Fixer Jay’s Mom & Pop Millionaire Blog

Opportunities to acquire wealth building real estate have never been better for investors who have the vision and basic skills to charge ahead. While the “chicken little” disciples dance around on the sidelines waiting for the sky to fall, shrewd investors are busy pickin’ cherries off the top branches!

The big chase today is for the huge pool of houses dumped by their owners and foreclosed by the banks. Obviously, price slashing is the major attraction – but investors should ask themselves – slashed from what inflated appraisals to begin with, may not be a sound starting point to determine true value.

When I invest my money, I insist on being able to project my profits and cash flow within a reasonable period of time. If there’s some reason I can’t, then it’s too much risk in my judgment. Having control over financing and terms (like with seller financing) eliminates most of the risk and guarantees 111 make my profits. Without this control, the best I could do is guess!

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Ugly fix-up properties scare many investors away! They simply lack enough vision to see the gold mine hidden just beneath the surface. This goes double when unruly tenants occupy the property.

What this means is that owners of these fixer-type properties cannot demand top prices and good terms like sellers who are marketing nice-looking, sweet-smelling properties. On many occasions, my offer is the only offer. The seller has no choice but to seriously consider my offer when he doesn’t expect another. Reduced competition is worth big bucks, believe me!

When you acquire rundown real estate – then move in quickly and do the fix-up. You add immediate value! I often refer to myself as an ADDING VALUE SPECIALIST. When you buy in cheap and quickly add value, you increase your equity much faster than waiting for appreciation or natural causes to do it for you. Fixer specialists force their equity growth- they don’t wait for it to happen. Buying at substantial discounts, then quickly making improvements is by far the fastest equity builder in the business and don’t forget – EQUITY IS REALLY YOUR PROFITS!

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Every investor must develop cost and value for his own investment area! It takes some time and effort, but it’s critical for estimating how much you can pay – and ultimately, whether you’ll end up with cash flow and profits! Tons of information about investment properties is handed out to potential buyers by selling agents and brokers, which don’t mean diddlysquat about bottom line results. In the business of profit making, you must focus on two important numbers. What will your customers pay for your product? And – what can you afford to pay (purchase price) to provide your product and still make a profit for yourself? You should not move forward (in my opinion) without the answers.

Determining the rents and values in order to build your gross rent multiplier chart comes from doing lots of grunt work. To learn rent values, pretend you’re a renter in search of housing. Call telephone numbers in the classified ads for different locations within your investment area. Drive out to see what $700 per month will buy you in a two-bedroom house or apartment. Do the same for $500, etc. Once you become familiar with different parts of your town, you’ll be able to read the prices in newspaper ads and have a pretty good idea about what the properties look like and how well they’re maintained.
Another important benefit that comes from actually checking out rentals and talking to people – you’ll begin to learn about locations where tenants at various rent levels choose to live. You’ll learn about the “hood” areas – and where the dopers hang out. Don’t let the age or condition of a property fool you here! Dopers will sometimes occupy newer buildings – and trashy properties can often be found in excellent rental locations. Many times, out of town owners will milk a property until it completely runs down.

PROPERTY VALUES ARE YOUR BUSINESS

It’s important to know what the majority of renters can afford to pay in your investment area. For example, in my town I rent many 2 bedroom, single bath, houses to young couples with a small child or two – also to seniors. Both these customers cannot afford rents over $750 per month. Knowing what my customers can afford helps dictate how I buy properties. Smart investors will study the marketplace in order to deliver the right product (affordable houses) to his customers. It’s important to remember - if my tenants can’t afford to pay for my houses – I can’t either! It would be very unwise to own a stable of houses renting for $900 per month if you lived in a town full of $750 renters. If the majority of renters in your area can easily afford your houses, it’s much easier to keep them occupied and profitable.
Learning about property values in your investment area can be accomplished much easier with the help of a knowledgeable agent or broker. Obviously, they don’t have time for teaching greenhorns and looky-loos. They need to earn commissions to buy groceries and beer for their babies. If you’re not quite ready to buy a property just yet, you’ll need to polish up on your acting and pretend you are, if you expect much help from agents.

