Chapter One THE FRONT END & BACK END MONEY SECRET
Chapter Two THE MERRY-GO-ROUND SECRET
Chapter Three THE REHAB CONSTRUCTION MONEY SECRET
Chapter Four THE SELL YOUR HOUSE TO YOUR WIFE SECRET
Chapter Five 11 BUY A HOUSE WITH AN ATTACHED BUILDABLE LOT SECRET Chapter Six BUYING THE ENTIRE NEIGHBORHOOD SECRET
Chapter Seven THE PLANNED DEVELOPMENT SECRET
Chapter Eight THE ASSIGNMENT OF CONTRACT SECRET
Chapter Nine THE BUYING CONDEMNED HOMES SECRET
Chapter Ten THE CONSULTANT RETAINER SECRET
Secret # 1: THE FRONT & BACK END MONEY SECRET In order for this method to work, you have to build a relationship with a private lender. He must trust you or he will never allow you to structure a deal this way. However, if you are able to convince him to structure the deal this way, it could allow you to put your profit in your pocket from the front end instead of waiting until you sell the home. I call this the “Front & Back End Money” secret. It can be great for times when your cash flow is tight and you need a surplus of capital to fund other deals. Here is how it works. After the private investor agrees to structure the deal this way you can proceed as follows. 1) Contract to buy a house: Let’s say you buy a house needing minimal repairs for $60,000. The house has an “as-is” value of $120,000 and an After Repaired Value of $155,000. 2) Obtain a Private Loan: The lender will loan you 65% of the After Repaired Value = $100,750, less the closing cost of $10,075 (estimated at 10%) = $90,675. Ask the private lender to allow you to “cash out” $20,000 with the remaining balance of $10,675 to be placed in an escrow account. The $20,000 is your “front end” money. Don’t be hesitant to ask your private lender to structure the deal this way. You will be very surprised
how many private lenders don’t care as long as they trust you will make good on the loan. I have cashed out upwards of $50,000 on the front end. 3) Sell the House Wholesale: Sell the house to another investor wholesale. Let’s say you sold it for $102,750. Now you will start to make money from the back end. Starting with making a generous profit of $2,000 (from the sale). Then request that the private lender release the $10,675 from the escrow account. Now you have put together $20,000 + $2,000 + another $10,675 for a grand total of $32,675. Structuring the Front & Back End Money Hustle with a private lender does require a great deal of trust. Don’t expect all private lenders to structure deals like this on the first go round. It takes building a relationship. Today, I have five or six private lenders I can call upon who will all structure this type of loan. However, keep in mind that I have been doing business with these guys for many years. Build relationship with these guys and the sky is the limit. [[[
Secret # 2: THE MERRY-GO-ROUND SECRET The Merry-Go-Round Secret is one of my favorites. With this secret I’m like a Merry-Go-Round. I go around and around until all parties involved with any of my real estate transactions pay me. Just think of me as the person who pushes the Merry-Go-Round while everybody enjoys the ride, but this ride, my friend, comes with a price. I’m not pushing your guys’ heavy butts for nothing! You know they say you have to, “Pay to play!” And this Merry-Go-Round ride doesn’t come cheap. I realized many years ago that, if not for me, no one involved in the real estate deal would make money. Therefore, I strategized a way to be able to maximize my profits on every real estate deal. Whenever I sell a house, I require everybody to pay me. You heard me right, “pay me!” That goes for the title company, the hard money lender, the contractor, the realtor, the mortgage broker, the insurance company and anybody else who may become involved with one of my deals. It boils down to—I have the product (houses) and everybody I just named above needs me in order to make money. Here is how the Merry-Go-Round Secret works: 1) Title Company: When I sell a house to a buyer I submit the contract to the title company. I have an agreement with the title company to pay me a referral fee. 5
2) Private Lender: When I arrange for a client to buy my house using one of my private lenders the lender pays me a referral fee. 3) Insurance Company: When I arrange for a client to buy a Builders Risk Insurance policy from an insurer in my network, the insurance company pays me a referral fee. 4) Contractor: When I arrange for my client to use one of my contractors to rehab his house, the contractor pays me a referral fee. 5) Realtor: When I arrange for my client to use a realtor who is a part of my network to sell the house, the realtor pays me a referral fee. 6) Back to the Title Company: When my client sells the home to his buyer, we are back at the title company and they pay me another referral fee. With this deal, letâ€™s say that I purchased the home for $65,000 and sold it for $80,000. I made a $15,000 profit from the sale of the home. In addition to the $15,000 profit, I just made referrals adding up to another $5,000. Now my profit is at $20,000. All referral fees I collect do not come in the form of cash. Some real estate professionals cannot legally pay cash referrals, but can offer other types of referral compensation, gift certificates, discounts when using their services, and other non-monetary offerings. The Merry-Go-Round is a great secret because it allows you to make more money from the sale of your homes. There is nothing unethical about this. Everybody wants to make money off you, so why donâ€™t you make money off everybody? [[[ 6
Secret # 3: THE REHAB CONSTRUCTION MONEY SECRET Who doesn’t put a cushion on the rehab construction cost? I have certainly been guilty of it. I would prefer to have more money in the escrow account for repairs than to run out of money and have it come out my pocket to finish the job. In addition, there is another little trick that you can use to guarantee the job gets completed and puts tens of thousand of dollars in your pocket immediately after you get your final inspection from the private lender and a Certificate of Occupancy from the city inspectors. For simple math, let’s say that you take out a loan with a private lender to buy a $50,000 home with $10,000 in “real” repairs and an After Repaired Value of $125,000. The lender will loan you 70% of the After Repaired Value = $87,500 less $8,750 closing cost (estimated at 10%) for a total of $78,750. The “real” repairs to rehab the home are only $10,000. However, you put a little cushion in the estimated repair sheet you submitted to the private lender to reflect a repair cost of $28,750. Three weeks later you rehab the home and spend only $10,000. You receive a Certificate of Occupancy from the building department, the lender inspects the home, and it passes the inspection.
