Feb
23rd
Investment Strategies my Mother-in-Law Taught Me - Part 7
By Stew Spence
Dealing with Rejection
National advertisers will tell you that in a direct mail campaign, you are really doing very well if you get a 1 or 2% response. What will make you get out of this business, keep you from trying harder, and stop you from doing as much as you know how to do, is rejection. Rejection is the big killer of real estate investors. But if you filter out the people who aren’t qualified to give you a resounding YES, you will be further ahead on your deals.
If you have to buy from somebody whose property was for sale, you’re buying from a very small sliver of the total population. You’ve got 33 times as many potential deals, if you stick to properties that are not for sale.
So, if you’re going to use the mother-in-law method, you can’t be talking to people whose houses are listed for sale or whose warehouses are handled by a management company. Those people are not going to tell you what the emotional motives of the buyer or seller are.
First, they won’t know their motives and second, they wouldn’t tell you if they did. They have a completely different goal in life, which is to keep you away from those people. They think that those people will make a mistake and sell too cheaply, perhaps causing them to lose part of their commission.
Key Point
• When you buy, you should buy hoping you will never have to sell, and structure the purchase consistent with that idea. Only enter into deals that are bound to survive for a long
time because the cash flow is excellent or assured.
Playing with Monopoly Money
Look for sellers with substantial equity, those with that “monopoly money.” Buy properties that make the cash flow work. ‘If someone has lots of monopoly money, he’s got two or three ways to sell you deals, so you can be fairly certain it’s going to cash flow. Although a seller may quote you a price that’s a good deal less than the property is truly worth, don’t count on people doing that very often. Take advantage of the fact that when you have considerable monopoly money, you could discount your price. If you don’t discount, then give equity or debt on such great terms that the deal will cash flow.
National advertisers will tell you that in a direct mail campaign, you are really doing very well if you get a 1 or 2% response. What will make you get out of this business, keep you from trying harder, and stop you from doing as much as you know how to do, is rejection. Rejection is the big killer of real estate investors. But if you filter out the people who aren’t qualified to give you a resounding YES, you will be further ahead on your deals.
If you have to buy from somebody whose property was for sale, you’re buying from a very small sliver of the total population. You’ve got 33 times as many potential deals, if you stick to properties that are not for sale.
So, if you’re going to use the mother-in-law method, you can’t be talking to people whose houses are listed for sale or whose warehouses are handled by a management company. Those people are not going to tell you what the emotional motives of the buyer or seller are.
First, they won’t know their motives and second, they wouldn’t tell you if they did. They have a completely different goal in life, which is to keep you away from those people. They think that those people will make a mistake and sell too cheaply, perhaps causing them to lose part of their commission.
Key Point
• When you buy, you should buy hoping you will never have to sell, and structure the purchase consistent with that idea. Only enter into deals that are bound to survive for a long
time because the cash flow is excellent or assured.
Playing with Monopoly Money
Look for sellers with substantial equity, those with that “monopoly money.” Buy properties that make the cash flow work. ‘If someone has lots of monopoly money, he’s got two or three ways to sell you deals, so you can be fairly certain it’s going to cash flow. Although a seller may quote you a price that’s a good deal less than the property is truly worth, don’t count on people doing that very often. Take advantage of the fact that when you have considerable monopoly money, you could discount your price. If you don’t discount, then give equity or debt on such great terms that the deal will cash flow.
Feb
19th
Investment Strategies my Mother-in-Law Taught Me - Part 6
By Stew Spence
When we were in the car, I asked my mother-in-law, “How do you
sleep at night?” She didn’t understand what I was talking about, so
I said, “Are you kidding me? You stole that woman’s house.”
She became very indignant and said, “No, I did no such thing. Mrs. Moore needed to get to Detroit, so I bought her a ticket. In addition, she has plenty monopoly money left over,” and so she did. She’d been in that neighborhood for 21 years, bought that house probably for $15,000, and still owed $15,000 on it. Now, she had $36,000, so she now has $21,000 in cash.