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The first thing to do is not panic! My kind of properties are almost always available –­You simply haven’t discovered them yet. Finding the right properties, meaning the kind that will produce monthly cash flow and long-term profits, is one of the most important skills you must develop to enjoy any success in this business! Remember, if this was, too easy – everybody would be doing it and they’d all be rich! Finding properties that will earn respectable profits is one of the biggest challenges for every investor regardless of how many properties might be for sale in his buying area.

You must always keep in mind – finding profitable deals is our goal — Not finding lots of deals! Pattern your buying methods after that old Hills Brothers coffee TV commercial a few years back. “90% of all the world’s coffee beans are rejected by Hills buyers –­They’re sold to the other guys.” The truth is, about that same percentage should apply to buying the right kind of real estate unless you’re only doing this stuff as a hobby. Qual­ity deals are the ones that make money. Do not substitute profits for volume. It makes very little sense to hurry up and buy a loser!

LOOKING WHERE THE CROWD DON’T GO

People constantly ask me how do you find these kind of properties? “Diamonds in the Rough”, some call them! The most common alibi I hear is — There’s no properties in my home town like you write about! With very few exceptions, I must disagree. The properties are there! You simply haven’t found them yet. There are some reasons why you haven’t; however, I’ve found most folks haven’t been looking for them. Most investors I know about do the tradi­tional kind of searching for properties. If they wish to be apartment owners, they tend to look at traditional apartment buildings. Single house people generally drive thru the “Burbs” in search of prey. Hardly anyone is screwy enough to buy slaughterhouses or an old motor lodge. My suggestion is to broaden your vision a bit. After all, “non-traditional properties” are lots more fun – as well as more profitable.

If you’re dead-bang serious about real estate investing like I am – then you should always make it a daily habit to read (check out) the classified ads in your local newspaper where you buy properties. My best-classified purchase was eleven fixer houses on Haywood Avenue. The property was listed under “Income Property For Sale”. I’ve written about my Haywood houses in my best-selling book, INVESTING IN FIXER-UPPERS; however in case you missed the details, let me simply say, Haywood made me $150,000 profit and $1000 monthly income for only one full summer’s worth of work and clean-up.

QUICK ACTION EARNED ME THE MONEY

Many investors do not adequately prepare themselves for a quick response. Simply stated, they don’t realize when they’re standing directly on top of a gold mine. At Haywood I was more than ready. Indeed, it was a gold mine – and I knew it the minute I saw it! Needless ~o say, I’m like most every other buyer. I’m aware that sellers will likely pad their advertised selling prices knowing full well that during negotiations they’ll take a little bit less. But here’s the deal folks — When you’ve done your homework and you already know what price you can pay based on the profits you expect to earn if your offer gets approved, then why play games with the seller and gamble on losing the deal! Your main goal should not be to save a few dollars on the purchase price or attempt to alter reason­able terms, but rather your main concern should be — Will this property be a winner for me based on the offer I’m submitting to purchase it?

It’s important when you make a full price offer like I did on Haywood to limit the seller’s time to accept. You don’t -want your offer “shopped around” or in competition with other buyers. One or two days is generally enough time with fax machines available everywhere. Full price offers always make agents and their selling clients extremely nervous! Both feel that the price they set was too cheap. That’s an important reason to make them sign your offer quickly. Don’t give them any extra time to think!

The thing I remember most about my Haywood property is how quickly I responded to the classified ad. I called the listing real estate agent at home on a weekend. The ad ran Saturday morning and I handed him my written offer on Sunday.

Let me emphasize the speed of this deal. This is a very important part! When I called the agent at home, he told me the property address. I drove out to see it immediately. I already knew the general location was good and after a quick look at the houses, I raced back to my desk and scribbled out my offer. The classified ad was written up quite ex­plicitly regarding the owner’s terms for selling. He specified the price, a modest down payment and that he was willing to carry back financing for 15 years at reasonable interest. Everything I wanted was spelled out in the ad. Needless to say, I was more than “hot to trot”.

