Tuesday, January 29, 2008

Getting Organized For The New Year : Part 1

The following procedures will insure an organized and well run office.

1. Have a daily To Do sheet. This is made up at the end of the day. You might have items left over from the previous day, put those items first and work from there. If you make deposits on a daily basis, add them to the list. Plan to file at the end of the day or before/after lunch breaks. Doing this daily will avoid the "pile syndrome". This list should also include any marketing strategies you employ. This will insure you set time aside to implement them.

2. Have a weekly goal sheet that you review at the end of the work week and finish off any projects hanging, check supplies, make deposits, do invoicing, review the goals you set up in your business plan. This sheet will also include phone calls left to make, marketing or mailings you need to finish.

3. Your monthly goals and routines should include: making deposits, invoicing, bank statement reconciliation, mileage costs, copier costs, postage costs, and income and expenses for the month. Check your supplies and order, if necessary. Comparison of your income and expenses for the month will indicate whether or not you need to make any changes or adjustments to your marketing plan for the following month. Calendar any upcoming events. Make up new income and expense envelopes. Pull your tickle for the following month and place materials in the appropriate day. Make up your chron file for the month.

4. At six month intervals check on your competition. Are they increasing their prices? What kind of marketing are they employing? Are they offering new services?

5. Do one of the following things with each piece of paper that crosses your desk: act on it, read it, file it or toss it. Be sure you need it, before you file it.

6. Set up a mail system. Use different colored folders to categorize the mail you receive. For example, Red - you need to act on (write a letter, make a telephone call, etc.); Gray - for your information; Yellow - meetings, upcoming events; Green - minutes of other meetings, newsletters, reports, etc.; Black - flyers, advertising materials. Remember stamp the date received on all mail, and follow up as quickly as possible, if necessary. This system can be modified for those companies that do not receive a large volume of mail. This system will help staff members set up work priorities.

7. Make up a reading folder. Read or browse this material during lunch, breaks, during slow or off hours. Make up files with specific categories for those articles you want to keep as a reference. Check on these periodically (every 3 months) to see if the information is still up to date.

8. To cut down on filing and paper costs. Set up a chron filing system. A chron file contains any correspondence you have generated for a specific period of time. They are usually made up on a monthly basis. For example, label a file January Chron, and place any correspondence you generated for that month in the file. For most offices, this system avoids having to make up client files with one piece of paper in them. However, some offices keep an additional copy in the client file. Do this only if you have to.

Part 2 of this article will discuss what you will need to implement this system.

Saturday, January 26, 2008

Short Sale Myths

If you're looking to create big results in your real estate investing business (even in a bad market) this is probably the most important message you'll read.

Here's the reason. Most investors are missing out on a huge number of potential deals that SHOULD be theirs.

They're missing out because they don't have the right tools to get the deal done and profit from them.

One of those tools is knowing how to do a Short Sale.

Just to make sure we're on the same page, a short sale is simply when a lender accepts less for a home than is currently owned.

Now a few years ago, doing short sales was an optional skill to have. These days, things are quite different. And if you don't do short sales, you could be in for a pretty rough ride.

So if short sales are so powerful, why aren't more agents doing them?

Because there's a huge obstacle in the way. And based on my experience, the biggest obstacle to doing short sales (and putting more money in your pocket) is simply that there is a TON of misinformation floating out there about them.

The good news is most of the information is just myth. It's not true. And it's time you got the facts.

So here are the "Most Common Myths Keeping You From Doing Short Sales."

Let's jump right in...

Short Sale Myth: Banks Won't Do Them...

A few years ago, when the market was hot, this was largely the case. Banks had no financial incentive to do short sales. There was simply no need.

Today, things are different...

Banks are in business to make money. And they can't make money when their customers default on their mortgages. Plus... when a bank is forced to foreclose on a property, that inventory prevents the bank from lending a certain amount of money. And a bank can't make money if it can't lend money.

A foreclosure is bad business for a bank. That means there is a huge upside for doing short sales. And these days, banks are motivated to minimize risk as much as possible. A short sale does that for them.

Short Sale Myth: Not All Banks Do Them...

This one is simple. ALL major lenders do short sales. In fact, they have entire departments dedicated to that very thing. It's called the loss mitigation department.

It's just that sometimes what they SAY they'll do and what they'll actually do are two different things.

