The Many Faces of Foreclosure (and How You Can Help)

I just visited the former site of Casey Serin’s famous IAmFacingForeclosure blog and came across this link to a post by Dr. Housing Bubble about a seemingly improbable foreclosure story involving a couple that was once making $130,000 a year. I liked this quote in particular:

“Amazingly, folks are very upfront when they are making lots of money but go into clandestine mode when they are having financial difficulties.”

This is the reason why it may seem like the recent surge in foreclosures seems to be avoiding your neighborhood. People just don’t talk about entering foreclosure. But stories like the one in Dr. Housing Bubble’s post are everywhere, which creates a great opportunity for investors to not only find many potential deals (homeowners facing foreclosure are less likely to have the time and resources to list with a realtor), but more importantly to assist homeowners going through this very difficult process. Bankruptcy has never been desirable, but it’s becoming a less viable solution due to greater restrictions on bankruptcy, brought on by the recent subprime lending woes.

If a homeowner has enough equity in a property, real estate investors are in a very good position to help that person avoid bankruptcy. Time is on our side. Because investors actually purchase the property (as opposed to Realtors who simply list it for sale), we can complete a transaction within a few days, which is crucial when foreclosure is imminent and when each month’s missed payment leaves the owner in deeper financial troubles. These sellers are highly motivated, which makes them willing to sell the property at a deep discount or with favorable terms in order to sell quickly, making it worthwhile for an investor, who then sell the property for a quick flip profit or as part of a lucrative terms deal (perhaps with someone who just recently was foreclosed and can no longer apply for a conventional loan).

The key to working with pre-foreclosures is finding delinquent homeowners relatively early in the foreclosure process. There are a few ways to do this:

• Search the Notices of Default (NoD) at the county courthouse. This is the quickest way to find out about a homeowner’s pre-foreclosure status.
• Use a pay service like DataQuick, which takes a few days to process a Notice of Default, but allows you to search for notices of default from your computer.
• Try any online provider of pre-foreclosure information. You can probably find a site that lets you search Notices of Default for free, but there’s usually a lag of at least a week or two, so the best opportunities may already be gone.

When working with pre-foreclosure homeowners, be sensitive. This is a gutwrenching and unknown experience for most of them, and as mentioned earlier, many people don’t like talking about foreclosure. Be sure to convey credibility, trust and understanding through your branding materials and communication with the seller. Create a sense of hope and optimism, but be forthright and realistic about the situation and the options available to them. Stay away from the hard-sell tactics and never use their financial situation as a way to exploit them financially. Sure, it may cost you a few hundred dollars here and there, but it’s a minor financial difference and, as Wilford Brimley might say, “it’s the right thing to do, and it can help you live a better life“.

Hat Tip: www.IAmFacingForeclosure.com

Rehabbing: Keep It Minimal

Leo Babauta of Zen Habits has a great post today about creating a minimalist home. I love the idea because our thought process is so closely associated with our physical environment, and having a clear living space naturally leads to clearer thoughts. Leo is one of my favorite bloggers because he consistently produces high-quality, insightful posts, a feat that is harder than it may seem. Check out the article for his excellent justification of why to keep furniture and knick knacks to a minimum.

This reinforces one of the golden rules of rehabbing. For some reason, people have a tendency to attempt ambitious rehab projects when a more straightforward rehab would be preferable. Keep in mind, when people buy a house, they’re purchasing a lifestyle as much as they are a physical property. With the ever-increasing speed of our culture, people want simplicity. After years of touting the newest technological innovations and the “office away from home”, the hotel industry has been rebranding itself in recent years to once again focus on sleep and comfort. Solitude, peace and clarity are at a premium right now. Keep this in mind when considering additions to your next rehab project.

Be Passionate (and How To Fake It If You’re Not)

I’m currently reading Seth Godin’s Free Prize Inside! and this quote caught my eye.

“It’s my passionate belief that when teams of people get together and make something amazing, useful, helpful, productive, funny, inspiring or remarkable, we’re at our full potential as humans…

It’s important. It’s powerful and something that you need to do. Satisfied businesspeople (and nonbusinesspeople, for that matter) are happy because they’re actually doing something. They’re building and creating and designing and leading and shaping and making something come to life.”

