My students always ask me “How many letters do we have to mail in order to get a deal?” Before I answer, I want to state that the #1 reason a Seller sells their house for less is because they are motivated. An unmotivated Seller will not take less for their house, as they are not in a hurry to sell. Let me clarify the situations that make a Seller motivated:

1. Property is upside down – they owe more than it is worth.
2. Property taxes have increased and they can’t afford to pay them.
3. Mortgage interest rate(s) adjusted to a higher payment that they cannot afford.
4. Job Relocation and they can’t sell the house fast enough.
5. Divorce or Separation will send individuals into foreclosure because they depended on two incomes.
6. Job loss or reduction in their income.
7. Bankruptcy – For most people who are upside on their bills, it also includes their house payment. It is important to know whether or not your Seller is in bankruptcy or planning on it. No transfer of a property can be done while the Seller is in bankruptcy.
8. Retirement causes a reduction in income.
9. Insurance rates have been increased and they can’t afford the insurance.
10. Illness, Permanent Disability or the Death of Spouse/Family Member causes individuals to get behind on their payments.
11. Exhausted Landlords – Most of the time, the Landlords had great credit but the Tenants won’t pay and the Landlord may have used up all of their financial reserves.
12. Economic and Functional Obsolescence – The Seller may own a residential property, but it’s located in a commercial district. The floor plan of the house is old and chopped up.
13. Business or Partnerships failing
14. Vacant House

When mailing to someone who has one of the above situations, then you have a higher chance of the Seller selling their property for less. How many letters do you need to send to Sellers saying that you want to buy their house for cash before you get a deal? You should mail at least 1,000 letters to Sellers who have a “minimum” of one of the above challenges. Should they have two or more challenges on the list, you have a better chance of getting a minimum of one deal. Therefore, the criteria for compiling your mailing list will directly affect your capture rate. Mailing 1,000 letters to a bad list with irrelevant criteria will only bring you frustration; it will not get you a deal. There are many list providers; I use Reifax.com for a list of individuals who have foreclosure actions filed against them. I fine tune my criteria to select Sellers who have been in foreclosure for a minimum of 3 months. The reason I do this is that the Sellers have attempted loan modifications and have already made a decision as to how to proceed on the foreclosure action. Or should I say the likelihood of them responding is much higher versus when they are first served with the foreclosure action.

In addition, the content of your marketing letter is equally important. I have used multiple types of marketing letters and business letters, and tested them against the “Yellow Letter.” I found that the “Yellow Letter,” since it is handwritten and mailed in a handwritten invitation envelope, will pull much better than a typed business letter in a business size #10 envelope. The reason for this is because most Sellers in foreclosure are not opening their business envelopes, as they are in denial of their situation. However, a handwritten invitation envelope makes them think that someone knows them and they are sending them a card – like a birthday card. In addition, they are hoping that there may be money in it and there is! They can sell their house for cash!

Marketing is the key to your success in getting more deals. It is a Sellers’ market here in Florida and getting a Seller respond to you will increase the amount of deals that you would get versus making tons of offers on the Multiple Listing Service. However, I am not saying that you shouldn’t make offers through the MLS. I am suggesting that if you are making offers on the MLS, look for key criteria words such as: motivated seller, TLC, handyman special, short sale, vacant, immediate occupancy. These are some of my key words that I search for when making offers through the MLS.

So … continue to mail your letters and check your list to make sure that you are actually targeting a list of motivated sellers. Please do not mail letters to a generic list, use your marketing dollars wisely. You need to have 5 types of marketing in order to bring you deals:

1. Letters
2. Bandit Signs
3. Business Cards
4. Websites
5. Advertisement in the Newspaper

Should you not get any deals after marketing to at least 1,000 letters, please stay positive and press in! Do not give up. Keep marketing and evaluate your list and marketing letters. The deals will come if you keep marketing! They will!!

Happy Negotiating!

Kimberlee Frank

www.SellFastRealty.com

www.ForeclosuresGonewild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

Like me on www.facebook.com/foreclosuresgonewild

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Calculating costs to purchase, fix and resell a house has always been a downfall for many Investors. At a recent Real Estate Investor Meeting, I heard a great explanation of how people come up with their numbers. You all need to be sure you don’t fudge your numbers and fool yourself into thinking you are going to make a profit. This Article focuses on all the things you must consider when purchasing a property, such as holding costs, cost of the money, and closing costs that you will incur on properties.

