Posted by Robb Terranova under Real Estate Investing | 
The first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying.
How I Got the Deal:
My accountant knew I was a real estate investor and called me with a deal. He was trying to sell his personal residence. He had already tried to sell the house for a while, unsuccessfully.
He had title trouble. His partner had died with the house in her name, and they weren’t married. The house was in probate and there was an executor, and my accountant was going to inherit it, but that process wasn’t completed.
He had the right to sell the house, but he wanted to move out of state, and more than anything he wanted to put all of this behind him, hoping I could take care of everything.
He had run out of money, and couldn’t afford the payments on the first mortgage. I would need to make two back payments to keep the house out of default. He also mentioned at the time there was a small second mortgage.
After a walk-through, I told him the house needed minor cosmetic repairs and that meant I would need to front fix-up costs.
Once I did the comps, I felt there was reasonable equity in the house. I could put out a couple thousand, split the profits on the sale, maybe make $10-$15K each very little effort.
It was a small margin, but because the numbers worked, and also as a favor to him, we agreed that I would step in, complete the fix-up, find a buyer, and we would split any profit 50/50 at closing. We created a trust with each of us as partial beneficiaries, both for my protection and so I could manage the marketing and sale as the owner.
I then caught up the first figuring that bought us some time to get the house cleaned up. My accountant moved out of state.
The Fix-Up:
The house was relatively well kept because it was his personal residence, but it needed updating of kitchen fixtures and so forth, carpeting and paint.
I began repairing the house to get it ready for market.
The Snag:
About two weeks later, the first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying. He was asking me for advice, complaining about some pesky letters he keeps getting from some lawyer. Since they were jumbled in with all of the pre-foreclosure solicitations from investors, he had been ignoring them, but for some amazing reason he decided to call me that night.
I asked him to fax me the latest letter, and I was able to decipher that these were notices from the attorney for the lender on the second mortgage, and I realize they are talking about foreclosure. And in fact, the house was scheduled to go to the courthouse steps in less than 24 hours.
You would think an accountant who is trying to sell his house would be aware of a second mortgage default. My mistake was in making the assumption that this was business as usual. In the real world, he was a human being, steeped in sorrow, barely able to deal with the sale of his dead partner’s house, and his head was buried firmly in the sand.
Well, it was after business hours on Monday night, and this thing was toast. There was $38K and change owed on the second, and that was the opening bid. It had mushroomed from the “small second” we originally factored into the payoff to now include interest, penalties and attorney’s fees. Suddenly, this took a lot of margin out of the deal.
I told him the only way we could protect ourselves and get anything out of it was for one of us to go bid on the courthouse steps next day. Since he was cash poor and out of state, he was not an option. I told him that I would do it.
The Retrieval:
I felt that there was a very good chance that I would be the only person bidding on this house. Because of the small margin, it was not attractive to investors. There was always a chance some idiot may miscalculate things and start bidding the house up, but it was remote.
At the open of business the next day, I was at the lawyer’s office trying to cure the default before it ever went up for bid. They said too late.
I went to the bank and drew out a cashier’s check for $40K.
At the courthouse, I waited for the property to come up in queue. There are always a couple of people gathered around just listening, but you never know if they are there to bid against you or just curious onlookers. The foreclosure attorney came out, and opened the bid. I met the opening bid, and nobody else bid against me, but I remember a couple of bystanders looking puzzled as they watched me bid on what they saw as a lousy deal.
Sold. I now had control of the property.
The Outcome:
All at once this deal took an unexpected turn for the better. By winning the bid on the house, the title had transferred solely to me. I was now in control of the first, and the second.
Before foreclosure, my accountant was in the driver’s seat. I was not in a position of leverage, relying on our trust agreement and longstanding friendship to make sure I got my share of the deal.
This change of events rendered our trust document void. The trust no longer owned the property, my accountant no longer owned the property, I did.
It was an interesting position. Now that the title was fully in my name and my accountant had no legal interest in the property whatsoever, our longstanding friendship was the only thing supporting whatever equity share he could collect.
