THE AL REPORT Volume 1, Number 4
Meeting: June 22, 2013
Welcome to THE AL REPORT. My name’s AL. Here’s my report.
Seattle FortuneBuilders Mastery students held their fourth meeting from 4 to 6pm, Saturday, June 22, at the Shoreline Conference Center, in the same room as the previous two meetings. Coach Joe Bauer and Mastery student Julie Clark once again organized it. Many thanks to you for all your work!
The agenda was to interact informally the first hour. Then Joe would present an interactive discussion about Wholesaling.
I counted 19 attendees including six new people. Timothy brought two people, Tony who actively targets wholesale deals, and Barbara who is a seasoned property manager. I also met Gill and Shelby, investors from the Kent area, and Russell and Virginia, investors from Marysville. Thanks for joining us! Look for their details at the bottom of this report.
Before I forget, I learned something at the meeting that I find exciting. Hammerpoint, an online and free app repair sheet. www.hammerpoint.com. Shelby told us about it during the 2nd hour. It is supposed to use ‘regional specific’ prices to estimate rehab repair costs. We tried it a few days later on a property a friend is about to rehab. The numbers were comparable to what the contractor had quoted. See what you find. Here’s yet another cool tool!
Joe began the second hour by asking us, “What are the parts needed to do a wholesale deal?” He wrote the items on the board as we called them out. We came up with:
2 Lead Sheet
4 Rehab cost / info
5 Signed PSA
6 Market to buyers
7 Babysit the deal till it’s done
Each item generated more discussion.
Marketing includes bandit signs, ads in various places like Craigslist, social media, your webpage, word of mouth, mailings to targeted lists (probate, NOD, etc.) and a host of others…the sky is the limit. Someone said, ‘Signs work, use em.’
2 Lead sheet
While speaking with potential sellers, preferably on the phone, NOT by leaving your office to meet them, be filling out your lead sheet. What are you looking for? MOTIVATION. Get the address. Find out if the mortgage is current. Is there equity? (You can explain that this info is important for you to determine the best solutions for them.)
Do your desktop analysis. Look up comps.
Talk with the seller as much as and as many times as possible/needed. Be sure to get their contact info, especially phone number, so you CAN call them back. When they ask things of you like, “How much will you pay for my house?”, say something like you need to do an analysis first and then you can get back to them, later that day. NEVER quote a price beforehand.
Try never to leave your desk…UNLESS the deal is super compelling.
The key here is rapport. Listen, listen, listen. Find commonality. Sports, foods, where they lived, education, movies, travel, kids, animals, anything. (If their little yappy dog bites you in the leg like one did to Ken, well…there must be something…maybe you both share the same medical plan?) Listen, listen, listen. He who talks most, loses.
At the appointment, let THEM tell you first what price they have in mind. If you offer first, it may be higher than what they would have asked, and it gives you a starting place. Ask them, “What do you need out of the property?”
Joe even offered to go on appointments with us! That really surprised me and it would help. I’d like to see the master at work. Nice going, my friend!
4 Rehab cost and information
Use a repair sheet. FB has one, and there is www.hammerpoint.com. It’s also an ‘app’ for your iPhone. It’s free. You can use the repair information when explaining to the seller where your price comes from.
When finding an inspector, here’s a script, “Hello. I’m a wholesaler. I work with a lot of rehabbers and I can refer you to them. I’m looking for someone I can call to give me an opinion of repair costs.”
Joe says that they renegotiated 25% of the contracts he and Erik did. Things come up, liens, unnoticed repairs, pests, etc.
Try to get the Purchase and Sale Agreement signed. But if you don’t, it’s a not a bad thing. Just say, “I’ll go run some numbers and get back to you.” Try asking, “Are you flexible in your price?” Julie told me of a recent phone conversation where the seller was outspoken and kept saying how much she had paid for the house. Julie then said to her that she appreciated her being up front with her and now she was going to do the same. “Nobody cares what you paid for your house. All they care about is what it is worth.” The lady totally changed and the conversation went well. (I guess it helps to have kids.)