When a student contacts me on a property and says “This is a great deal,” I always ask “Why do you think so?” Their response is “because.” Well….”because” is not a good enough answer. This is how I analyze a deal. First, I look for the Sold comps in the same subdivision that have sold in the past 90 days. I will then look at a total of 6 months in that subdivision. I look at square footage, garages, bedrooms, bathrooms and pools. I then look for the Active, Active with Contract and Pendings which all affect the value of my property. I budget accordingly as if I am going to hold it for at least 4 months, which is required in order to sell to a retail buyer with FHA funding.

Depending on the price point, about 80% of our buyers have FHA funding. I look at the Active, Active with Contract and Pendings and note what ‘type’ of listing they are. If they are short sales, I really give weight on these sales because it’s very possible they would not be bank-approved and could sell lower or higher than list price. If they are Pending sale which is a straight sale, I can assume that they are close to list price; however, until they sell, I can’t be sure. I will then look on MLS or REIFAX and search a half mile radius to see what other comparables I can find. Based on all the comps and the repairs in which I plan on doing, I will determine if I believe the value of the home will be close to the middle value of the comparables or the high value of the comparables.

EXAMPLE: All Comparables Range from $100,000 to $120,000 on the property – Safely you should take the middle value of $110,000 as your ARV – After Repaired Value.

I am going to give you examples of 1) when you are the buyer and 2) when you are the seller. Remember, every deal will have 2 transactions which each have it’s own set of closing costs even though it’s the same property.

When you are the BUYER, you can expect to pay 2% of the purchase price for your closing costs which include the closing costs charged by the title company. This figure should be added to the cost of your purchase. Obviously this is a high number, for the State of Florida taxes are paid in advance and you will receive a credit at closing. However, the standard of 2% for closing costs seems to work well when taxes are paid in arrears where you will be responsible to pay for them at closing.

So what formula do you use when you purchase a property?

ARV ($110,000) x 65% – Repair Costs = Maximum Allowable Offer – MAO

Example $110,000 x 65% = $71,500.00 – Repair Costs of $10,000 = $61,500.00

Obviously many Investors say “my house will be fixed up better than the rest so I can sell it for more, which allows me to sell it for $120,000, making the ARV and the MAO more.” I would recommend that you are conservative with your figures due to calculation errors on additional costs i.e. holding costs, repairs, cost of the money, contributions towards buyer closing costs, and of course…”the unexpecteds.”

When you are the SELLER, as a rule of thumb, depending on if taxes are paid in advance or in arrears, the average closing costs can be 8% to 9% that you would have to pay.

Example: $110,000 sales price – 8% closings costs (6% for realtors, title work, closing fee, title search, recording fees and tax proration) which would be $8,800.00. This amount needs to be subtracted from the sales price of $110,000 – $8,800 = $101,200.00. Please Note: We have not yet deducted from this amount the original purchase price, closing costs on purchase, cost of the money, repair costs, insurance, utilities, marketing fee, code violations, concessions towards buyers closing costs, homeowner association dues, a projected profit of $20,000.00 and taxes. You will definitely want to create a form which has all the above information on it so that you will be able to keep the numbers straight in order to make a profit on the home.

When you borrower money to buy, fix, hold and then resell the property, it is better that you obtain more than what you need, unless you are able to pay for unexpected items out of your own pocket. With our Purchase Price of $61,500 plus 2% for closing costs ($1,230.00) will be $62,730.00. Add $10,000.00 for repairs, then holding costs and then a miscellaneous number for overages. I would suggest on this transaction it would be $75,000.00

So .. if you followed the above information here is how your deal will turn out…..

As the BUYER:

Purchase Price = $61,500 + 2% for closing costs = $62,730.00

Money Borrowed – $75,000.00 to cover cost of purchase, repairs and miscellaneous

Cost of Money – 2 Points of $75,000 = $1,500 plus 12% interest yearly ($750.00 mo for 4 mths = $3,000)

As the SELLER:

Rule of Thumb percentage of all the above costs = 8% of SALES Price = $8,800.00

Sales Price of $110,000 – 8% closing costs = $101,200 – $75,000 (cost of purchase, repair and misc), – 2 Points for money $1,500 – 4 months of monthly interest of $750.00 per month = $3,000 (2 points $1,500 = interest $3,000 = $4,500 plus money of $75,000 = $79,500.00) leaving the balance of $21,700.00 profit for you at closing.