What about the remaining $18,750 that is in the escrow account? Guess what? The lender has to cut the check to you. In addition, if you are handy with a hammer and nails and are willing to earn some â€œsweat-equity,â€? the Rehab Construction Money Secret works great because you can lower your expenses on your rehab construction cost and put more of the remaining rehab escrow funds in your pocket after you are completed with the project. [[[
Secret # 4: SELL YOUR HOUSE TO YOUR WIFE SECRET My wife and I both own businesses. My wife owns an interior decorating firm; however, she is my wife so you know she is also a real estate investor (it’s the family business). With this business, my wife will occasionally buy and sell houses. Who do you think she is going to turn to in her need for a great wholesale deal? Well, I better hope it is not those other guys! When my wife gets the urge to buy, I sell her a house just as fast as I would sell you one. Okay, maybe I give her a slightly better deal! Or, maybe we are both in cahoots to make a big score. Maybe we need some Christmas money, or maybe we feel the need to take a cruise somewhere at the expense of someone else. With private lenders fighting all over each other to loan me money, who wouldn’t want to loan money to my wife? We are married and share the same house. Let’s just say I contracted to buy a home for $45,000 with $10,000 in repairs and an After Repaired Value of $150,000. I arrange to get my wife approved for the loan at 70% Loan To Value (LTV). This means the lender agrees to loan my wife $94,500 after closing costs. The seller gets their check for $45,000. I get my assignment check for $30,000, the remaining $19,500 goes into an escrow repair fund. My wife and I say adios to you guys and go on a cruise to Alaska.
Okay, I would love to go on a cruise to Alaska, but what did my wife and I really accomplish by structuring this deal? Here is what we were able to do: 1) I didn’t have to hunt down a buyer for this house because my wife bought it from me. 2) We are married and work as a team. Therefore, we were able to raise a quick $30,000 from the assignment fee I made from selling her the home. 3) After the $10,000 in repairs was complete, we put another $9,500 into our pocket from the rehab funds remaining in the escrow account. 4) When we sold the house we put another $35 - $50,000 (depending on how much we sold it for) in our pocket (excluding holding cost, realtor’s commissions, and other closing costs). The Sell Your House to Your Wife Secret works! I have used it and the results were very similar to what I have described above. This is a great method for beginners who are trying to find a way to raise some quick capital. In addition, this hustle can apply to your girlfriend, friend, business partner, or family member. It doesn’t matter as long as you are working as a team. It worked well for me and my wife because we are both entrepreneurs and work well together. This was only one of our deals out of many. [[[
Secret # 5: BUY A HOUSE WITH AN ATTACHED BUILDABLE LOT SECRET I love buying houses with attached, buildable lots. These deals can be very lucrative. Itâ€™s like going to a 2-for-1 sale. Sometimes you can pick up both properties for the price of one. This is one of my favorite top secrets because it just makes good business sense to buy into these deals when the price is right. Recently, I purchased a house with two buildable lots for an amazing $65,000. Here is the good part. The lots were buildable and each of them had their own separate folio numbers. The house alone was a 3 bedroom, 1 bath, 1,100 square foot home that only needed $15,000 in repairs and had an After Repaired Value of $120,000. Here is how I structured this deal: 1) Contracted Separately: I contracted all the properties separately. Therefore, I wrote up three contracts. I contracted the house for the $65,000 and the two additional lots for $1.00 apiece. 2) Borrowed Money: I called my private lender and told him I needed to borrow $65,000 to buy the house. He loaned me 70% of the After Repaired Value of $120,000, which was $84,000. After the $8,400 closing cost (Estimated at 10%), the loan was for $75,600.