Was I going to stiff him? Absolutely no way. But I did feel, and I knew he would agree, the sheer act of fronting the $40K on short notice meant strong justification for full share on my part, and that any added costs of foreclosure would be on his side.
I also had a couple of other new advantages. I no longer had to work with him on pricing the property or accepting an offer. I was free to market the property the way I wanted to. I could execute all the paperwork, never having to involve my accountant at all. From the nightmare it seemed like the day before, it had turned into a happy accident. I was now where I always prefer to be in a deal, in control with no partner.
Now confident that I would realize what I expected out of the deal, I went back and finished repairing the house.
I advertised the house for sale, and shortly after that, I had it under contract with a good buyer who was pre-qualified for $5K less than I was asking. After closing, I collected all that I was expecting out of the deal, and sent the remainder to my accountant.
The Conclusion:
You can never make an assumption, even if you’re dealing with the President of the United States or your brother. This deal seemed pretty straightforward, and I was comfortable with the risk, especially since the person I was working with was not only a friend of mine who wouldn’t intentionally rip me off, but also an accountant whose very business relies on management of financial details. I never dreamed he would let the ball drop on his own house with which he was presumably most familiar. I admit I underestimated his emotional state.
At one point there was a chance I would never see any profit, and even get hung out to dry for what I had in it. It didn’t turn out that way thanks to some fancy footwork, in fact quite the reverse. Nevertheless, lesson learned on the people side of real estate investing.
Posted by Robb Terranova under Entrepreneurs Only, Internet Marketing |
Ad hoc web skills only get you so far. You are losing money by not getting basic internet marketing training.
You may think you’re getting away with it. You’ve built a free web site, even monetized it with Adsense. You know how to blog, advertise on Craigslist, post deals on a forum.
But you are losing money by not getting basic internet marketing training.
Ad hoc web skills only get you so far. Internet marketing training can quickly give you the more powerful foundation you need to control the internet marketplace.
There are two different types of real estate investors – those who are internet savvy and those who are not.
If you acknowledge the critical importance of the internet, you owe it to yourself to take a step back and get basic internet marketing training. You can then take full advantage of the networking and marketing opportunities the booming internet has to offer.
Internet marketing training will enhance your real estate investing business, but if you explore further you might discover a way to make money you never even knew existed.
Internet marketing is business in and of itself, a massive and rapidly expanding industry with an unlimited ceiling that can also help you reach your entrepreneurial goals.
Understanding internet marketing means knowing how to drive traffic to your web site, run paid advertising campaigns, develop mailing lists, and profit from articles, forums and social networking sites. You can even learn how to market your own e-books and information products.
A great way to get started is through Wealthy Affiliate University which is the #1 training resource on the web. It has all of the tools, courses and support channels you need to become successful and profitable online.
At the very least, you should get the basic internet marketing training you need to fully capitalize on the internet for your real estate investing business.
And, since you can never have too much money, you may also find that internet marketing is a profitable business you want to develop all on its own.
Posted by Robb Terranova under Renovation/Building |
You would think that hungry contractors would always charge less. Sometimes it doesn’t work that way.
You would think that hungry contractors would always charge less. But lately I have been getting sticker shock on invoices from contractors I have known for years who always give me builder’s rates.
Your logic keeps saying that in the market slowdown your contractor would charge you your same old rates, or maybe better, to keep you calling him first. He obviously doesn’t want to drive you away, especially if you’re one of the few builders offering him work during the slump. Sometimes it doesn’t work that way for some reason.
It seems like exactly the opposite of what should be happening. If they have fewer jobs, they obviously need money more. Exactly. Maybe the longer they sit around thinking about that truck payment they need to make, the more they try and maximize cash flow every time the phone rings.
What you can’t see is how the dead air is affecting them between your phone calls. With less coming in, your contractor may be in kind of a panic, and when he gets your call, he might have a lot of ground to make up. Bingo, you get the platinum plated price.
This will only work in the contractor’s favor for the first job. Then he will start to get the reverse of what he’s looking for. You will have a tendency to look for new contractors who are also hungry, but who are in a position of courting you as a new customer. In contrast, the old contractor will be spending his longstanding goodwill by breaching your trust, charging you that price you didn’t expect.