In the PSA contract include the inspection time period. Determine when the seller needs to close. Size of the property may have some bearing on this timeline. Try to get it sold before the moving trucks come. Always try to negotiate the time period.
NWMLS – if the PSA says in the title, “And/or assigns” then the contract can be assigned. If it does not say this, we can cross out the clause that says it cannot be assigned and initial this by both parties. Then it can be assigned.
Shelby said that we can attach an addendum saying, “Purchaser has the right to market the property….”
Julie has a copy of a filled-in Washington PSA. (She has emailed it to us, if you didn’t get it, let AL or Julie know.) It is reviewed by a lawyer in this state.
Many documents are available on NWMLS under the ‘docs’ section.
Barbara said docs are available on the Rental Properties of Puget Sound (RPPS) site.
Julie: In Wash. PSA must have Legal Description, Lead Disclosure, Form 17.
Tony asked, “Do you need to put a wholesale deal under double escrow?
Joe answered that they use Terry McGrath of McGrath Escrow in Bellevue. “She’s good.”
Shelby: If property is in a land trust, you can sell the beneficial interest in the trust.
Joe says they disclose to the seller what their wholesale fee is.
Timothy asked, “At what dollar amount does a wholesale fee become a risk?”
Joe answered that it depends on the deal and the relationships you have. The fee should leave more profit for the rehabber than the wholesaler. Case in point, Joe says he has lost money before on rehabs. And he would ‘be upset’ if he had learned that the wholesale fee was more than what he expected to make on the rehab. Be straight up with the seller. Later Joe said, “If a wholesaler won’t disclose his fee to me as a buyer, I can’t work with him.”
Julie asked, “What was Joe’s method to renegotiate?”
Joe: If the contractor’s estimated rehab figure was higher than what Joe had anticipated, then Joe would have to go back to the seller to take less so the deal would work. He has had a ‘decent’ success rate in doing this. “It’s all rapport.”
6 Market to Buyers
The wholesale package includes comps, deal analyzer, MAO, photos, estimated repair costs, ROI analysis (from deal analyzer), capitalization rate, rental analysis. (There is now a rental deal analyzer on the Mastery site.) He may include a link to google maps too. On his webpage he puts one photo that links to all the others.
Joe says that the less he puts in his ads, the more calls he gets. He mainly puts in the profit, repair costs, price and LOTS OF PHOTOS. “Give them a reason to call you. You’re not trying to get them to decide on the deal on their own before calling you, you’re just trying to get them to call you.” Keep it simple.
When they do call and they ask, you can give them the details. You can give them breakdowns for cash profit and loan profit. (Even if they don’t buy that particular deal, they might buy a future one. Build your list from these calls.)
Joe pointed out the difference between a wholesale deal and a rehab deal. A wholesale deal contains ESTIMATED numbers. It is up to the buyer/rehabber to determine the more accurate, real figures and to analyze the deal for himself.
Timothy uses Craigslist and YouTube to buy and sell. (Of course he does. I would expect nothing less of him.)
7 Babysit the deal
Monitor it until it is done. This basically means keeping everyone happy.
Julie commented there is a huge demand for rent to own. Anthony Moore held a Sat morning webinar earlier that same day, June 22, on this topic. He pointed out the need to separate the ‘lease’ part of the contract from the ‘own’ part of the contract to avoid problems. For instance, if the renter defaults, and you need to get a new rent to own tenant, how do you evict the defaulting party if they are part owner of the house? Answer…you don’t. Hence the need to keep the two contracts separate.
After the meeting four of us went to Timothy’s new deal, just a couple blocks away and to Ken and Al’s new deal, both in Shoreline.
Thanks to everyone for attending. Bring interested people to the next one! Again, welcome to our new guests!