Obviously, if you exceed your cost budget or sell it for more, all of these numbers change. I hope that you will apply this information immediately to a deal, as we all want to purchase real estate with BIG PROFITS! As such, we can always say that our house is worth more than the middle price range and convenience ourselves; however, the buyer makes the decision on what they will pay for a house. If they only think it is worth $110,000, then that is the highest offer you will receive and you will need to close and Enjoy Your Paycheck!

Thank you so much to all of you who continue to send me your questions and topics that are most helpful for you to read about. Your Success is important to me, so let me know how I can help!!!

Happy Negotiating!

Kimberlee Frank

www.SellFastRealty.com

www.ForeclosuresGonewild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

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Many Buyers start house shopping without even knowing the price range in which they are qualified. At Sell Fast Realty, our company policy is that the Buyer must be pre-qualified by a Mortgage Lender and has already submitted all their financial documents so their debt to income ratio can direct them to the correct price range of homes. I get a lot of Buyers who have no idea if they can qualify for the price of the home that they want to buy.

My Mentor Students and I use my Buyer information sheet to pre-qualify all of our Buyers.

1. Are they a Homeowner, Investor or Realtor?

2. Their full name, telephone number and email address.

3. What are their wants versus needs: how many bedrooms, bathrooms, and then garage/pool etc.

4. How much money do they have to put down NOW? (Notice the now, because they could be waiting on income tax refund, lawsuit or gift money etc.

5. How much can they afford monthly? I use this rule of thumb: If a house is selling for $100,000 then their monthly payment will be close to $1,000 principal, interest, taxes, and insurance (PITI). However with lower interest rates, then their payment would be lower).

6. Are they a CASH or Mortgage Buyer?

7. If Cash, then what is the price range they can afford? We would request a bank/IRA/investment statement showing this amount.

8. If they are a Mortgage Buyer, have they been pre-approved and for how much?

9. How is their credit? Good, Fair or Poor and what is their credit score?

10. Have they ever filed bankruptcy and when was it discharged (Chapter 7) or dismissed (Chapter 13)?

11. How soon are they looking to move and why?

Before I give information about the house that I am selling, I will ask these questions. If they are represented by a Realtor then I want to know if they are a CASH, FHA, VA or Conventional Mortgage Buyer.
Having a couple Mortgage Brokers on your side will help you qualify your Buyers. I will always send them a purchase agreement at the price and terms we agreed to and make it subject to my Mortgage Broker approving them acceptable to the Seller. This way, when a Buyer signs a Purchase Agreement they will stop looking at other houses even though the Seller hasn’t signed, in their mind, they have the house. I hate sending Buyers over to a Mortgage Broker and in the end they are told to do certain things in order for them to qualify for the house I have for sale. Because once they have done that, they move on to another house. By having the Buyers sign a Purchase Agreement, it keeps them emotionally and legally connected to your house and they STOP looking for another home. Many Realtors and Investors do not understand this concept, but as a Master Negotiator, I want my Buyers to only want my house and no other. Its just a mindset that I have created for my Buyers that the house is theirs, so look no more.

In addition, if a Buyer is willing to sign a Purchase Agreement on a house, then they are considered to be serious, no matter if they are qualified or not. This removes them from the “suspect” category. I call this technique “Romancing your Buyers” so that you are always in front of them and they can start to envision themselves in the house you are selling.

First off there is a difference in having a Buyer qualified through a big Bank or Credit Union versus using a Mortgage Broker who has contacts with all of the Lenders to see what program the Buyers will qualify for, versus being denied by the Big Bank (Wells Fargo) or Credit Union based on their underwriting guidelines.

Before my Sellers/Student Partners would sign the Purchase Agreement for the Buyer, I will contact the Mortgage Lender and ask the following questions in order to determine if these Buyers are able to purchase the property.

1. How strong are these Buyers; what is their credit score?

2. Have they been employed in the same type of business for 2 consecutive years with no time off? (In other words, did they decide before changing jobs that they wanted the summer off)

3. The property is being FLIPPED. What are the guidelines based on your lender? Meaning how long does the Sellers have to own the property, which is referred to as seasoning. Will the Lender need a list of repairs done on the property, is there a maximum percentage that the Sellers can make as a profit and does this property require 2 appraisals to justify the price the Sellers purchased the property for versus the price they are selling the property at now?

