In today’s real estate investor environment, many investors are being trained to send a series of letters to these homes, using excellent quality foreclosure lists like those available at www.tjmarrs.com (Tools link). This is an excellent way to streamline your marketing and save time. Of course, you’re not the only one who might be sending letters, so having a strong marketing system is also essential.

One option might be to call these homeowners and tell them you can produce cash quickly to help them in their situation. Others may simply choose to go door knocking, which in my opinion is the most effective, but also difficult for many investors to do.

Obviously, these houses are spread around the community, in neighborhoods you may not care to drive through. You also may be nervous about dealing with people who are in such distress. Many will be rude, and some will be nice. That is just part of the business. The bottom line is that if you develop a solid, confident approach and follow-up to develop credibility, you will be better positioned to profit.

Generally speaking, the approach to use when knocking at the door is to indicate you’re not there necessarily to buy and sell homes, but that you’re there to produce cash for their needs. Let’s face it; the problem is not the home. The problem is their financial need for cash. Keep the conversation focused on the subject of their needs. The house is not the problem: Cash to make payments is.

The strategy I like to use in dealing with these homeowners is a three-step follow-up system. I’ve come to understand that these people usually don’t jump right on my offer to sell their property, particularly if they have substantial equity involved. On the other hand, I don’t want to leave the deal on the table for another investor to come behind me and get a contract that I should have gotten. If you can, get an agreement right away. Leave a clause or two in there that gives the sellers some wiggle room, so they feel they are not over-committing themselves.

One might actually use an option agreement, versus a purchase and sale agreement (more on this in advanced training). The bottom line is to show them that you’re flexible and asking them to be equally as flexible.

Another important step, which I show the seller when I first meet with them, is the definition of “net equity.” Net equity is what is left over after closing costs and payoff of all liens and encumbrances. It is not the difference between the price they are offered for their house and their loan payoff.

Very few sellers actually look at this prior to accepting an offer to sell. I am very careful to show them these numbers, being sure that I deduct realtor fees, closing costs, repairs required prior to closing, holding costs, penalties, etc. Why do I do this? To show them they have less equity than they realize. This way, my lower offer won’t seem so low. I ultimately insert this phrase, “If my offer is so low, how much will you get if the bank takes your home at the auction?”

I’m not trying to twist anyone’s arm here. I am simply showing them the real numbers that they’re facing, so they can make a sound decision. Of course, my intent is to get a reduced price; that’s just business. I would not be in business long if I paid full price for every house that I bought (or any house that I purchase).

I may also be interested in a strategy where I simply have the seller deed the property to me (giving me full ownership), yet leave the existing loan in place. My intent would be either to get a discount from the current lender, commonly referred to as a short sale. Then I simply bring the payments current and keep the existing loan in place (assuming the terms are good enough to keep in place for a while). This is called a subject-to transaction. This saves me a tremendous amount of money in closing costs and fees, thus securing my increased profit potential.

There are many ways to come out with the money to bring the current loan into good standing.

-    Use my own cash

-    Use my credit to borrow some money

-    Use other people’s money and create a second mortgage just to ensure their position.


What can you really offer these homeowners?

1.    You can buy the house for cash or terms as previously discussed

2.    You could guarantee a small loan to make up the back payments and penalties for a guarantee fee (As this is an advanced subject, you want to avoid being construed as an unlicensed lender by not doing this correctly).

3.     You could bring the back payments and penalties current if they are willing to give you the deed to the house. (Known as Subject to Financing)