We haven’t said much about WHY you’d want to be buying a house in the first place. That’s something you need to think about and I suggest write it down. Your motivation for buying goes directly to your own personal financial goals and the time frame you’ve set for yourself to achieve them. Your timeframe is when you want to be financially free. How much cash and/or cash flow do you need to accumulate so you can quit your job or slow down? Write it down. Set a date. How many years from today?
Start your FREEDOM Notebook which contains your objectives and your daily plan on how to get to financial freedom.
We’ll start with time management:
Perhaps it’s because Jack Miller spent so much of his life supervising others and directing their work, he was sensitive to wasted time. When you’re trying to get ahead, every minute of the day is precious. See the daily schedule Jack Miller used. Yours might be different. But you do need to create a daily schedule of what you plan to do. THEN STICK TO IT!
Jack Miller wrote this….To spur myself on to avoid time when I caught myself idling away the time, I made up a schedule of things that I could always be doing at any time when there wasn’t a more pressing demand on my time. I’ve included it below for your edification and enlightenment. I urge you to make up one for yourself, tailored to fit your own situation.
WEEKLY “TO-DO” LIST
Monday: Office Administration
Repeat, Complete, and/or Follow-up on prior tasks. Adjust any advertising for the coming week.
Check out any new leads.
Respond to weekend calls, faxes, and emails.
Follow up on all pending files to unplug any stoppages. Check calendar for week’s appointments and closings. Get processing started on all new deals.
Contact Mortgage Brokers to get current loan criteria. Post financial data to journals for prior week.
Check bank accounts and clients for operating funds.
Tuesday: Neighborhoods
Repeat, Complete, and/or Follow-up on tasks.
Work the neighborhoods to check out properties
Post 100 door hangars in target neighborhoods.
Follow up with Criss-Cross Directory with the same homeowners
Make appointments to see houses.
Pin down deals and get them written down and signed off.
Open escrow t o begin processing.
Wednesday: County and Federal Court Houses
Repeat, Complete, and/or Follow-up on prior tasks.
Check out landlord eviction filings at Court House
Check out postings of new foreclosure listings
Check out Bankruptcies for potential Trustee Sales.
Check with IRS collection department for potential deals.
Check with property tax collector for owners who didn’t pay taxes. Check probate court files for potential deals.
Check out divorce court files for potential distress purchases.
Attend foreclosure sales to observe, bid, or represent investor clients.
Thursday: Follow up on Court House Activities.
Repeat, Complete, and/or Follow-up on prior tasks.
Agencies: Check with appropriate agencies to find opportunities to buy.
Owners: Call, Write, Email, FAX and Mail out form letters offering to help.
Set up appointments to meet with both Agencies and Owners that respond.
Check out any houses acquired at courthouse sales or from owners.
Check with peers to buy and/or sell wholesale deals.
Check with private investors for potential deals or loans.
Arrange for necessary access, evictions, security, insurance and repair.
Friday: Rental Management
Repeat, Complete, and/or Follow-up on prior tasks.
Either get paid in full or get delinquent payers to move out over weekend. Or initiate legal action and service of process if they won’t respond.
Check the need for, progress, or satisfactory completion of rental repairs. Check weekend auctions or sales for needed materials, appliances, fixtures.
Get “For Rent”, “Lease/Option”, and “Open House” ads in for the weekend.
Get weekend status from title companies, lenders, brokers, etc. on deals.
Post 100 door hangars in targeted neighborhoods for weekend.
Saturday: Work the Neighborhoods.
Repeat, Complete, or Follow-up on prior tasks.
Follow up on any responses from door-hangars.
Knock on doors to speak to owners, landlords, or tenants who are leaving.
Prospect for “bird-dogs”, tenants, financiers, buyers, and sellers.
Look for run-down houses and lawns that indicate distressed owners.
Look for vacant and abandoned houses in need of repair.
Solicit any rumors or news that will point to possible deals.
Take names of workers and contractors fixing-up houses.
Use a tape recorder to note information.
Monday, reduce tapes to writing and put into tickler file for future action.
Sunday: Work Neighborhoods
Repeat, Complete, or Follow-up on prior tasks. Repeat Saturday activities in neighborhoods.
SPEND EACH DAY PRODUCTIVELY
Now, let’s consider several examples personal situations, one or more of which might fit you.
Situation 1: You’re just starting out to get rich. You don’t have much cash, but lots of guts, energy, and time that you’ll devote to getting ahead financially. Your game should be to first get to know values and your market as well as you can. Next, tie up as many properties as possible with as little cash as possible.
The price and terms you negotiate must be attractive to the market, but also include a spread between the gross amount you pay and the net amount you’ll receive to enable you to turn a quick cash profit. Once you’ve accumulated a cash reserve and a track record, you can do a lot of other things, but for now, first things first.
Things you could be doing: There’s an old saying that the less money you have, the more money you should act like you have. That doesn’t mean that you should rent a Mercedes Benz and start running around in a white silk suit, but it does mean that you should present yourself to the public as a successful person would. Grooming is always important.
Try to look professional if you can bring it off. Bear in mind that the first impression you create is going to have to be a substitute for a credit rating, an office, and professional experience. Give it your best shot. For men, shined shoes, high quality trousers and shirt, and a conservative tie (coats are optional in hot weather) will increase your confidence and help gain access to a seller’s home.