4. Is there an exception to the rule? Meaning, are they counting gift money, took the summer off to enjoy life before starting the new job, had a bankruptcy or foreclosure etc. ANYTHING?

5. Did they fill out a 1003 Form which states all their financial obligations and their assets?

6. Did they receive the Buyers paystubs and tax returns? (Watch out for the Buyers who have a bunch of cash in their pocket because maybe they haven’t filed income taxes for awhile!)

7. Did they run them through Desktop Underwriting or Underwriting which automatically tells them that the Buyers should qualify based on the above information.

8. How long has the Mortgage Lender been doing this business?

9. Is the Mortgage Lender part-time or full-time? (One of my mortgage lenders waited tables at Applebees while being a mortgage lender).
10. How soon can they close?

11. Are they applying for a Florida Bond Program which normally takes 45 days to close and if the Mortgage Lender drops the ball even longer.

12. Do they need money towards closing costs or can they pay their own closing costs. (I had one Student Partner that couldn’t wait for me to find this information out and we lost $6,500 towards closing costs only later to find out that both buyers had 401ks with a boatload of money in their accounts and really needed NO help with the closing costs!)

Now is the Mortgage Lender allowed to tell me all the above information about the Buyers? Some do and some don’t and if I don’t get my answers from them, I will contact the Realtor and/or the Buyers and advise them that I need consent to talk to the Mortgage Lender so that I can present all the facts about the Buyers to the Sellers. I haven’t had any problems being allowed to speak with the Mortgage Lender, only one time, and what a wild ride that was with the Buyer!

Collecting all of the above information allows me to be the best Mentor I can to help my Sellers or Student Partners sell their properties to these Buyers. I will ALWAYS ask for back up Buyers as no one gets paid until the deal is closed. So … DON’T STOP MARKETING UNTIL THE HOUSE IS GONE!!! Many Sellers, Realtors and Student Partners fail in this situation. as they think they have the Buyers or they pre-judge based on some of the information they obtained from my Buyer’s Information Form found in my Foreclosures Gone Wild Course. Remember, you are not the Mortgage Lender and there are lots of programs out there that can help people who had bankruptcy, foreclosures, or poor credit, so let the Mortgage Lender do their job.

Always, and I mean always, read the pre-approval letter that you received from Buyers’ Mortgage Lender as it could say “subject to collecting all their financials” versus “subject to the house appraising.” And always call the Mortgage Lenders and ask the questions prior to signing the Purchase Agreement, as you could be giving your money or our money away when it is not necessary.

Having a Mentor/Partner review all these things about your Buyers and help you make the right decisions pays for the Mentor alone! Recently, I just saved my partners and I over $7,000 worth of money that was requested by the Buyers to help them with their closing costs. After speaking with the Realtor and the Mortgage Lender, I was informed that she does not need OUR money and that if she needs any more money, that her mother that is going to live with her will give her a gift letter/money to purchase the property.

In other words, slow down to romance your Buyers and as you do, you will make thousands and thousands of dollars versus not even asking the questions or countering the offer to see how the Buyers respond.

My May and June Trainings are coming up and this is one of the many topics that I teach you. Taking 5 Days out of your life with me will make you thousands of dollars, as I make sure before you leave my training with ALL of the answers to ALL of your questions and I will hold your hand every step of the way.

Save the cost of flying to my training and check out my online training at www.foreclosuresgonewild.com/online where you can download everything from the Home Study Course System, all cds, forms and dvd, the 3 Day Live Event with 19 cds and the 2 Day Live Negotiating System with 9 cds. Also stay tuned for updates for my online Mentor Program that teaches you to buy, fix, flip, hold, lease option, subject-to, short sales and more!!!!

Thank you so much to all of you who continue to send me your questions and topics that are most helpful for you to read about. Your Success is important to me, so let me know how I can help!!!
Happy Negotiating!
Kimberlee Frank
www.SellFastRealty.com
www.ForeclosuresGonewild.com
www.RealEstateJunkie.com
www.ShortSaleNegotiating.com
Like me on www.facebook.com/foreclosuresgonewild
Like me on www.facebook.com/sellfastrealty

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