This puts a new spin on advice that is echoed in almost every book on leadership and success that I’ve read lately (two standout ones are “The Power of Full Engagement” and “True North”). The advice: do what you love to do. It’s something that everyone’s heard, and an idea that is instantly likeable, but it’s odd how often this principle is forgotten. I know I forget it sometimes – usually right before my productivity goes down and I instantly find 100 other things to do.

Obviously, there will always be some undesirable tasks that need to be done, but I’m getting better at avoiding this unfortunate pattern (William James once said “Nothing is so fatiguing as the eternal hanging on of an unfinished task”), and I’ve concocted a few ways of making these obstacles a little less imposing:

1. Delegate, delegate, delegate. I’m just learning this, but you don’t need to have subordinates or direct reports in order to delegate your tasks. Others may be glad to learn a new skill or work on a higher-level project. Also, thanks to the wonders of diversity, there always seem to be people who enjoy unimaginably dull things (or at least can tolerate them more than you do). Trading tasks can be fun, too.

2. Reframe your idea. Framing is a means of putting an idea in a new light. Politicians are wonderful at this: tax relief (relieve me from the burdens of police protection, running water, paved roads, and representative government), death tax (as opposed to the more-accurate “estate tax”), pro-life, pro-choice. But it doesn’t have to be verbal. Think of yourself in a movie, or the CIA. Time yourself and try to break your personal record. Think about it differently to give it an interesting twist.

3. Flow. This is what marathon runners do to get their mind from thinking about physical aches and pains. Focus solely on the task so you stop dreaming about golfing in the Bahamas. Get into a rhythm. Start tapping beats with your pencil or nodding your head. If it doesn’t distract you (or if you want to be distracted), play good music. I recommend music with a solid, consistent beat that is either instrumental or has vocals that are low-key or highly familiar. For work that requires a lot of concentration, here are some of the things I listen to. For more physical or energy-driven work, try something that motivates you.

4. Create a system. Oftentimes, there is a barrier to becoming fully engaged in the task at hand because it is high pressure (i.e. you don’t want to miss anything), complicated, or woefully boring. Creating a system can do wonders in this situation. Design a checklist or make a flowchart of all the things you need to do, then knock the subtasks down one by one in machine-like fashion.

5. Reward yourself. If you can’t drum up any interest in the task at hand, then you’ll surely be interested in being done. Give yourself a reason to finish the task; it’s amazing what a bit of motivation can do. Take a jog, read your favorite blog, eat a carrot, learn about an obscure legal phrase. Whatever it takes, give yourself a pat on the back for a job well done.

It’s OK To Be Rich

Today’s post is about a mindset that can cripple new real estate investors, and that I had to tackle early on. At a few of the seminars I used to attend, I would talk with people about my discomfort with making a lot of money while saying I’m “helping people” at the same time. I had this belief that in order to be benefiting others, you had to take some hits yourself. This simply isn’t true. Business success and positive energy are not zero-sum games, and oftentimes, the approach that works best for you is also the most desirable overall.

Look at the Project (RED) campaign. (RED) is a progressive project aimed at raising money to end AIDS in Africa through normal commercial channels. A (RED) label on a product indicates that a portion of that sale will be donated to a charitable cause. However, there have been many failed attempts to do the same thing. What sets (RED) apart is that it’s profitable for the companies involved. When Bono (who is an amazing marketer and an underestimated businessman) first pitched this idea to companies, many responded by saying “Sure, we’ll just donate a certain number to the project.” However, Bono and his team didn’t want this – they knew that if a company would just donate a certain number, the campaign would come and go. Instead, they opted for a sustainable business model that companies could stay involved with for years. In spite of the initial drawback (because profit was built in, each sale would not put as much money toward the cause), (RED) has become one of the most successful “compassionate capitalism” campaigns because it stayed worthwhile.