From your first contact, begin evaluating the merits of any potential deal. If the property would take too much cash, or wouldn’t sell very fast, don’t just walk away. Take down as much information as you can on a standardized form and pigeon-hole it to pass on to someone who is financially stronger and who would pay for the lead, or at least, give you a piece of his or her action. Twenty percent of his or her net profit seems about right.
Situation 2: You are a wheeler-dealer who makes your profit by finding distressed owners who must sell to avoid foreclosure. They are either out of time, or there is something wrong with their house that makes it un-salable until additional money is spent to solve the problem. In either case, you’ve got access to needed financing and crews to fix up the house. Your problem is that you’ve got to keep buying and selling on a continuous basis to support your lifestyle and financial obligations.
Things you could be doing: Let all the Brokerage community know that you are willing to pay them a fee for referring houses to you that they either won’t have time to sell before they’re foreclosed, or that need to be overhauled in order to meet lender’s appraisal and underwriting requirements.
Since you know that you’re going to “flip” any house that you buy, you’ll focus all negotiating skills on reducing the price you pay. In order to get a lower price, you can offer more cash at point of purchase, extremely high interest rates, high monthly payments, and/or relocation services to help the seller find another house. Ideally, you’ll seek to buy and sell houses that are a little above the mainstream market to avoid having to compete with other dealers and fixer-upper people in your area.
When you buy a house that you intend to fix up, you should make sure that the “right” things are wrong with it. In other words, avoid expensive work on foundations, structures, and expensive roofs. Concentrate on kitchens, baths, landscaping, windows and screens, ceilings, walls, doors, floors, and hardware. On a cost/benefit basis, these enhancements can create a dramatic improvement in both appearance and appraised value.
In a perfect world you should try to hold the value of your improvements to about 33% of the initial purchase price and once the house is fixed up, you should expect to sell it for a gross sale price that will yield somewhere around a 25% return on your cash investment. If you were able to do a couple of deals a year, this would be fantastic.
Situation 3: Suppose that you’re a “buy-and-hold” investor who has another source of income to support your acquisitions. You don’t mind property management and can do some maintenance. The house you should be looking for to hold long term would logically be situated in a stable neighborhood that will still be attractive to middle class tenants and their families for 25 or 30 years into the future.
You’d try to arrange seller carry-back financing that would provide fast amortization (possibly zero interest) by offering a high price with comfortable payments. Ideally, the property you’d seek would be contemporary and in good condition. Because of your careful selection, you could expect it to appreciate a little faster than the overall market while the loan amortized even faster.
Ideally, you’d want the house to be in a neighborhood that would attract the most desirable long term tenants who would be willing to pay higher rents to live there. The problem is that mature, stable neighborhoods with an array of neighborhood amenities and with all the assessments paid are usually full of homes that have large equities owned by satisfied residents. It could take a lot of money to play in this league.
Things you should be doing: This is prime Lease and Option territory. The ideal house to lease would be one that, for personal or professional reasons, the owner had to leave — and which hadn’t sold for one reason or another; possibly because of some major maintenance problem such as a roof or heating/cooling plant replacement that might be required to get loan approval.
By solving the maintenance problem and/or giving the owner “moving money”, you might be able to negotiate a lease that would provide you income. Alternatively, by giving up the income, you might negotiate to get a major portion of your lease payments credited toward an eventual purchase price. With an expensive property, in most cases you’ll do a lot better with a lease/Option approach than you would with a straight seller carry-back loan. After a $10,000 down payment, to carry back a $100,000 secured loan at a negotiated interest rate of 6% amortized over 30 years, but with a balloon payment due in 10 years. Your monthly payments or principal and interest would be just under $600 per month. At the end of ten years, when the balloon Note payment came due, you’d have to raise about $83,686. (As a practical matter, it’s easier to get a zero interest loan than a 6% loan. Go ahead, try it and see for yourself.)
Same owner, same house, but this time, suppose you offered to put on a new roof (that you could have your own maintenance team install for $5000) with $10,000 credited as a payment on a ten year Option to Purchase at a strike price of $115,000. Let’s say you agreed to pay the owner $700 per month in net rents, and further agreed to perform or pay for all repairs and capital improvements in return for a credit for 100% of the retail value of your maintenance activities, plus 50% of each rent payment received on or before the first day of each month.
At the end of ten years without any further repair costs, you would have received a total of $52,000 against the $115,000 Option strike-price. You’d only have to come up with $63,000 to buy the house. This would be $20,000+ less than in the foregoing low interest loan example. Financially speaking, the lease/Option technique usually is the best approach to buying regardless of your financial capability.
Even if the property didn’t appreciate at all, you would have little problem raising the $63,000 you needed to pay off the seller. You might do this by selling a partial interest in the property to someone who would agree to pay off the owner. If the $100,000 property were to appreciate as little as 5% per year, at the end of ten years, it would have a retail market value of $162,889. You could easily borrow enough money to close your Option against the house.
Situation 4: When it comes to buying houses, suppose you were a jack of all trades willing to look at every opportunity regardless of its shape, size, or from whence it comes. One of our seminar Mentors fixes up property for resale, horse trades to pyramid his equities, is a mortgage banker who lends money, operates a foreclosure company, does financial counseling, is a landlord, a foreclosure buyer, and an all around real estate wheeler dealer.
Learn more with Jack Miller’s book Creating Wealth With Houses.