3) Closing Instructions: I informed my title agent to close all three deals at one time. The loan covered the price to buy the three properties with the remaining $10,600 going into an escrow account for repairs. The mortgage from my lender was placed against the house and not the two adjacent lots. Therefore, I owned the two lots “Free and Clear.” I immediately put the two lots back on the market for $20,000 per lot. I settled on a builder who purchased both lots from me for $35,000. We closed the deal only 3 weeks after I had bought the house and lots. Soon afterwards, I rehabbed and sold the house for another gain of $16,500. My total profits on this deal were $51,500. The Buying a House with an Attached Buildable Lot Secret is a great way to make money (by selling the lots) before the principal house is rehabbed or resold. There are tons of these deals out there—you’ve just got to find them. However, when you buy a house with a lot, you need to make sure that the lot is a buildable lot. If the lot is not buildable, you will have to be approved for a variance. The variance process can be quite lengthy (8-12 weeks). You have to request a hearing, normally with the City Council, to argue your case for why you should be allowed to build on the lot. It is up to the City Council to approve or disapprove your request. Personally, if I know the lot attached to the house is not a buildable lot, I look towards the house to make a profit. If the numbers don’t work for me buying and selling the house for a profit, I don’t buy the house. I don’t like taking a gamble trying to convince the council to give me a variance. 12
In addition, if the properties donâ€™e have separate folio numbers, you may have to pay an attorney to have the lot separated, which can cost you upwards of $1,000 (depending on where you live). It normally takes 2-4 weeks to have this done. Separating the lot from the house is much less risky than trying to get a variance. I have gone this route on many occasions and so far I have always been able to separate the lot and sell the lot for a profit. [[[
Secret # 6: BUYING THE ENTIRE NEIGHBORHOOD SECRET One of my favorite slogans is: “I don’t buy houses, I buy neighborhoods!” –Kenny Rushing Whenever I go into a distressed area to buy a home, I don’t just try to buy one home—I want the entire neighborhood. This has proven time and time again to work to my favor. In 2001, I purchased a 100-year-old historic home in an area of Tampa called Tampa Heights. Many years ago, Tampa Heights was a well-to-do upscale suburb of Tampa. However, over the years, it had decayed into a crack-infested community. I bought into Tampa Heights at a time when the neighborhood was making a turnaround. While prospecting for properties one day, I stumbled across this dilapidated home which was a great candidate for bulldozing. However, I’m a visionary and saw great potential. The home was a huge 3,500 square foot bungalow, a single family home that had been converted to a rooming house. The seller had invested $50,000 trying to convert it back to a single family home. He decided to sell after landing a job transfer to Texas. The asking price was $85,000. After looking inside the home, I knew I wanted to buy it. The first thing I had to do was convince my wife it was a good deal. That would be the hard part. 14
My wife was raised in a middle income community, way out in the suburbs. Convincing her to move to the heart of the ghetto was going to be a challenge. I invited my wife and in-laws to view the home the next day. After pulling up to the home they all gave me that look—you know the look people give you when they have something to say but don’t want to offend you. I can recall my wife’s brother asking me if I was really going to bring his sister to this dump. My wife’s parents were dead silent. They didn’t have to say anything. I know they thought I was crazy! My wife Katrice is down for me. I think she would jump off a bridge with me if I asked her to. In spite of what everybody else thought, we decided to put a contract on the house. We offered $78,000 and the seller accepted. Now that we had a signed contract, it was up to me to obtain financing, prepare a rehab budget/schedule, and coordinate the construction. First, I began to prepare a rehab budget for the house. No matter how hard I tried to keep cost down, it was going to be expensive to renovate this house. When I quickly approached the $100,000 mark, I began to think maybe I was crazy. I realized that investing this much money in this house would be an over-improvement for the neighborhood. Although I loved the house, it didn’t make good sense to buy it and invest that much money in a crack-infested neighborhood. That’s when a light bulb went off in my head… Sitting directly across the street from this house were two dilapidated homes, both owned by an alcoholic who never mowed the lawns or tended to the upkeep of his properties. I realized walking out my front door everyday and looking at those two blighted houses was going to be an eyesore. The situation 15
wasn’t unique—most of the houses in the neighborhood were distressed and in need of TLC. I soon realized if I was going to make a sizable investment in this house I had to think of it as making an investment in the neighborhood. I secretly set my sights on buying the two houses across from me and as many house in the neighborhood as I could get my hands on. That is exactly what I did. First, I closed on my house. Then I began a direct mail campaign to buy houses in the neighborhood. Within a few months, I had purchased the two houses in front of me. I immediately began rehabbing them at the same time I was rehabbing my house. You’ll never guess who purchased one of the houses across the street— Katrice’s brother, the same guy who once asked me if I was going to bring his sister to this dump! As a matter of fact, he still lives there. The value of his property has skyrocketed (told you so, John). I recruited hundreds of other investors to invest in homes in Tampa Heights. After five years, I had been involved in several hundred deals in Tampa Heights. Houses that were former crack houses, distressed, and off the tax rolls were now beautiful, renovated homes with families living in them. And guess what, you guys. They still don’t give me my recognition. Everybody always wants to claim your work! The Buy the Entire Block Secret can work to your advantage and to the advantage of the community. Yes, I was able to make money while inking these deals; however, what I did to improve the quality of life in the community is worth far more than whatever amount of money I could have made. 16
Remember, when you invest in a house you are investing in the community. Never settle for buying just one house, buy the entire neighborhood. This is only smart business. Sure, it would have been easy for me to invest $100,000 in my historic house just to let some other investor come behind me and buy the other houses now that I had made the block attractive. Buy the entire block so you can make the money yourself! [[[
Secret # 7: PLANNED DEVELOPMENT SECRET People love me, but developers hate me because I intercept their deals and make money off them. I don’t care if I’m labeled a capitalist—I’m out to make money. I like to stay in the loop and know exactly who is building what and where. When I find out from my sources that the city or a developer is planning a development, I make it my business to gather all the facts so I can make some money on the deal. There are several ways you can make money on planned development deals. Here is how I did it on a planned $500 million dollar development in Tampa. In 2003, I purchased a 600 square foot, dilapidated, shotgun home from another local investor. He had it under contract for $20,000 and assigned it to me for a $5,000 assignment fee. I cleaned the inside of the house up and immediately stuck a For Sale by Owner sign in front of it. I was asking $40,000, but I was happy accepting $35,000. Several days later, I received a phone call from the President of the Neighborhood Association, Grace. Grace lived down the street with her husband. She was a nice lady and my wife and I liked her. Grace asked if I owned the property with the “for sale” sign in front of it. I told her I did.