When you know the facts, you're in the driver's seat.

Short Sale Myth: Lenders Won't Pay Real Estate Agents Commissions...

The bank doesn't care about commissions. The bank cares about their bottom line.

Don't fall for this myth. It could be a very expensive mistake.

Short Sale Myth: Short Sales are HARD...

This is one of the most dangerous myths keeping real estate investors from profiting from short sales.

Short sales are fairly straightforward. You don't need special connections with the lenders and you don't need any "secret sauce."

To do short sales, you have to learn the process. It's a new skill that most investors simply don't know... yet. But there is a simple step-by-step way to do it.

Of course, you can't take two steps without tripping over the newest "we'll close your short sale for you" company. They charge a fee for this "service." And it's often non-refundable.

Some mortgage loan officers have also thrown their hats into the game. They smelled profits and became overnight "short sale" experts. Also, starving real estate agents have now crowned themselves as short sale experts” nothing could be further from the truth. Actually real estate agents usually cause a deal to die with the lender or in committee due to their inexperience. Note: There is an exception to every rule, including the last statement I made, so let me qualify my statement; 99% of agents don’t know how to do a successful short sale which will benefit the investor.

Here's the problem with that:

There really is no good reason to leave money on the table or pay someone else to close your short sales. Doing short sales is something that any investor can learn... quickly.

Short sales are not rocket science; however, they are an “Art”! That’s why I call my course “The Art of The Short Sale”. And once you know how to do them, you'll wonder why you didn't learn a LONG time ago.

Please visit my website for more details http://www.jgage.com

To your success,

James Gage

Sunday, January 20, 2008

The Three Cardinal Rules of Negotiating Real Estate Transactions

You can find hundreds of books on the art of real estate negotiation . . . but pardon my frankness, many of these books offer stale strategies and tactics that just do not work.

For example, in many books you can find the ABC rule – “always be closing.” That is, you want to have a bunch of deals in the works and you want to get to “yes” as quickly as possible in order to close that deal.

However, getting to “yes” ASAP means you leave out a bunch of steps in the middle, such as carefully pre-qualifying your prospect by asking lots of questions. (I call this process “Getting to ‘no’ first – meaning, you weed out those who aren’t serious about a deal).

It’s also why I’ve simplified negotiation down to three cardinal rules: the person who mentions price first loses, get to know your opponent before meeting with him or her, and always get your agreement in writing.

Negotiation Cardinal Rule #1: The person who mentions price first loses

When I first started doing lease options, I had a woman call me to see if I had a specific type of property that she could then lease to own. She had $8K put aside but unfortunately at the time, I didn’t have anything in inventory that met her requirements. A few weeks later I found a property and called her about it and said that if she liked what she saw after doing a drive by, we could do business that very day.

She ended up loving the property. We did the walk through and as she and I talked, I knew that $8K was sure money in my pocket.

“Jim,” she said. “I have a problem. Remember how I said I had $8K? The problem is I don’t have $8K.”

My heart fell clear to my stomach and my knees went soft. “Uh oh,” I thought.

She then went on to say, “I don’t have $8K, I have $10K. Is that ok?”

Now, I if had opened my big mouth and had said at the beginning of our negotiation talk, “I’ll need a check for $8K,” I would have never learned she had an additional $2K in her pocket. The moral being – never be the first person to talk about price.

Instead, ask lots of open-ended questions that will give you solid information in order to determine where people stand. For example, when I’m talking to a person who is looking for a house or a lease option, I ask questions such as, “It sounds like you’re living in a great place. Why do you want to move?” (What I’m really asking is, “Are you a deadbeat?”)

Or, if I’m sitting at someone’s kitchen table and he’s spilling his guts to me about his house going into foreclosure, I ask, “If you’re able to sell the property, what you would you be comfortable asking for it?” Having the property owner tell me first what he wants for the property is akin to him showing me his cards before he makes a bet. In other words, it gives me the advantage.

Negotiation Cardinal Rule #2: Learn about your opponent before meeting

One of the first things lawyers do when preparing to negotiate is consult a lawyer’s directory. They want to know which school the opposing lawyer attended, what firm they work for, if they’ve made partner, etc. And, if you’re the lawyer who works for a larger firm, you’ll have the opposing lawyer come to your office in order to intimidate him or her.