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Real estate investors often complain that their wealth-building plans are seriously hampered because too few properties are available in the areas where they invest. You can’t buy real estate and build much wealth if nobody will sell you a property, right? Obviously, it takes both buyers and sellers to complete transactions! So, the big question is – -Where do you find real estate sellers when it seems like nothing is for sale? Cold calling is a technique where you contact property owners who own the kind of properties you’d like to acquire and try to persuade them to sell.

One of the first questions I’m always asked is — Why in the world would anyone consider selling their property to me merely because I contacted them and asked? There are more reasons than you might imagine, but first, let me confess to you — I did not invent cold calling. Real estate agents have been doing it for years and with enough success to keep doing it. The problem that many real estate agents have with cold calling is, it’s too much work! It’s much easier when sellers walk through their doors and hand them a listing. A big percentage of agents are willing to wait.

COLD CALLING IS A PROVEN TECHNIQUE

Naturally there’s a big difference between investors who operate properties for profits and: real estate’ agents who sell them for commissions. Cold calling can be different too! For example — Agents will sit at the telephone for hours calling long lists of owners. Obviously, that’s got to be very boring! The way Fred, my agent, and I do it is different To begin with, we write letters to property owners rather than make telephone calls! We also do some research before we (make any contact with property owners. This allows us to customize our (cold calls (letters) to fit the property and address any special circumstances pertaining to the owner.

Not every rental property” in my town is a candidate for my “cold call” letters. To start with, my specialty is the fixer real estate! I make money by acquiring properties I can “fix up”. My strategy is to quickly increase the value. Average looking properties without any visible signs of being rundown or neglect does not fit my profit plan, therefore, those properties are automatically eliminated from my cold calling list.

When I’m out driving around, I always keep an eye out for interesting properties I would like to own — Assuming I could buy them for a reasonable price and terms.

I keep a little notebook in my car to write down addresses, number of units and the condition. Also, I jot down my own estimate of their current value — And, the amount I would likely pay. You’ll find it very helpful if will draw a little sketch of the lot and get a measurement from the nearest street intersection (cross street) to the lot. A sketch will help you locate the property on the county assessor’s map when you visit the courthouse. Assessor maps don’t have street addresses, so the measurement will help you find the right location on a scaled map.

INFORMATION HUNTING IS VALUABLE AND FREE

All this information can be found at your local county courthouse or a title company if you happen to know someone who will help you. Assuming you don’t know who owns the ‘property, first take a look at the key location map. It will direct you to the proper assessor plat map where you’ll find the parcel you’re looking for. Once you locate the parcel number, you can then go to the name index and find out who the owner is! Both the courthouse and title company will assist you with this chore.

My research consists primarily of finding out who owns the property and where they live. It’s generally where the tax bills are mailed. I want to know how many mortgages or trust deeds are secured by the property and what their original amounts were. Also, the tax bill win show me the value for tax purposes. I like to know if my own estimate of value is somewhere in line with the county appraiser. I always try to estimate how much mortgage debt is still owed because I’m looking for properties with a lot of equity. You can’t negotiate a good discount if the owner has little equity to give. Also, I’m always looking for the opportunity to create a long-term seller carry back mortgage if I should purchase the property. Obviously, that sets the stage for buying back the mortgage at a nice discount sometime in the future.

FINDING PROFITABLE DEALS IS THE GOAL

The first thing to do is — Don’t panic! Good properties are always available, but it takes a little creative effort to dig ‘em out! Finding the right properties, meaning the kind that will produce monthly cash flow and long-term profits, is one of the most important skills you must develop to enjoy any success in this business. Remember, if this was too easy, everybody would be doing it and they’d all be rich! Finding properties that will earn reasonable profits is one of the biggest challenges for every investor regardless of how many might be for sale in his buying area. This technique can prove very profitable for agents and investors alike – ask Fred, he’ll tell you!

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