you like to sit down and talk about it for no more than 5 minutes?

Homeowner: This isn’t a good time. How about giving me your card and I will get back to you?

Investor: Sounds good. I definitely understand that right now may not be the best time for you. What if I told you that with 5 minutes of your time, I could show you how our company works? Whether or not you are interested doesn’t really matter to me. Worst case scenario is in 5 minutes I’m walking out of here and you know what your options are. You seem like the kind of person that takes responsibility and would want to at least know your options. (This is where you shut up again. No matter how long the silence becomes, DO NOT SAY A WORD)

Homeowner: Well, I guess that would work.

Success! You’ve got your foot in the door. Remember, these people often times have been through some very difficult times ranging from illnesses, family tragedies, job loss, divorce, etc. Be gentle and understanding. That is how you will connect with them.

Oh yeah, by the way, the whole 5 minute thing is just to get in the door. You want to spend a lot more time with them than that. Make sure to respect their time though. After 5 minutes, tell them that the time is up and that you are glad to go ahead and leave. This is where they ask you to please stay and continue educating them on how you can help.

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What is holding you back from doing more deals right now?

Lack of money? Lack of credit? Lack of Knowledge? Or lack of an effective real estate power team?

Well, if you can’t beat em’ YET, join em! Whatever it is that you need to get a deal done, there is somebody willing to provide it and partner with you. If you have a great deal you are working on, there is absolutely no reason you can’t get it done! Get involved in your local real estate investing groups. Affiliate with the real players in your market and get some real deals done together. Half of a great deal done is much better than keeping 100% of a deal that never closed!

We often partner with investors in our market who need various loose ends in a deal tightened up. Cash, Credit, contacts, etc…and we get it done. We actually closed on a deal today that we partnered on that is going to turn in to a “win-win” for everybody involved. We bought the property for approximately 250K, with some favorable terms, and are planning to lease-option the property for around $340k. It doesn’t need much work and the holding costs will be relatively low, but the seller did need some money ($20k cash out at closing) to be able to sell it and move on. This upfront money was provided by one party and the deal was provided by another and a profitable partnership was born! A similar situation is happening in your market as you read this.

So, start building your list of investors in your area immediately. Figure out what their expertise are and what they can bring to the table in a transaction, then play the matching game when you get your next deal. Figure out what investors would be the best fit for you to start working with. Now all you need are some deals!

So, get out there and get something under contract!

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