Grace was kind enough to share with me that she knew a developer that might be interested in buying the house from me. “Developer?” I thought. Grace informed me that she would give the developer my phone number and tell him to call me. Why would a developer want to buy a 600 square foot, shot gun house? That night I decided to do some research on the Property Appraisers web site. What I noticed was that someone who operated as a Land Trust was buying several houses and land surrounding the subject property that I owned. The best part about it was that my house was one of the last homes on the block that they did not own. Now, this was starting to make sense to me. I realized the developer didn’t want the house, he wanted the land. Two days later I received a phone call from the developer. His name was Jake. Jake asked if he could schedule an appointment with me. We decided to meet the next day. The next day Jake and I were joined by my father-in-law at my office to discuss the sale of the house. My father-in-law had put up 50% of the money to buy the house so we were partners. Immediately, Jake asked me what I was trying to sell the house for? I thought about it a minute and replied by telling him $100,000. I know you guys are thinking, weren’t you asking $40,000? Yes, but that was before I knew a developer wanted to buy the house.
Jake and I negotiated for better than 30 minutes before we both came to an agreement. We settled on a sales price of $75,000. My father-in-law and I made a $50,000 profit. He was ecstatic. Working as a physical education instructor for 30 years, he had never made that much money that fast. This deal turned out to be a bit of luck. I canâ€™t claim that I knew we would do so well, however, it was certainly a learning experience that helped me set up similar deals with city officials and developers of planned developments in the future. Today, I take full advantage of profiting from planned developments. Whenever I find out a major development is being planned, I devise a plan of action. My action plan is to try to option to buy, contract to assign, or buy anything I can get my hands on in the area that is in the direct path of the planned development so I can resell it to the city or developers for a maximum profit. How do you find out where the planned developments are taking place? Following I will list some great sources for you to find out where the action is HOT in your city. 1) Chamber of Commerce: Becoming a member of your local Chamber of Commerce can be a great way to network with other members to find out where planned development projects are being proposed. The Chamber offers a host of services for local professionals and is the hub of economic development opportunities. The Chamber knows about proposed projects before the general public does. I have been very successful at gathering key information while attending Chamber of Commerce meetings. This information has allowed me to take
advantage of planned developments in parts of the city I had no clue were being being developed. I could option properties and wait for developers to knock on my door. 2) Land Trust: Most developers use Land Trusts to remain anonymous. They don’t want people to know that they are buying homes in the area. However, like the deal I just shared with you, it’s not hard to see the signs. When you notice large plots of land and houses owned by a Land Trust, it is obvious that the developer is Land Assembling for a planned development. In addition, some developers will use different Land Trusts to try to fool you. Normally, they are all controlled by one developer. 3) Reports in newspapers: When the city or developers are planning a development you will start to read articles in the newspaper about it. 4) Reports on the news: The same as newspaper. When the city is planning a planned development you will notice news reporters begin to cover the story. 5) Talk around the investor community: Investors always know where the hot spots are to invest and where the next big planned development is going to be. The problem is most investors may not tell you where it is because they don’t want you to become their competition. 6) Realtors Talk: Just like investor’s talk about the next big planned development and where it is going to be, so do realtors. The good thing about realtors they are more willing to fill you in on things, especially if they think you will give them some future business.
7) Building Department: The local building department always knows of planned developments. The department issues building permits. Most of the employees at the building department are friendly and will provide you with any information you need. 8) Coffee shop Talk: Whenever there is a big plan to build a mall, a new sub division, a Wal-Mart store, it is always great coffee shop conversation. People like to be “In the Know!” The more they know the more powerful they feel. One day just spark a conversation with someone at the coffee shop and be amazed at how much information you can learn talking with people. 9) Neighborhood Association Meetings: This is a great way to find out what is going on in different communities. When you get a lead about a planned development in an area find out when their next association meeting is and attend. If there is a planned development for the area the Neighborhood Association will certainly discuss it. They always stay abreast of what is going on in their community. Just sit back and gather intelligence. You will be happy you attended! 10)
Eminent Domain Complaints: Whenever there is uproar
concerning an eminent domain issue there is a planned development somewhere in the works. Homeowners don’t like being forced out of their homes. They will complain to whoever will listen, newspaper and television reporters, the city council, the County Commissioner, their State Representative, the mayor and anybody else who will hear their concerns.
Make sure you find out where the planned eminent domain is being imposed. What is the city or developers trying to develop? Then, how can you get a piece of the action by investing in the area? 11) Some other great sources to find out where development is planned are the City Council and County Commission meetings. As a matter of fact, just recently I was watching the city council meetings on television and overheard a developer requesting a variance for a proposed condominium project in an area of town with which I am familiar. The next day I went out and secured two options to buy contracts. If the developerâ€™s variance is successful he will have to pay me for my contracts.