The same principal – know you opponent -- works in real estate negotiations. For example, if you’re working with a bank on a short sale, you’ll want to get to know the bank and its methods of operating and whether its personnel are “user friendly” or they’re a bunch of pit bulls. One bank I work with is very confrontational and negotiating with them is like pulling teeth. I learned very quickly that I have to have all my facts, comparables, etc. ready and at hand when dealing with them because if I screw up, I do not get a second bite at the apple.

Knowing your opponent also means learning what kind person he or she is. For example, analytical people or number crunchers will want you to substantiate and document everything. Touchy-feely people, on the other hand, will want to talk things out.

To learn more about your opponent, talk to people in your network, do some online research (i.e. do a Google search), and attend your local REIA meetings – people love to talk and by asking questions and being a good listener, you’re sure to pick up some good “off the record” data.

Negotiation Cardinal Rule #3: Always get everything in writing

Although we all want to believe other people are good and honest, the sad truth is that disagreements can and do occur in real estate negotiations, which is why you need to put all agreements in writing. This is especially important in Massachusetts, where verbal agreements are not enforceable.

If you do get a verbal agreement, at the very least follow it up with an email or letter outlining the conversation and what was agreed to by each of you. If you’re dealing with a bank regarding a short sale, send a quick fax to whomever you spoke with stating something like “These are the parameters of the deal and this is what we agreed on” and then list everything discussed in the conversation. Be sure to sign and date it and call the person to ensure he or she received your fax.

Developing your negotiation skills takes time but is well worth the effort. In order to negotiate your way to better profits, don’t blurt out a price first, get to know your opponent before you step into the negotiation arena, and always get everything in writing!

Wednesday, January 16, 2008

Is It Possible To Get Realtors to Bring You Lease Options?

There are two common questions that I get on a regular basis involving Realtors and investors: Should I become a Realtor? How can I work with Realtors?

How should you work with Realtors?

Many investors think that real estate agents don't have the best deals or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market.

It is true that some of the best deals do get snatched up before they hit the market, but there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for "traditional" or “retail” homes, not "lease option" homes.

The retail market is about 90% of the inventory available in any given area. The lease option market takes up a portion of the remaining 10% of the market.

I look to work with Realtors who understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options.

Getting Realtors to understand what I do is key !

First, I have a letter that I send to a listing agent explaining the concept; second, I have a presentation that I do for local real estate offices; and third I network and continually tell Realtors what I do.

I hear investors tell me all the time that Realtors just don't understand or don’t want to understand what they do. I can only say that patience and persistence pays off.

Realtors aren't trained in unique selling techniques, they are trained in the "Retail Sales Marketing" which is 90% of what is out there. As investors, our job is to continue to help those around us understand what we do, so they know when and when not to call us.

The type of home I am looking for through a Realtor is one that the seller:

Doesn't need their equity out

Doesn't have any equity in their home

Is a Pre-Foreclosure

Job Relocation

When a Realtor hears a seller say, if my home doesn't sell soon, I might have to rent it," then the Realtor should think of you immediately.

All you need is two to four good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms - presto! You are the proud new owner of a lease option.

Realtors are just like everyone else and need to make a consistent living. One of the most important things for anyone is that they get paid for what they do. When I am taking on an option, I am asking the seller to wait two or three years to get cashed out. I don't want to make the Realtor wait that long.

If I do, they won't even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front.

This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. When you sell the home you will be asking for 2% to 5% down from your tenant/buyer. Therefore, you are still minimal or zero down/out-of-pocket.

If you aren't a licensed agent/broker and entitled to half of the commission, then let the Realtor “Double Dip"; appeal to the greed factor! Remember, half of something, is better than nothing.

They can get the listing agent portion down up front from you and the selling agent portion when the home closes in two or three years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn't expect anyway.

My recommendation is to get licensed!

Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of "comps" or comparables via the MLS system. This is the data you need to buy and sell real estate, not to mention it’s a great resource for expired listings – which can be a gold mine.

If you have a great Realtor, and you don't want to be licensed, fine. But I still think it is better to be licensed than not. Some investors say it gives you more liability to be licensed. I have two answers to that:

1. What are you doing to create liability?

2. Don't you think a judge is going to know you are an "expert" anyway when they find that you do real estate investments?

Some investors say that sellers won't sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and "know what I am doing." However, you will decide on each deal which hat you will be wearing : investor, Realtor or both.

