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Improve an investor’s business to improve your own business

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Investing on the rise

Real estate investors are dominating many real estate markets across the country that have high volumes of REO properties. A lot of them are drawn in by the great opportunity of multiple exit strategies and the historically great returns. A great way to expand your business is by helping these investors succeed by providing the best tools and information to turn them into long term clients. One perk of working with investors is that they usually buy more than one property and they are generally very experienced in the buying process. Here are some tips on providing great service to investors to help improve success in flipping property.

Finding deals

Finding great properties with a desired return can be a tedious process, as it needs to be done daily and is just plain boring. In my market area, we get about 125 new listings a day and only about five are worth looking at, so we need a great screening system to save time. This is a starting point with any investor and is one area that most don’t want to put work into. Start by sorting all zip codes by average price per square foot. A lot of MLS systems will have stats, and if not, you can pull the monthly sold properties and calculate the average price per square foot. This will only need to be done once a month, so the initial work is worth the long term time savings.

After the analysis is done, you will have a list of zip codes with an average PPSF for each. This will be like looking at the expected end zone of price of each asset purchased. Now, simply multiply that PPSF number by 0.7 to give yourself a 70% of the average number, if the average is $100 PPSF, you’ll only want to look at properties listed around $70 PPSF. This immediately eliminates all of the homes that are not even close to returns that investors need in order to profit and will leave only the best homes like a gold nugget at the bottom of a pan. This will save you and the investors tons of time right off the bat and leaves nothing but opportunity in the shopping cart.

Analysis

This is the step that that really needs to be done consistently to get accurate results that can be tested by multiple people. A quick way to calculate properties on the fly will be to make a spreadsheet that is simple with important numbers that are calculated in the right order. Here is a snapshot of one I made that will work on my smart-phone:

The ARV will be what you expect the asset to sell for after it has been repaired. This number will need to be perfectly accurate once the property is ready for purchase, but to get a quick number, just take that average PPSF you determined earlier and multiply it by the square footage of the property. From there, you can calculate disposition costs like title, escrow, tax, commissions and whatever else based on the final sales price (ARV).

From there, subtract repair cost which you will get a good idea of an average after doing a few of them. This will leave us with a final net number that we can calculate a profit margin from. To make your own spreadsheet, just copy and paste these in the respective excel boxes:

  • ARV-B1 (this is where you put after repair value).
  • Closing cost-B2 =(B1-(B1*0.06)) instead of 0.06 put whatever % your estimated closing costs are.
  • Repair cost-B3 (Whatever your repair cost is).
  • Liens-B4 (this would be any additional cost).
  • Final net-B5 =(B2-B3-B4).
  • Offer prices- B7 =(B5-(B5*0.3)) this will show the number you will have to offer to get the desired profit margins. 0.3 would be 30% cash on cash return but you can make a bunch of different numbers.

Buying

With the first two steps, you can consistently generate great lists of assets for your investors which saves them a lot of time weeding through junk, and provides easy to read values on a smart phone while you are at the house if you want. Now you affirm that you are the expert with access to hot deals in your market, and with this system, you will be able to outperform the competition and get your clients to these assets first. If your clients trust you enough you can even generate the offers on these after only you have looked at them and save your client even more time by just digitally signing them from home, (note to never make a mistake while doing this, I have seen a few people get thrown in the trash after costing an investor money).

Selling

If the previous steps have been done well, selling should be relatively easy. If you provide a solid product at an affordable price, any first time buyer will jump on it over a beat up REO any day. Plus, you and the investors are out revitalizing neighborhoods and stabilizing prices, which is much needed right now. One factor to note is time. Time impacts annual return, and the longer a flip is expected to drag out, the less predictable market conditions and demand will be which can further impact return.

The final take away

To break into the investor market, you just need to make the process easy for them by doing most of the work for them, and by providing consistent results. Investors are great to work with, plus the more money you make them, the more money you make. The investment market is too big right now to not be working it. This may be the only time in the foreseeable future that we will have this much opportunity in the real estate market for investment.

Ryan Schattner is a real estate broker associate with RE/MAX Gold in California, specializing in investment properties. He is also the creator of the Escrow Coordinator PLUS real estate business platform. His writing focuses on increasing productivity and efficiency through the use of technology, and planning.

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6 Comments

6 Comments

  1. Andrew McKay

    September 7, 2011 at 7:54 pm

    Right on my Ryan. I would say 50% of my business is with investors. It helps that I have several investment properties myself so walk the walk as they say. This undoubtedly gives clients confidence and allows "you" to speak with experience.
    Do it right for one investor and I have found they refer you to other investors. A number of Realtors have not wanted to work with investors as they believe there is extra work involved. there is in that a number of deals don't come together as the numbers don't work and emotions won't make the buyer pay more but this is offset by the repeat business. It's amazing how nearly every new investor buys a second property within 2 months as the first worked and the "fear" has been overcome. I have people buying 4 properties a year.
    Andrew

  2. Jon Sigler

    September 8, 2011 at 12:10 pm

    Investors are the ultimate "repeat" customer. Occupant buyers move every few years at best, but an investor might buy a few times a year. They aren't fickle about colors or this or that. They care about one color, green. Are they going to make money or not. Evaluate the opportunity for them and they will come back for life.

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Coaching

Disputing a property’s value in a short sale: turn a no into a go

During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!

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It’s about getting your way

Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?

When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.

After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.

Value Dispute Process

While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.

  1. Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
  2. Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
  3. Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
  4. Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
  5. Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.

It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.

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Coaching

Short sale standoffs: how to avoid getting hit

The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:

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short sales standoff

What is a short sale standoff?

If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.

Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.

Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.

How to Avoid the Standoff

If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.

Here are some ideas for how to get out of the situation:

  • Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
  • Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
  • If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
  • Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
  • In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.

One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.

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Coaching

Short sale approval letters don’t arrive in the blink of an eye

Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.

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Short sale approval: getting prepared, making it happen

People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.

Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.

Experience dictates that agents that learn about the short sale process
have increased short sale closings.

Short sale education opportunities abound

There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:

  • Classes at your local board of Realtors®
  • Free short sale webinars and workshops
  • The short sale or foreclosure specialist designations

As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.

The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.

Don’t take on too much

And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!

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