Secret # 8: THE ASSIGNMENT OF CONTRACT SECRET I can’t count how many times I have turned small earnest money deposits of $10, $100 or $1,000 into huge assignment fees of $10,000 or more. It is one of my favorite hustles and it is very easy to do. I decided to share with you a true story of my very first assignment of contract deal—actually more luck than skill. However, I learned a lot from this deal and was able to use the lesson to launch a very successful wholesale business. I like the Assignment of Contract Secret because it allows you to risk so little (as little an investment as $10) to gain so much (I have made assignment fees of $100,000 and more). In addition, you can pull this hustle off in less than 30 days. I have assigned contracts for huge profits in less than a couple days. Sounds unbelievable, doesn’t it? But it’s true. I am a living proof this method works, and works well. I have made hundreds of thousands of dollars with the assignment of contract hustle. You only need a strong desire to succeed, persistence, and an earnest money deposit. MY FIRST ASSIGNMENT DEAL I was out farming the market one day when I stumbled across a property that had a “for sale” sign in front. Normally I’m not interested in properties that are already listed for sale (too many would-be buyers bidding up the price). However, after I realized that the property sat on nearly a half of block of land I decided to stop. When I got out of the car to take a better look I noticed the 24
property consisted of 3 buildings. The main building looked like it had 2 or 3 apartments. In the back of the main building was a small house. On one side of the main building was a commercial building and on the other side sat 2 lots. The property seemed to be neglected (which is always a good buying sign). The neighborhood was in decline. I knocked on the front door to ask the owner how much they were asking for the property. I knocked and knocked, but no one was home. So I placed my business card inside the mail box. Before I left, I tried to call the number on the “for sale” sign. It was an out-of-state phone number—out-of-town owners are always more motivated to sell. The “for sale” sign looked old and weathered. This was a clue that the owners had been trying to sell for awhile. It didn’t surprise me that the phone number turned out to be disconnected. So, I planned to come back the next day. The next day turned out to be more successful. I knocked on the door and was greeted by a woman named B.B. I introduced myself and asked if the property was still for sale. In a dismissive way she said it was. I asked her a few questions about the property. She told me property did include the 3 buildings and 2 lots. The original asking price was $300,000. The owners inherited the property. They lived in Oklahoma. B.B. had been living at the property for 3 years. The original owner was an elderly woman. B.B. did some chores for the previous owner in return for free room and board. When the elderly lady passed away, the heirs made B.B. the caretaker. The owners gave B.B. permission to live at the property until they sold it. I sensed early on that B.B. was enjoying the arrangement. Maybe this was the reason why the property had not yet sold. She could be rude and disrespectful.
With this attitude I was sure she had scared away potential buyers. That’s okay— more opportunity for me! I wasn’t going to let her scare me away from what I believed was a good deal. I asked if she would give me the owner’s new phone number because the phone number listed on the “for sale” sign was disconnected. She refused to give me the phone number and insisted on getting my phone number to give to them. I was pretty certain my phone number would end up in the garbage can. She assured me that she would ask them to call me. I wasn’t convinced, but all I could do at the moment was to give her my business card. I told her I would follow up with her in a couple days. She just mumbled a few words and slammed the door in my face. WEEK # 2 One week had passed and I hadn’t received a phone call from the owners. I wasn’t surprised. My suspicions about B.B. were correct. I decided to take a trip back to the property to talk with her. When B.B. answered the knock on the door she looked disappointed to see me. “Is there something I can help you with?” she asked in a hostile voice. I asked,” Have you had the chance to give the owners my phone number?” B.B. became very irritated. And then it hit me. “What the hell you going to do for me?” she responded. My intuition was right. B.B. was looking to get something out of the deal. “What did you have in mind?” I asked.
“I’m not going to help anyone buy this property unless I get paid,” she insisted. “What kind of terms did you have in mind?” I asked. First, she wanted me to pay her $5,000 cash for acting as the middleman. Secondly, she demanded she remain as the caretaker of the property. Third, she wanted me to agree to allow her to live in the downstairs apartment rent free. To put it mildly, I felt B.B. was asking for a bit much. However, at this point she had all the leverage. Therefore, I agreed to her terms of the deal. B.B. insisted I put it in writing. I told her I would drop off the contract the next day. The next day, I returned with the contract in hand. This made B.B. feel more comfortable. She took a few minutes to read the contract. “Is the contract acceptable to you,” I asked. She just smiled and nodded her head. She then picked up the telephone and began dialing. “May I speak with Ms. Scott?” B.B. asked the person on the phone. Seconds later B.B. began talking with Ms. Scott. B.B. informed her that she had someone who was seriously interested in buying the property. B.B. handed me the phone. I began talking to Ms. Scott. I learned that she was the owner’s cousin and she was also a local real estate broker. Ms. Scott was in charge of selling the property. I asked her how much the property was selling for. Ms. Scott informed me that they were asking $75,000 for the 3 buildings and $20,000 for the 2 lots.
I couldn’t believe what I was hearing. They were only asking $95,000! This was well beyond a great deal—this was a steal! I told her I was interested in buying the buildings and lots. “Are you sure,” she asked. I assured her I was very interested and offered her a $1,000 non-refundable earnest money check. She liked the sound of this. We made plans to sign the contract the next day. THE CONTRACT SIGNING I met Ms. Scott at her office. At first she didn’t take me very seriously because of my striking handsomeness (just kidding)—actually because of my youthful appearance. She asked how old I was. I told her I was 27. “I thought you were much younger than that,” she responded. She presented the contract she had prepared ahead of time. “Are you sure you really want to buy this property?” she asked. I began writing out the $1,000 non-refundable check. Sometimes you just have to let your money do the talking. She quickly understood that I didn’t come here to waste her time but to get down to business. I reviewed the contract, then signed it. “Do you have a title company you want to use?” she asked. I told her I did and would drop a copy of the contract off to them so we could start the title search. Ms. Scott made me a copy of the contract. As I left, I figured I was on my way to my first great deal/steal.