When I get a high bill from one of my old guard, the first thing I do is call him on it. “Wow, Joe – that much for that job? OK.” Then I pay it. Then I start calling around.
If Joe doesn’t hear me call for a while after that, he’ll start to get the message. Meanwhile, on the next job I try to get a good rate from somebody new.
Hungry new contractors don’t always give good rates either. They have nothing invested in you, and not every one is looking for repeat business. Some treat you as a one shot deal.
But I’m always looking for that second and third contractor so I can get multiple bids on jobs that come up, and to call in case my regular guy isn’t available. It never hurts to have a few more contractors on your call list.
At some point, I’ll call my regular contractor back and ask for a bid on a job. By then, the price is usually back to normal, and he’s got my business again.
Posted by Robb Terranova under Property Management |
Often, your tenant is a good guy who actually feels bad about not paying you. You might try putting the tenant into "rehab."
Your tenant is late with the rent. Call him on the phone and you’re suddenly immersed in a soap opera script.
His sister is critically ill and he’s somehow responsible for her medical bills, he just got in a car accident and missed a lot of work, but he’ll get caught up as soon as he gets better.
The economy is bad and unemployment is through the roof, so your tenant lost his job again, but it was really because he didn’t like his boss who made him do ugly things, like…uh… work, and besides he just plain got sick of it so he quit.
He’s going to pay you though – the end of next week.
Don’t worry you’re in good company – the tenant owes the electric company, the gas company, the water department, he hasn’t made his car payment, and owes on his cell phone bill.
The tenant is at the bottom of his financial cycle, the part where he’s losing ground. He hates his life lately, life should be more fun, so those bills are not his priorities. More important than those, he needs beer and cigarettes, and ultimately he has to buy that new TV, then go to Vegas so he can solve all his problems by winning a bunch of cash.
You can kick him out, or maybe he can be salvaged. Remember, turnover is expensive too. You might try putting the tenant into “rehab.”
Once a tenant gets behind in the rent, you can become his “rehab doctor” helping him through this period of bad “habit.” He’s “using” (his creditors), actually working harder at dodging his bills than just getting a new job and paying them. You need to do him and yourself a favor and help him kick the “stuff.”
Most often, beneath it all your tenant is a good guy who actually feels bad about not paying you, especially if you’ve been really fair with him throughout your relationship.
He knows he’s being a jerk, and he doesn’t like that feeling. That’s the real reason why he doesn’t want to talk to you, and won’t return your calls. Believe it or not, this is your point of leverage.
To get him “on the wagon” you have to first get communication restarted. Make sure he knows you just want to talk to him and find out what’s going on. Be sure not to sound angry or threatening. Call him, e-mail him, and finally go to his house. Once you’ve contacted him, you have some smooth talking to do.
Assure your tenant you can develop a payment plan for him to get caught up on past rent. When a tenant is behind, he’ll start to worry he’ll never get caught up and begin to feel hopeless. Make sure he knows it’s OK with you if, for example, he adds a small amount to monthly rent until it is repaid, propose it and get agreement.
Now he feels a little better – this is the start of getting “clean.”
Next, it’s critical that he get no further behind because then he’ll feel so bad he has to run away from home entirely (i.e. go get another apartment). Get him to acknowledge that he has to make his next regular payment, and make him promise to do it on the due date.
You should then give him a chance to follow through on his promise so he feels empowered and in control of his life again, on the good path. A word of caution – if you get tempted to call him beforehand, you’ll run the risk of developing a pattern of becoming his “mother,” nagging him into paying his rent each month.
If he does NOT make his payment on time as promised, call him within the next business day or two and ask him if he DID (you know he didn’t, but you don’t want to corner him). You need to hear something like, “I’m doing it today.”
If necessary, call daily until he does, and with all this daily contact he usually will. He doesn’t want personal attention from you, believe me.
Congratulations, your tenant is “sober.” Now he just has to stay that way.
Next month, if he doesn’t make his payment on time, repeat the follow-up procedure above. If you manage all of this with patience and finesse, at some point he’ll get back in the habit of paying you rather than in the habit of not paying you.
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