Real estate investment isn’t much different. You’re dealing with very expensive assets and there is potential for great loss (although you can almost eliminate this if you play your cards right). Because of this, short-term real estate investors – such as those who do flips and terms deals – require a sufficient incentive to put money into such an investment. If it weren’t for this, then real estate investment activity would go way down, which would prevent investors from helping families and homeowners with needs outside of the traditional retail real estate market. So charge what you’re worth. Once you’ve made the money, you can decide what to do with it, and not run the risk of accidentally losing money. Think of the incredible impact of donations from Warren Buffett or Richard Branson. As Yogi Berra might say, “You can be a lot more valuable, if you become valuable”.

“I never said half the things I really said.”

Branding: How To Position Yourself For An Edge In The Marketplace

In a competitive market, most buyers and sellers are looking for ways to simplify their decision making process. A real estate investor who has a strong presence inside the mind of a potential customer will most often be the benefactor of this technique. In the marketing classic Positioning, Al Ries and Jack Trout suggested that success is not dictated by the number of advertising outlets or the money spent on marketing, but rather by the position that the advertiser holds inside the mind of the consumer. And despite the temptation to market to everybody, the strength of a position lies in its specificity, not its breadth. The consumer needs to immediately connect your company with the product or service.

Look at the world’s top brands, and you’ll probably strongly associate them with one specific product: Coca-Cola – dark fizzy beverages, Microsoft – operating systems, IBM – business infrastructure, Intel – processing chips. We feel comfortable with these brands in part because they seem so specialized. That’s why when Coca Cola ventured into a citrus beverage, they named it Sprite instead of “Coca Cola Citrus” or “Clear Coke”. Would you be inclined to buy “Coca Cola fruit juice”? That conjures up images of bubbly, artificial fruit juice, which is why they sell Minute Maid instead. Same thing with their Powerade energy drinks and Dasani Water.

Can you name a national deli chain? Probably not. However, you can probably name at least two or three chains that sell a more specific product: the submarine sandwich. By specifying their product, Subway became one of the world’s biggest restaurant chains, despite their somewhat limited product line. Years later, Quizno’s cut into their market share by attaching their name with toasted sub sandwiches. Procter & Gamble has built an empire on the principles of positioning and creating separate brands.

How does this apply to real estate investment? You want to be the first person who comes to mind when a homeowner (or other customer, depending on how you brand yourself) is in a particular situation. You could position your company around a single deal type: rehabs, for example. Or, you could build your brand around a unifying principle that guides the company: friendly service, quick closings, going above and beyond the call of duty, creative financing, environmental awareness, etc.

Some tips for developing your brand:

1) Be specific. I’d say the two golden rules of positioning are: eliminate confusion, and link your brand as closely as possible with the product. Being specific allows you to avoid that nebulous “what do they do again?” area that creates confusion and, ultimately, forgetting. It also creates a strong link between you and your intended message.

2) Be distinctive. Let your company stand alone in the mind of the consumer.

3) Make it obvious. People are bombarded with thousands of messages a day. Don’t make them think any harder than they have to. Draw upon some symbolism or connection already embedded in the collective unconscious, and then make it yours.

4) Align your brand and marketing materials. Create a cohesive image: use your logo, word choice, company name, colors, and advertising outlets to reinforce your core brand.

5) Let it guide your decisions. This seems relatively obvious, but it’s an oft-broken rule. If you position yourself as the “customer service” real estate investment company, be willing to invest extra money or time to uphold this image. If you are a”simple, quick closing” company, stay away from complicated escrow instructions or unusual contract provisions that may cause delays along the way. Think about it: if you’re making a kite, it’s true that strength, ornamentation, and distinct features are important, but the most important thing is that the kite flies. Think of your company the same way and don’t stray from your purpose.

Further Reading: Positioning by Al Ries & Jack Trout, The 22 Immutable Laws of Branding by Al Ries & Laura Ries, Wikipedia’s “Brand Management” page

The Changing Tides of Profit

Chris Smith of EquityScout.com has a great article about how short selling may be the new “flipping”. He uses the facts that housing markets are slowing down throughout the country, and that flipping is “so 2006″ and a lot of the glamor associated with it seems to have faded, as reasons for his beliefs. While there isn’t a consensus that housing markets are necessarily going down, I (along with Dr. Housing Bubble) certainly know that prices aren’t increasing the way they were a few years ago. And even though it’s easy to make money in any market if you use the right profit strategies, there does seem some movement toward profit strategies other than the standard flip/rehab deal. I think Chris is right on the money with this prediction.