MAKING SOMETHING FROM NOTHING I was very optimistic about the profit potential. I could flip the property and make a hefty profit, or I could rent the property out and have a positive cash flow. I worked up a plan to renovate the residential buildings for use as rentals. I planned to convert the commercial building to a laundromat. I hadn’t made up my mind on what to do with the lots. I knew I could sell them each for $20,000, or I could build on them. I identified the following potential: The main building had a 1 bedroom apartment, an efficiency, and 2 rooms that could be rented out. The second building was a 1 bedroom house. Not including the income I would eventually make from the laundromat here was my projected monthly rent: 1 Bedroom Apartment:
2 Rooms (at $75.00 per week):
1 Bedroom House:
Buying the property cheaply gave me a lot of flexibility. I would make a nice profit if I decided to flip the property. Or, if I wanted to keep it, I could rent it out for a positive cash flow. The fact that it was a multi-family dwelling on a nice piece of land added a lot of value. These are the kind of deals you should be looking for and be willing to fight hard for. It’s a money maker any direction you choose. Having a “back door” to open in case your original plan doesn’t succeed can be very helpful… as I soon learned.
GETTING THE FINANCING Once I had a contract in hand I needed to get financing. I had 60 days to close on the property so I had plenty of time to find the money. I was confident that after my lender saw the property he would approve it. Back then I used hard money for most of my rehab projects. The hard money lender that I use charges 5 percentage points up front and 15% annual interest. They base the loan on the After Repair Value (ARV). On most properties, they will loan 69% of the ARV. Therefore, if the ARV was $240,000 they would loan me $165,600 (Loan to Value or LTV). Hereâ€™s what I was looking at: A.R.V:
Total Closing Cost (roughly 10%):
Available Funds For Rehab:
Based on these figures, I would have had $54,000 available for rehab/ repairs. The lender places this balance in escrow and you draw it down as you complete the rehab work. According to my estimates, this would have been enough to renovate the main apartment building, the house, and half the cost of converting the commercial building into a laundromat. If I decided to sell the lots I could use that money to finish the commercial building. Any money remaining from the sale of the lots would be the beginning of the profits I would see from this project.
Once I renovated the residential buildings, I immediately planned to refinance at a lower interest rate. All the numbers worked. My adrenaline ran high. I couldn’t wait to get started on this project. I called my lender to set up a time for him to view my great find. I was confident he would feel the same way about the deal. However, I soon learned it was too early to be this confident. The next day I arranged to meet my lender at the property. He, too, was amazed at the deal. There was only one problem. His company did not make loans on apartment buildings, only single family homes. Although he would have liked to approve it, he had no choice but to pass on the deal. This was devastating to me. For the next several weeks, I contacted other hard money lenders. Each of them had the same policy. They would only invest in single family homes. But, I wasn’t going to give up. I met with my banker. He flatly turned my loan down. Without company tax returns showing a history of profit and a high credit score, most banks won’t loan you a dime. And I had neither. In spite of frustration and disappointment, I was still committed to making this deal work. As reality sank in, I realized I was not going to be able to use O.P.M. (Other People’s Money) to buy this property. I did not have enough cash myself to purchase the property and renovate it. There were only two other options I could think of. The first was to find a partner to co-fund and purchase the property with me (and split the profits). I ruled that out because partnerships are rarely successful and I don’t like them.
ASSIGN THE CONTRACT The second option I had came from a book I read years ago. The book explained how to “buy properties with the right to assign.” I was aware of this technique, but I had never tried it. Still not confident it would work, I decided to read the chapter in the book again. I soon gained my confidence back realizing this method could be used to make the deal work. After all, with no one willing to finance the project, not wanting to take on a partner, and not in a position to purchase the property with my own cash, I had only one option left. The first obstacle was to convince the realtor to modify the contract to allow me the “right to assign.” I later learned contracts automatically allow assignment unless specifically excluding that right. To be safe though, and to prevent any later disagreement, the contract should clearly state the buyer has the right assign the contract to a third party. The contract I signed was a standard real estate form used in Florida. It has two boxes you can check. The first box states that the buyer can assign the contract, the second box states that the buyer cannot. On my contract, the realtor checked the box that stated that the buyer could not assign the property. If I wanted to assign the property I had to convince the realtor to modify the contract to grant me that right. I called Ms. Scott and explained I would now like to have that option if I later decided I wanted to assign it. She questioned why I might want to do that. I sure didn’t want her to know that assigning the property was my last option. So, I just insisted that I wanted to keep all my options open. I assured her that I was dedicated to closing the deal and this would not prevent me from doing so. Hesitantly she agreed. A few minutes later
she faxed me an addendum to the contract granting me the right to assign. Now I just needed to find a buyer (assignee). I learned early on that there is a buyer for everything. And, a willing seller for every buyer. I was confident that there was a buyer out there for my property. I just had to reach him. I don’t care how great your product is—if you don’t advertise and reach your audience you will never connect. I decided to use paper flyers and newspaper ads. Because paper flyers were less expensive I started there. If this didn’t work I would advertise in the Sunday real estate classifieds. With my home computer, I printed up a catchy flyer. The top of the flyer read: AN ENTIRE BLOCK FOR SALE — APPRAISED AT $300K, ASKING $125K CASH!!” I knew this would get their attention. In the flyer I detailed each of the properties that were included in the deal; a 3 unit apartment building, a house, a commercial building, and 2 lots. I predicted any serious investor would jump on this deal. This would allow me a hefty profit of $30,000. I passed out flyers wherever I thought investors would be. I passed them out at the courthouse during the foreclosure auction, at tax deed sales, at real estate investor clubs… and anywhere else I thought I might find an investor. Before you knew it, I had several investors interested in the property. My work had paid off. Over the next two weeks I met at least a dozen interested investors. A few of these investors wanted to buy the property but they needed owner financing. I didn’t own the property I only had it under contract. Even if I wanted to owner finance I couldn’t. I had to find a cash buyer. That was the only way I was going to make this deal work.