They had paid less than $25,000 for the house in the first place. So, she’s getting $10,000 profit. I hadn’t thought about that.
My mother-in-law said that Mrs. Moore wouldn’t have taken the money if this weren’t really what she wanted to do. Then she mentioned that Mrs. Moore hadn’t even called her husband to discuss the deal, which I’d completely missed.
Now, not only was she a wise investor, she also had considered the tax laws. When my mother-in-law died, she had 43 savings and loan depository accounts all over the country, including Omaha, Honolulu, two or three in California, two in South Carolina, and three in Texas.
The pivotal tax consideration was that the FDIC guarantees depository accounts up to $100,000. She had all of these accounts because when you fill one up to $100,000, you’re not going to put any more money into that account—you open another one. So for each account, she probably had more than $100,000 in each, so you do the math!
My mother-in-law’s three questions kept her in the business for over 25 years and she did it very successfully. Forget the fact that she was buying houses at 40% and 50% below market. You can see that only a tiny fraction of the people out there would sell their houses for that kind of discount.
She didn’t find these deals very often. Usually, she would buy two or three houses a year, at the most. If you’re getting seven or eight people every Saturday and you’re only buying a house once every quarter or even less, that’s quite a few people telling you NO.
However, she almost never was rejected. If you went out to see that many people every Saturday and made an offer to every one of them, you’d be rejected at least 28 times in a month probably. A year might go by and you’d buy only one house. You wouldn’t last very long, if you got that kind of rejection.
She became very indignant and said, “No, I did no such thing. Mrs. Moore needed to get to Detroit, so I bought her a ticket. In addition, she has plenty monopoly money left over,” and so she did. She’d been in that neighborhood for 21 years, bought that house probably for $15,000, and still owed $15,000 on it. Now, she had $36,000, so she now has $21,000 in cash.
They had paid less than $25,000 for the house in the first place. So, she’s getting $10,000 profit. I hadn’t thought about that.
My mother-in-law said that Mrs. Moore wouldn’t have taken the money if this weren’t really what she wanted to do. Then she mentioned that Mrs. Moore hadn’t even called her husband to discuss the deal, which I’d completely missed.
Now, not only was she a wise investor, she also had considered the tax laws. When my mother-in-law died, she had 43 savings and loan depository accounts all over the country, including Omaha, Honolulu, two or three in California, two in South Carolina, and three in Texas.
The pivotal tax consideration was that the FDIC guarantees depository accounts up to $100,000. She had all of these accounts because when you fill one up to $100,000, you’re not going to put any more money into that account—you open another one. So for each account, she probably had more than $100,000 in each, so you do the math!
My mother-in-law’s three questions kept her in the business for over 25 years and she did it very successfully. Forget the fact that she was buying houses at 40% and 50% below market. You can see that only a tiny fraction of the people out there would sell their houses for that kind of discount.
She didn’t find these deals very often. Usually, she would buy two or three houses a year, at the most. If you’re getting seven or eight people every Saturday and you’re only buying a house once every quarter or even less, that’s quite a few people telling you NO.
However, she almost never was rejected. If you went out to see that many people every Saturday and made an offer to every one of them, you’d be rejected at least 28 times in a month probably. A year might go by and you’d buy only one house. You wouldn’t last very long, if you got that kind of rejection.
Feb
16th
Investment Strategies my Mother-in-Law Taught Me - Part 5
By Stew Spence
Promptly at 6:57 the next evening, she was parked in my driveway,
honking the horn. I raced out of my house and climbed in, but we
got to the house too early. So she waited around the corner for a
few minutes until it was exactly 7:13 by her watch before we could
drive around and park in front of Mrs. Moore’s house.