Be well,

James Gage

Friday, January 4, 2008

Observations for the Coming Year

All booms eventually go bust.

We all remember the stock market crash of 2000, and most of us remember the real estate crash after the implementation of the 1986 Tax Reform Act.

Unfortunately, despite our understanding of booms and inevitable busts, it's always near the top of a boom that "dumb money" buys in. Currently, this has set the scene for a potential market bust of which few people are aware.

Supermarket Inspiration

About a year ago, I wrote a Yahoo! Finance column warning readers that the real estate boom was over. How did I forecast the end of the boom? I got my hot tip from the cashier at my local supermarket, along with other economic factors.

While she was tallying the cost of my apples, broccoli, and steaks, she handed me her new real estate agent's card and invited me to call her for my next real estate investment. Moments later, I was home writing that column. As I have always said, "When dumb money chases smart money, the party's over." Needless to say, many real estate agents and investors wrote me nasty notes.

Most economists are forecasting a strong economy, but economists worry me more than newly minted real estate agents. Most seem to be happy that inflation is in check; when I hear that inflation is in check, I begin to think about deflation, and as most of us know, deflation is much, much, worse than inflation.

The Truth

In the simplest terms, inflation occurs when there' too much money in the system. On the flip side, deflation occurs when there are too few dollars in circulation. When that happens, prices start to fall. For example, in inflationary times, prices of houses go up. In deflationary times, prices of houses come down. If prices of houses begin to drop too fast right now, it could be 1986 all over again.

I wrote a column in 2005 about how I love debt and my credit cards. The trouble is that most people do. In the past you could qualify for a loan to buy a house simply if you're alive and breathing.

The strong economy we've been experiencing for years has thus been built on dumb money -- in addition to smart money -- borrowing more and more. Even the U.S. government has had field day borrowing money to do such things as fight a war and attempt to rebuild Iraq and Afghanistan rather than rebuild our country. And the inconvenient truth about debt is that it has to be paid back.


For the next two years, I'm cautioning people to watch their ratios between good debt and bad debt, and keep liquid reserves such as cash, gold, or silver and become a leveraged real estate investor through short term strategies.

Good debt is debt that makes you rich. An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt.

Most people don't have good debt -- all they have is bad debt. Bad debt is debt that makes you poorer. Forms of bad debt are car payments, credit card balances, or other consumer loans.

On our home, my wife, Sharyn, and I keep a 25 percent debt-to-equity ratio. In other words, our debt is 25 percent of the home's value. Unfortunately, many people have an 80 percent or higher debt-to-equity ratio. That means the debt on their home is 80 percent and their equity is only 20 percent.

To protect ourselves, we have cash reserves to cover the expenses of our investments. Unfortunately, the dumb-money crowd has no reserve funds for their properties and or investments.

Where Deflation Does Its Damage

In a deflationary market, the value of your home can drop. If the value drops, the bank may call in your loan. Even if you've never missed a payment, and even if you're ahead on the payment schedule, the bank can call in your loan if they feel the value of the property is lower than the loan amount.

For example, say you buy a house for $100,000 and put 20 percent down and borrow $80,000. If the market deflates and the value of your home drops to $70,000 (because everyone else is selling their homes to get out of debt), the lender may ask you to pay the $80,000 you owe immediately.

If such deflation happens, cash will become king. There will be half-price sales on BMWs, expensive restaurants will close, and people will be out of work. And anybody who caters to people with dumb money will be in trouble. As I said before, deflation is much worse than inflation.

Smart Money, Bad Times

The good news is that during deflationary times, smart money reenters the market, so crashes are great for smart people with smart money. Instead of listening to the optimistic economists, then, you should eliminate bad debt and improve your debt-to-equity ratios on good debt.

Most important, study; if you want to be smart, you need to learn. I'll discuss what you should study in the second part of this column. For now, be aware that if deflation comes and there's a recession, it won't have much effect on the poor. Instead, it'll punish middle-class people who think they're rich because their houses and stocks have gone up in value.

Finally, don’t forget the impact of our weakening dollar; some forecast that a gallon of milk will be at $5.00 by summer due to the weak buying power of our dollar.

The moral of the story is that those who prepare and know how to invest will make it through the tsunamis ahead and make a whole lot of money, which can be used in part to educate others.

Have a happy, healthy and prosperous New Year.

James Gage