AN ASSIGNEE WITH CASH A cash buyer called one day. He was a real estate investor who received one of my flyers. He sounded very interested in the property. He informed me that he had visited the property and liked what he had seen. He wanted to schedule a meeting with me so that I could show him the inside of the buildings. We met. I learned that Ricardo worked with a partner who lived in Jacksonville, Florida. His partner was filthy rich. He made it big time in the stock market. Ricardo used his partner’s cash to buy properties and they would split the profits after they sold them. I met Ricardo and gave him a tour of the property. He said he had already committed to buying the property before he even had the chance to look inside. Ricardo informed me that his partner was flying in from out of town and he needed to pick him up. He asked if I wanted to accompany him. I agreed to do so. Ricardo’s partner also had a passion for flying. It was pretty impressive to see him pilot on his own helicopter. I knew I was dealing with a serious group of investors. I had to make this deal work. Ricardo introduced me to his partner, Jeff. I was shocked when I found out that he had flown in from Jacksonville just to make this deal. “Have you all signed the contract yet?” he asked Ricardo. Ricardo informed him that we had not. We agreed to visit the property again to let Jeff see it. If Jeff liked the property we would write up the contract. As we pulled up to the property I could tell that Jeff was very interested. I asked Ricardo to drive around the block so that Jeff could see how much land was included with the property.
“So you weren’t kidding when you said it covered nearly a whole block,” he commented to Ricardo. “Are you ready to see the inside?” I asked Jeff. “No need to see the inside, I like this property. Let’s go to lunch. Then you and Ricardo can write up the contract,” he insisted. I didn’t have a problem with that! After lunch Ricardo wrote up the contract. Ricardo never tried to negotiate the price or the terms. We wrote up the contract for $125,000. I received a $5,000 non refundable earnest money check (to be deposited at the title company). This means if they didn’t close the deal their earnest money would be forfeited and awarded to me. This is another strong benefit of “buying properties with the right to assign” because if you structure the deal correctly and the buyer does not close, you can still walk away with a profit. In this case, if Ricardo and Jeff did not close the deal and I was not able to close my original contract, Ms. Scott’s sellers would have kept my $1,000 earnest money. However, I would keep Ricardo and Jeff’s $5,000 earnest money. I would have been $4,000 ahead. Of course, I would be best off if the deal closed and I make the full $30,000. The other terms of the contract called for Ricardo and Jeff to close with me in 30 days. That was 15 days before I had to close with Ms. Scott. Therefore, if Ricardo did not close the deal in 30 days I still had 15 days to try to find another buyer. After we wrote up the contract Ricardo promised to take a $5,000 earnest money check to the title company. I requested it be in the form of a cashier’s check. Ricardo promised to go to his bank to get the cashiers check
and take it to my title company. I assured Ricardo that I would fax the contract to the title company as soon as possible. This looked like a done deal and I was happy. NOT SO FAST The next morning I received a call from the title company. Ricardo had indeed taken the $5,000 earnest money check to the title company the day before. But he was on his way back in to pick it up. My title agent said there was nothing she could do but refund the money because she didn’t have a contract. How could I have forgotten to fax it in ? What a stupid move ! And I wasn’t anywhere near my paperwork to grab it and fax it to her. I couldn’t do anything but call Ricardo to try to find out what the problem was. I called Ricardo and asked him why he was trying to pick up the earnest money. He told me that he had talked to someone that morning who informed him that the commercial building was once a gas station with underground tanks and possible contamination. I couldn’t believe this was true. The commercial building had most recently been a dental clinic. “Do you think it would have been able to operate as a dental clinic if it sat on top of a toxic gas tank?” I asked. He didn’t care to listen. He was intent on going to the title company to pick up his earnest money check and there was nothing I could do. I tried some more to convince him but I soon realized that there was nothing I could do to change his mind. I had no one to blame but myself. If I had only faxed the contract to the title company when I was supposed to… I must honestly say that losing this deal almost broke my spirits, but I knew I had to carry on.
IT TAKES ALL TYPES That day I decided to go back down to the foreclose auction at the court house and pass out my flyers. A few hours later an investor called. His name was Bob. Bob was a very active investor in the Tampa market. He also had a poor reputation for the way he did business. Other investors had warned me about him. Not one to be intimidated I scheduled a meeting with Bob. I took him by the property and gave him a tour. He liked the property. Bob asked me if the price was negotiable. “What did you have in mind?” I responded. Bob offered me $100K for the property. I refused the offer. I knew Bob was going to test me, but I didn’t think he would come in with such a low offer. I told Bob if he reconsidered to give me a call back. The next day as I was leaving my office Bob showed up. “Can I talk to you, Kenny?” he asked. We talked for a few moments. Bob told me he was seriously interested in buying the property. He offered to buy me out of my contract with Ms. Scott for $5,000. That meant he would buy the property from Ms. Scott for $95,000, then give me $5,000 as an assignment fee. I refused his offer. I could tell that Bob was getting upset. “Well…how much do you want then?” he asked. I told Bob to rethink his offer and call me back later that day. I spent the remainder of the day weighing my options. I had less than 30 days to find a buyer. If I didn’t find a buyer I was going to lose my earnest money. I decided to reconsider my position. I lowered my financial expectations, from a $30,000 profit to $10,000. I figured if I assigned my property to Bob for $10,000, I would at least get my $1,000 earnest money check back, plus I would make a respectable $9,000 profit. That was not bad for my first assignment deal. 37
Later that day Bob called me to set up another meeting. We met and I asked him if he had reconsidered his offer. He told me he had. He was now offering me $6,500 to buy me out of my contract. I refused once again. This led us into negotiations. For the next 20 minutes we tried to convince each other to take the deal we were offering. We were finally able to reach an agreement. I agreed to let Bob buy me out of my contract for $10,000. In return he would be responsible for settling the contract I had with B.B. Bob agreed that the $10,000 assignment fee would be in the form of nonrefundable earnest money. He also agreed to close the deal in 15 days. This satisfied both of us. I wrote up the contract. CONCLUSION Two weeks later I closed on this property. I received my $1,000 earnest money check back plus an additional $9,000 profit. I’m sure I would have been happier if the original $30,000 deal would have gone through. Overall though, I was happy with my first assignment deal. No sense in dreaming about what “should” have happened. It was a learning experience. I have benefited from that deal, and all the other deals I have closed since then to get to where I am today. The Assignment Contract Hustle is no longer a deep secret in real estate. But it is not used to anywhere near its full potential. It is an easy and great way to get started investing in real estate. I hope sharing with you my first assignment deal opens your eyes up to the Assigning Contract Secret. It is a great method and one you should use yourself. Good Luck!