It turned out that 7:13 pm is sundown. She read somewhere that if you arrive at sundown, you have a good shot at your deal. When we arrived, we saw that Mrs. Moore was out on the lawn pulling down the Open House sign. My mother-in-law says hi and does a little small talk and I get another glass of ice tea. Then finally, she got down to business by saying, “I’m a real estate investor—not someone who wants to live in your house.
Therefore, I need to make some changes to the house to make it an efficient rental. So, I couldn’t pay you as much for the house as a person who obviously wanted to live in it. However, I am interested because I think there may be some opportunity for rental income in this neighborhood.”
Mrs. Moore is holding on with bated breath and leaning forward to catch every word. Next, my mother-in-law told Mrs. Moore that she had called a lawyer whose office was in Sanford, right across from the administration building of the courthouse, and that he could do a title search tomorrow morning.
Then she said, “With that out of the way, we could close by 2:00 tomorrow afternoon. Would that suit you?” Mrs. Moore, of course, quickly agreed. My mother-in-law even pulled out a check for $5,000 as earnest money that was already made out to Mrs. Moore, and handed it to her.
While Mrs. Moore studied the check, my mother-in-law continued by saying: “But, of course, I can’t give you $71,000, but I could give you $36,000.” I don’t know who was more stunned, Mrs. Moore or me! She was holding her hands clasped together in her lap, sitting on the couch across from us, and she looked stunned, like a deer in the headlights.
Her eyes start to go down and I can see they’re misting up a little bit. As she holds her head down, tears are dropping into her lap. I want to be on some another planet and I around to locate the fastest exit, in case she has a gun in the couch or something.
All of a sudden, her head came back up, and sniffing slightly, she looked at my mother-in-law, shook her head, and said, “Thank you.” Now I really do need to be on another planet. I can’t tell you what I thought at that instant, because I don’t think I was thinking anything.
They must have had a brief conversation that I missed completely, because when I came to, they were over at the table, where they wrote out a small three-line contract on a piece of yellow paper. My mother-in-law was heading out the door, while Mrs. Moore waved and yelled, “Thank you, thank you.”
It turned out that 7:13 pm is sundown. She read somewhere that if you arrive at sundown, you have a good shot at your deal. When we arrived, we saw that Mrs. Moore was out on the lawn pulling down the Open House sign. My mother-in-law says hi and does a little small talk and I get another glass of ice tea. Then finally, she got down to business by saying, “I’m a real estate investor—not someone who wants to live in your house.
Therefore, I need to make some changes to the house to make it an efficient rental. So, I couldn’t pay you as much for the house as a person who obviously wanted to live in it. However, I am interested because I think there may be some opportunity for rental income in this neighborhood.”
Mrs. Moore is holding on with bated breath and leaning forward to catch every word. Next, my mother-in-law told Mrs. Moore that she had called a lawyer whose office was in Sanford, right across from the administration building of the courthouse, and that he could do a title search tomorrow morning.
Then she said, “With that out of the way, we could close by 2:00 tomorrow afternoon. Would that suit you?” Mrs. Moore, of course, quickly agreed. My mother-in-law even pulled out a check for $5,000 as earnest money that was already made out to Mrs. Moore, and handed it to her.
While Mrs. Moore studied the check, my mother-in-law continued by saying: “But, of course, I can’t give you $71,000, but I could give you $36,000.” I don’t know who was more stunned, Mrs. Moore or me! She was holding her hands clasped together in her lap, sitting on the couch across from us, and she looked stunned, like a deer in the headlights.
Her eyes start to go down and I can see they’re misting up a little bit. As she holds her head down, tears are dropping into her lap. I want to be on some another planet and I around to locate the fastest exit, in case she has a gun in the couch or something.
All of a sudden, her head came back up, and sniffing slightly, she looked at my mother-in-law, shook her head, and said, “Thank you.” Now I really do need to be on another planet. I can’t tell you what I thought at that instant, because I don’t think I was thinking anything.
They must have had a brief conversation that I missed completely, because when I came to, they were over at the table, where they wrote out a small three-line contract on a piece of yellow paper. My mother-in-law was heading out the door, while Mrs. Moore waved and yelled, “Thank you, thank you.”