Also check out Chris’s excellent article on working with Realtors.

Profit Strategies: The Short Sale

Foreclosure sales are the best-known ways to acquire a property that can be sold for a quick “flip” profit without any repairs, but for many banks, which are trying to eliminate non-performing assets from their books, a “short sale” can be a faster and more appealing way to dispose of property. A short sale occurs when the bank gains possession of a property due to delinquent loan payments, and then sells that property to an investor for a lower price than the original loan’s amount. Although the bank loses money by selling the property for less than the amount it loaned to the original homeowner, it can quickly reinvest that money into its other streams of income.

For investors, the key point is that the bank is motivated to sell you the property. A repossessed property (which is classified as a “non-performing asset” because it isn’t generating income for the bank) looks very unattractive in the bank’s reviews, so the lender will want to sell to you if the price is right.

Call your local bank and tell them you’re a real estate investor looking to purchase properties. Ask if they’d be interested in a short sale in order to rid themselves of non-performing assets. As always, there is likely to be competition, and aiming for a pure “flip” (as opposed to a rehab flip) may not be feasible. However, if some other profit strategy, such as rehabbing or renting out the property, can be used, purchasing as part of a short sale can add a considerable amount to your profit margin.

It’s Easy Being Green (If You’re A Rehabber)

In light of the Live Earth concerts and the ever-growing movement toward environmental sustainability and reducing carbon dioxide emissions, I began researching ways for real estate investors to “go green” with rehab projects. Here are a few I found.

• Buy Energy Star appliances when possible. If you only do one thing to reduce the “ecological footprint” of your rehab properties, buy an energy-efficient refrigerator, which continues to save money and energy as time goes on. But it’s not only refrigerators. Energy Star is a government sponsored program that is designed to help support and identify the most energy-efficient materials for the home. It’s a smart choice not only from the standpoint of monthly bills, but also because of the tax deductions given to people who use these materials and appliances.
• Use insulated concrete forms instead of concrete blocks. These serve the same function as standard concrete, and provide added insulation, which cuts heating, air conditioning, and energy costs. As an added perk, they reduce installation costs for your contractors.
• Replace old lightbulbs with fluorescent bulbs. I was surprised to find out how much of a difference this makes environmentally and financially.
• Forget PVC shower curtains and install shower curtains made of natural fibers such as hemp or cotton. Some studies have shown that the presence of PVC leads to increased amounts of dioxins, which have negative effects on humans and the environment. Hemp is a good choice because it’s naturally mold resistant and faster-drying than other fibers. If you need a liner for the new shower curtains, try polyester or nylon instead of PVC.

P.S. If you’re interested in energy issues and good music, check out KT Tunstall. I saw her on the Live Earth telecast two days ago and was blown away by her lively performance and her interesting blend of folk-pop.  Tunstall has all of her tour vehicles running on biodiesel and planted 6000 trees in Scotland to offset the CO2 emissions caused by the production of her latest CD.

Financial Freedom: Maintaining Your Newfound Wealth

Stories of bankrupt lottery winners are all too common, and the reason is that maintaining a high level of functional wealth requires financial discipline. People like T. Harv Eker like to discuss the “financial thermostat” – an internal, self-correcting mechanism that automatically adjusts your level of wealth to a particular level. I think it’s a good description, but in order to regulate one’s financial temperature, one has to develop a mature viewpoint about money.

Money doesn’t bring satisfaction, but it might be true the other way around, because it’s impossible to be rich without having a wealthy mentality. As you make your money in real estate, you have to adjust your spending patterns so that you start saving more. You have to put some money away for the long term. In Rich Dad, Poor Dad, Robert Kiyosaki defines “rich” as the state of having investment income that covers all of your expenses. He says that the wealthy first put their money into investments and then use the investment money to pay for luxuries, whereas the poor spend their money first on luxuries (which are constantly depreciating) and never get into the long-term investments. Ben Stein and the author of “The Millionaire Next Door” share a similar sentiment, as do many of the brightest minds in finance and wealth management. People who can’t hold on to their money are often brilliantly creative when it comes to finding ways to dispose of it.