Secret # 9: BUYING CONDEMNED HOMES SECRET Before you disregard the next condemned property you see, I suggest you reconsider. There is good money to be made investing in condemned properties. First, most owners of condemned properties are under great stress from the local Condemnation Department to make improvements to the property. The infractions may include an overgrown yard, garbage collected on the property, cosmetic and structural damage, and property neglect (just not maintaining the house). You can get a list of the condemned homes in your area by visiting the Condemnation Department. Most lists cost less than 10 dollars. The new list is normally printed every January. Using this list I like to send out “We Buy Condemned Homes” post cards. You can find a lot of motivated sellers this way. More than 60% of the houses I have purchased in Tampa were condemned properties. I have yet to lose money on any of these deals. Why are they profitable? It’s simple! Condemned properties can be purchased cheaply. The owners have typically gotten themselves in a financial bind and can’t afford to correct the violations. The further along the condemnation process has gone, the more desperate the seller will become. Purchasing a condemned property is no different than buying any other property. However, before you agree to purchase the condemned property you 39
need to visit the Condemnation Department to ask several questions. What violations does the property have? Are there liens attached to the title? If so, will they agree to a settlement? Oftentimes the city will settle for nickels on the dollar if they are confident you can correct the violations. I can remember purchasing a condemned property which had multiple liens. In total, the liens exceeded $20,000. Before the city was willing to settle on a price I had to provide three things 1) A sales contract: They wanted to make sure I had the right to buy the house. 2) Proof of funds: I had to provide them with bank statements. They wanted to make sure I had enough money to buy and rehab the house. 3) A personal letter: Written by me, this letter assured the city I was aware of the violations imposed on the property and agreed to use a licensed and insured contractor to do the work. Once I provided these items to the city, they agreed to settle the code enforcement liens for $425.00 if I assured them the house would be rehabbed by the deadline. The Condemnation Department will normally allow you 30 - 90 days to rehab the home. When the property receives its Certificate of Occupancy, the city will release the lien against the property. Next time you ride past a house and notice an orange condemnation sign attached to the front door, I hope you donâ€™t view the property as a hopeless sight, but a hopeful gain! [[[
Secret # 10: THE CONSULTANT RETAINER SECRET For many years I provided free consultation to people who were interested in investing in real estate. Most of these people were very motivated to invest, however when it came time to sign a Sales Contract they would think of every excuse not to take the leap. As a result, I have wasted so much time dealing with people who were not serious. Therefore, a year ago I decide to do something about it. Here is why I like the Consultant Retainer Hustle; it is a great way of generating extra cash flow for your business. In addition, it helps weed out the people who are just looking to waste your valuable time. It boils down to this—I don’t sit down and talk with anyone about real estate investing unless they pay me a $2,500 retainer. This retainer can be used as their earnest money deposit when they buy the house from me. When I began instituting this policy I was able to filter through the people who were serious as opposed to the people who were not. I instructed my assistant to inform anyone who wanted to just come by and “pick my brain” that it came with a price. Either they paid the retainer or we didn’t meet. However, I continued to allow the clients who I knew were serious to access me without a retainer. These were the guys who were repeat customers and bought lots of houses from me. 41
What I noticed after I implemented this policy is that I had more available time to work with my serious clients as instead of wasting time with people who had no intention of doing anything. You will be surprised how inconsiderate people are with your time. I have had people come in my office and talk for hours, but when it came down to making the deal happen, made some excuse to back off. The Consultant Retainer Secret eliminates that! In addition, collecting 10 consultant retainers a month is an extra $25,000. I also make it clear that the consultant retainer is non-refundable and can only be used as their earnest money deposit when they decide to buy a house. If they don’t buy a house, I keep the retainer. What I have learned is that when you have $2,500 of someone else’s money they are much more likely to commit to a deal instead of losing their retainer. The Consultant Retainer Secret will help you stop wasting your time with not so serious people, and help generate cash flow for your business. However, being a consultant does take years of experience. I wouldn’t suggest consulting with others until you have a track record of successful deals. You may also need to obtain a consultant’s license to operate (check with your State regulatory licensing board). [[[
Published on Sep 15, 2009