Feb
16th
Investment Strategies my Mother-in-Law Taught Me - Part 4
By Stew Spence
So my mother-in-law finally got her three correct answers. You
would think that she’d whip out a contract and have Mrs. Moore sign
on the dotted line. However, she did nothing of the kind.
I am setting my glass of ice tea down and the door shuts. She hasn’t said, ‘Thank you” or “Good bye” or “I’ll see you later”—she just leaves the building. The car was already running when I got in.
I said, “Wow, I thought you were going to make an offer on that one.” She just looked at me, said, “No,” and drove on. We still went to four more places, but no one else was able to get to Question Number Three.
By the end of the morning, we had been out there for about four hours. We’d been in eight houses and only gotten to third base once. As soon as she got the wrong answer to any one of these three questions, she would leave the building.
Some sellers actually got past the first question, but then made the mistake of answering her second one by saying something like, “Oh, you know, we love this, we’ve just refinanced the house. For $500, you can take over the payments.” When that particular statement was made, I was still digesting the response when I heard the front door close. I seemed to spend most of the morning catching up with her.
Although this behavior seemed very peculiar to me, I knew that she was actually extremely successful with her Saturday hobby.
So just before she drops me off at the house, she says, “Well, are you going with me tomorrow?” I was startled into saying, “I thought you only did this on Saturday.” She says, “Well, mostly, but I have to go see Mrs. Moore tomorrow.”
I thought this meant that she had a policy of not making an offer the same day she found a property, so I agreed to go again. She said that she would pick me up at 6:57. Since I always went to the 8 a.m. Mass, I knew that wouldn’t work. Then, she let me know that she meant 8:00 that evening.
I am setting my glass of ice tea down and the door shuts. She hasn’t said, ‘Thank you” or “Good bye” or “I’ll see you later”—she just leaves the building. The car was already running when I got in.
I said, “Wow, I thought you were going to make an offer on that one.” She just looked at me, said, “No,” and drove on. We still went to four more places, but no one else was able to get to Question Number Three.
By the end of the morning, we had been out there for about four hours. We’d been in eight houses and only gotten to third base once. As soon as she got the wrong answer to any one of these three questions, she would leave the building.
Some sellers actually got past the first question, but then made the mistake of answering her second one by saying something like, “Oh, you know, we love this, we’ve just refinanced the house. For $500, you can take over the payments.” When that particular statement was made, I was still digesting the response when I heard the front door close. I seemed to spend most of the morning catching up with her.
Although this behavior seemed very peculiar to me, I knew that she was actually extremely successful with her Saturday hobby.
So just before she drops me off at the house, she says, “Well, are you going with me tomorrow?” I was startled into saying, “I thought you only did this on Saturday.” She says, “Well, mostly, but I have to go see Mrs. Moore tomorrow.”
I thought this meant that she had a policy of not making an offer the same day she found a property, so I agreed to go again. She said that she would pick me up at 6:57. Since I always went to the 8 a.m. Mass, I knew that wouldn’t work. Then, she let me know that she meant 8:00 that evening.
Feb
12th
Investment Strategies my Mother-in-Law Taught Me - Part 3
By Stew Spence
“If I paid you $71,000, how much would I have to pay down to your
mortgage so I could just take over your payments?’
Key Point
This next question lets you discover what the equity is in the property. You want to hear that there’s lots of equity because you would like the seller to have some “monopoly money.” At least 40% equity in the property is preferable. In fact, it would be great if nothing were owed on the property, because you wouldn’t have to contend with any loan issues.
So, Mrs. Moore had the right answer both times. She said that she still owed $15,000 on the house and that she was one of the first people to buy in the subdivision. My mother- in-law actually smiled.
Then she began looking around—she even looked under the sink, although I couldn’t imagine why. She came back to Mrs. Moore and asked, “If I paid you the $71,000 and took over your mortgage so we can close quickly, how fast could you get out of the house?”