Very few people think they’re bad with money, but I think there’s a natural spending tendency in most of us that needs to be channeled into an effective system. Just as the best athletes are not only naturally talented, but also practice frequently, financial heavyweights usually have some sort of system in place to ensure that they uphold their wealth building principles. One way is to have a certain amount of money deposited into an account every month. Most banks will do this for you, and if not, it’s probably time to find a better place to put your money. Another good way is to budget. This is a particularly relevant practice for younger people, who often aren’t forced into budgeting in the same way as people juggling a mortgage, insurance, children, healthcare, and all of those other expenses, but it is a useful skill for everyone. Simply determine an amount you would like to save or invest each month, and find a way to fit your expenses into the remaining amount available. This causes you to think about which expenditures provide you with the greatest benefit, and will hone your shopping skills. It can also be an exercise in self awareness: I find that I enjoy good food and good people more than I do sensory excitement, so I’ve started to rent movies and invite friends over for dinner rather than forking over $12 to see a movie (and $10 for theater food). I’ve cut down the money I spend on clothing, but I’ve kept spending constant in categories such as books and modern furniture.

Human beings are incredibly adaptable. Just as lottery winners can adapt to spending all of their money, so can you adapt to spending slightly less if you commit to saving a little bit more each month. Because of compounding interest, this minor change in habits can pay off greatly in the end. There’s no greater luxury than the freedom that comes from not having to count your pennies, and putting your energy into the things that matter most to you.

For young people, no matter which income level, Ramit Sethi’s blog is a tremendous resource. Ramit recommends dividing your money into three accounts:

1) A standard checking account (ideally, with no minimum balance, and with free checking). Keep only the money you will need to spend soon in this account (no more than $1500).

2) A high-yield savings account. Places like ING have options that provide a 4-5% return, compounded monthly. Use this money for big purchases that you plan to make within the next 5-7 years, such as cars and other large, infrequent purchases.

3) A retirement account. If you can get an employer to match your 401(k) contributions, then max those out first. When no employer-matching 401(k) is available, then the best option is a Roth IRA (rather than a standard 401 (k) or Traditional IRA). Also, invest in index funds rather than mutual funds.

How to Triple Your Productivity: Learn To Delegate

One of the major things that separates true real estate investors from those who end up quitting or failing is the successful investor’s ability to delegate tasks. Despite the “lone ranger” image that some investors hold of themselves, real estate investing is a team sport. Get the right contractors, realtors, inspectors, finders/bird dogs, and lawyers on your side, and not only will you be surrounded by specialists, but they’ll be making you money.

If you can spend a little money and do 5 deals a month, you’ll be way better off than someone who doesn’t spend that money, and as a result, can only do 1 or 2 deals. That $300 you save by fixing the plumbing yourself won’t look so good when you’re cramped underneath the kitchen sink with a wrench while your competitors are closing another deal. Not only that, but every day that you’re not selling your property means another day of taxes and interest to pay.

Some tips for delegating tasks effectively:

1. Get the Right People: Find the best people for your team. Don’t spend time with unlicensed contractors and those who are cheap for a reason. You don’t want to spend exorbitantly, but find qualified professionals who are worth more than they cost.
2. Make Them Like You: Reward them for a job well done. Bring them continuous leads. Be likeable - nobody likes working for a jerk.
3. Don’t Over or Under-manage: Psychologists have consistently proven that 1) People work best and are more motivated to work when they feel they have some control over their work, and 2) Productivity decreases when workers are unsure of what to do next. Find a healthy balance of these two things; avoid unclear work orders or excessive micromanagement.
4. Set Clear Expectations: Protect yourself. Get everything in writing. Document all communication and interaction. Follow up projects. Ensure that things are being carried out according to plan.