Key Point
This final question lets you find out if the seller is highly motivated to get out of this property. You want to know that they would be out of the house as quickly as possible.
What you don’t want to hear is something like, “Well, let’s see, this is February. The kids are in school, but they get out June 12. I guess we could be out by the 4th of July.”
In fact, Mrs. Moore really said, “Are you kidding? I can’t get out of here fast enough. My husband has been up in Detroit for the last five months with our son. I am stuck here with our daughter, Becky, and you can imagine how that relationship has been going. My husband just closed on a house up there, so now we have two payments to make every month. I’ve been trying to sell this thing for 20 weeks. So, the three right answers you want to hear are that the
seller has:
• Realistic idea of what the property is worth
• Lots of monopoly money to play with
• Plenty of motivation to get out of the property immediately.
Key Point
This next question lets you discover what the equity is in the property. You want to hear that there’s lots of equity because you would like the seller to have some “monopoly money.” At least 40% equity in the property is preferable. In fact, it would be great if nothing were owed on the property, because you wouldn’t have to contend with any loan issues.
So, Mrs. Moore had the right answer both times. She said that she still owed $15,000 on the house and that she was one of the first people to buy in the subdivision. My mother- in-law actually smiled.
Then she began looking around—she even looked under the sink, although I couldn’t imagine why. She came back to Mrs. Moore and asked, “If I paid you the $71,000 and took over your mortgage so we can close quickly, how fast could you get out of the house?”
Key Point
This final question lets you find out if the seller is highly motivated to get out of this property. You want to know that they would be out of the house as quickly as possible.
What you don’t want to hear is something like, “Well, let’s see, this is February. The kids are in school, but they get out June 12. I guess we could be out by the 4th of July.”
In fact, Mrs. Moore really said, “Are you kidding? I can’t get out of here fast enough. My husband has been up in Detroit for the last five months with our son. I am stuck here with our daughter, Becky, and you can imagine how that relationship has been going. My husband just closed on a house up there, so now we have two payments to make every month. I’ve been trying to sell this thing for 20 weeks. So, the three right answers you want to hear are that the
seller has:
• Realistic idea of what the property is worth
• Lots of monopoly money to play with
• Plenty of motivation to get out of the property immediately.
Feb
5th
Investment Strategies my Mother-in-Law Taught Me - Part 2
By Stew Spence
We walked into the first house about nine o’clock. She spotted the
girl who was showing the home and asked her, “What do you want for
this house “
Key Point
This question allows you to determine if the property is priced realistically—no more than 10% over market value for that neighborhood and for that particular model.
When sales were published for the little two or three subdivisions that were her farm area, she read religiously. So, when she asked how much, she already knew the correct answer. If you didn’t, she would turn around without a sound and walk quickly out of the house.
This happened at the first house we visited. When the woman answered incorrectly, I was busy looking around before I realized that she wasn’t there anymore. She was in the car before I even got out of the front door.
When we got to the next place and she asked her first question, I saw the movement out of the corner of my eye. This time, I was right behind her. It seemed so strange, but she didn’t thank anyone or ask if they would take less—she just turned around and left.
When we arrived at the third house, the owner, Mrs. Moore, greeted us. When my mother-in-law asked the now infamous question, Mrs. Moore said $71,000, which was the correct answer. Since it was almost exactly the price that was on the model house for that neighborhood, we knew she wasn’t overpricing the property. You could tell that she was trying to sell it quickly.
My mother-in-law didn’t leave the house, which was a good sign, but she gave her a few seconds to breathe before she finally asked, “If I paid you $71,000, how much would I have to pay down to your mortgage so I could just take over your payments?’
Key Point
This question allows you to determine if the property is priced realistically—no more than 10% over market value for that neighborhood and for that particular model.
When sales were published for the little two or three subdivisions that were her farm area, she read religiously. So, when she asked how much, she already knew the correct answer. If you didn’t, she would turn around without a sound and walk quickly out of the house.
This happened at the first house we visited. When the woman answered incorrectly, I was busy looking around before I realized that she wasn’t there anymore. She was in the car before I even got out of the front door.
When we got to the next place and she asked her first question, I saw the movement out of the corner of my eye. This time, I was right behind her. It seemed so strange, but she didn’t thank anyone or ask if they would take less—she just turned around and left.
When we arrived at the third house, the owner, Mrs. Moore, greeted us. When my mother-in-law asked the now infamous question, Mrs. Moore said $71,000, which was the correct answer. Since it was almost exactly the price that was on the model house for that neighborhood, we knew she wasn’t overpricing the property. You could tell that she was trying to sell it quickly.
My mother-in-law didn’t leave the house, which was a good sign, but she gave her a few seconds to breathe before she finally asked, “If I paid you $71,000, how much would I have to pay down to your mortgage so I could just take over your payments?’
Feb
2nd
Investment Strategies my Mother-in-Law Taught Me - Part 1
By Stew Spence
Real Estate Investment Strategies
Introduction
Sprinkled throughout this module are invaluable real estate investment strategies accompanied by stories of investors who used those strategies successfully. Each strategy is highlighted as a key point for quick review when you are
• Net Operating Income (NOI)
• Rules of Thumb
Three Questions (My Mother-in-Law, the Investor)
My mother-in-law was the best house buyer I ever saw—her hobby was buying houses. Every Saturday for about 40 weeks out of the year, she would go to For Sale by Owner (FSBO) open houses in two or three nearby neighborhoods.
She started doing this when she was first married and continued long after her Air Force husband retired from the military. So, when Uncle Sam moved them every 17 to 30 months, she would start up a new portfolio of houses. Even before they were completely unpacked, she would be out on Saturday looking at the neighborhoods.
She knew the neighborhoods better than any realtor you ever met. These were medium family neighborhoods that she had already scoped out, so they didn’t have rusting cars jacked up in the front yard or any other similar eyesores.
Even when my father-in-law retired and they were living in Orlando, she still went out almost every Saturday. By that time, I was asking her about her FSBO drive-bys, so she said, “Why don’t you just go with me so that you can take a look and see what I do?”
That next Saturday morning, she picked me up about eight o’clock in the morning and we headed out. She had her newspaper with all the FSBOs circled and she knew where every one of them was located.
We walked into the first house about nine o’clock. She spotted the girl who was showing the home and asked her, “What do you want for this house “
Introduction
Sprinkled throughout this module are invaluable real estate investment strategies accompanied by stories of investors who used those strategies successfully. Each strategy is highlighted as a key point for quick review when you are
• Net Operating Income (NOI)
• Rules of Thumb
Three Questions (My Mother-in-Law, the Investor)
My mother-in-law was the best house buyer I ever saw—her hobby was buying houses. Every Saturday for about 40 weeks out of the year, she would go to For Sale by Owner (FSBO) open houses in two or three nearby neighborhoods.
She started doing this when she was first married and continued long after her Air Force husband retired from the military. So, when Uncle Sam moved them every 17 to 30 months, she would start up a new portfolio of houses. Even before they were completely unpacked, she would be out on Saturday looking at the neighborhoods.
She knew the neighborhoods better than any realtor you ever met. These were medium family neighborhoods that she had already scoped out, so they didn’t have rusting cars jacked up in the front yard or any other similar eyesores.
Even when my father-in-law retired and they were living in Orlando, she still went out almost every Saturday. By that time, I was asking her about her FSBO drive-bys, so she said, “Why don’t you just go with me so that you can take a look and see what I do?”
That next Saturday morning, she picked me up about eight o’clock in the morning and we headed out. She had her newspaper with all the FSBOs circled and she knew where every one of them was located.
We walked into the first house about nine o’clock. She spotted the girl who was showing the home and asked her, “What do you want for this house “
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