Home-Saver Program

You can help homeowners save their homes if they get behind in payments
and face foreclosure. You can help the homeowner/seller catch up
on payments, buy it using owners’ terms, set up a lease option, or flip it.
Using a home-saver program, you work with mortgage companies,

credit counseling companies, housing authorities, and nonprofits. Here
is how to talk to potential sellers.
It’s important to ask these questions before deciding to take action:
“Why are you selling?”
“How long have you been trying to sell the property?”
“Is the property in your name?” (Make sure you negotiate with the
decision maker.)
“What is the mortgage amount on the property?”
“What’s the least amount you would take for it?”
After a price is stated, ask how they came up with that number. You’d be
amazed how people come up with their values.
In this process, pretend you’re Colombo. Whenever they say anything,
ask another question. Why? How? If they’re reluctant, remind them
that the purchase price, when they bought it, and the amount of the
mortgage is public information. By now, you’re taking on the role of a
real estate doctor. In order to help someone, you need information, so
keep asking more questions.
“How old is the house?”
“Are mortgage payments current or in arrears?”
“If in arrears, by how much?”
“What are the taxes?”
“How much is the insurance?”
“By what date do you have to sell it?”
“How much would the house rent for?”

“Does the house need any repairs? How are the roof, ceilings, windows,
walls, floor, plumbing, stairs, carpet, kitchen, bathroom,
basement, yard?”
“How much would repairs cost?”
And the million-dollar question: “Do you have any others?”
Always ask the sellers if they know about any other properties. You
could even run a classified or display ad like this:

Home-Saver Program—Save your house
from foreclosure. Call now, 000-0000.

Short Sales

Let’s say that a bank or mortgage company has written a loan for
$100,000 on a house that now qualifies for foreclosure. The loan is
$100,000, but the financial institution does not want to take back the
property. Sometimes, especially with the high foreclosure rates occurring
in many parts of the country, the institutions will discount, or short,
the amount of the loan to get rid of it. If the house is in the process of
foreclosure or has been foreclosed on, the bank may be willing to take
only $70,000 to $90,000 on the $100,000 loan. Often, you must
present an appraisal on the house as well as a repair list so that the institution
can justify taking less money. Be persistent, especially in finding
the right department and decision maker at the bank.
Right now the foreclosures in some areas of the country are up 100 to
200 percent. When the economy slows down, people who overborrowed
and overspent during the good times have a financial hangover that
leads to foreclosures. And the banks that have lent too much money
have to take back property. It’s an ongoing cycle.
No matter where the economy is in the cycle, there’s opportunity to
make money. In the current climate, banks have foreclosed on so many
properties that if they are owed, say, $250,000 on a foreclosed property,
they’re tremendously eager to move that property off their books, and
they’ll short-sell the mortgage. That means you could offer less than the
mortgage amount and buy the property as a short sale.
First, you need to determine which bank owns the foreclosed property
and negotiate with the head of the real estate loan department or
someone who can make a decision. (The clerks who answer the phone can find out what the property is worth from the loan amount, how long
the bank has owned it, and so on. Then ask if the bank will sell the
house at a discount.
Many investors have been able to buy properties from 20 to 60 percent
below what they’re worth by doing short sales with the banks. Many are
wholesaling these great deals to other investors, or they may have partners
with good money or credit who help them buy and hold these great
deals. This is another way to make money in real estate without using
your own capital or credit.

Tax Sales
Say you own a house that you purchased for $200,000 some years ago,
putting $20,000 down and borrowing $180,000. You have a first mortgage
of about $175,000, and the house is now worth $500,000.
This level of appreciation has taken place in many markets. Say you go
to your bank and get a second mortgage for $100,000. Now you have
a first mortgage of $180,000 and a second mortgage of $100,000.
Your bank calls and says, “We suggest you get one of these secured
credit card equity lines and pay off your car loan and your Visa bill,
which will make your debt tax deductible, because Visa payments and
your car lease or car payments are generally not tax deductible.” You
follow the bank’s suggestion and take out an equity line on your
house, secured by real estate, which now becomes deductible, and pay
off your other debts. You now have a third mortgage on the house for

Then you decide to go into real estate and want to borrow $50,000
from your mom to get started. She says, “I want a written loan contract
and security.” You go ahead and acquire a fourth mortgage for $50,000.
Unfortunately, you get divorced. The court decrees that you owe money
to your ex, which you can’t pay, so your ex gets a judgment against you
for $30,000 and files it against your house. You owe $8,000 in property
taxes, but you forgot to pay them last year and you can’t pay them this
year, so the city puts a $16,000 tax lien against your house. If you don’t
pay these taxes, the city will foreclose on it.
Now things are really getting bad and you can’t pay any of the debts.
Who is first in line for the debts owed? The city. Property taxes are
always paid first. Now the mortgage company could show up and pay
the $16,000 in taxes to protect their $180,000 or $100,000 mortgage.
But banks and finance companies sometimes don’t do the smartest
things. Often the properties go to tax sales and are foreclosed on. Call
your local tax collector’s office and get a list of properties with tax liens.
Then call the owners; they may be motivated. Also, go to tax sales and
start learning about them. The tax office may have property that no one
bought at the sale. See if you can get a good deal. Contact a local title
lawyer to learn the ins and outs of your local tax sale rules.

You Are Surrounded by Real Estate Investments

Real estate investors come in two varieties: the professional who does it for a living, and the investor who is looking to increase his or her net worth over a lifetime. Given a reasonable rate of success, the investor soon starts thinking seriously about turning professional.
As an example, seldom does the grocery chain own the grocery store. If it started out that way, it was most likely purchased at a later date by an investor group formed for the express purpose of owning quality, investment-grade real estate. Most companies in the grocery business need all of their money to improve and enhance the business of putting groceries in the hands of the buying public. Their emphasis must be on the volume of sales and the profitability of those sales. The buildings become leased investments whose desirability as investments depends directly on the creditworthiness
and diversity of the tenants in residence on the real estate.
This process creates two types of real estate investors: those who develop the properties,
and those who later purchase the properties as investments. In both instances, opportunity exists for profit. The profitability in each instance will be a function of the expertise of the party involved. In the case of the developer, his entrepreneurial talents will be involved, and in the case of the investor, her skill and knowledge will enhance the outcome.

Surrounded by Real Estate

Unless you are a cave dweller, you are surrounded by other people’s real estate investments.
People who keep up with the economic news are familiar with the names Donald Trump, Del Webb, William DeBartolo, The Rouse Company, Gerald Hines, and The Taubman Company. They have built some of America’s most visible, well-publicized projects within the commercial real estate development industry. However, what these people do for a living is no different, except in scale and notoriety, than what local developers do, every day, in every city and town in America.
The entrepreneurs who build and/or own neighborhood bank buildings, office buildings,
and local grocery stores are working at the same trade as Donald Trump and company, only on a more practical and local level. Without these people, our towns and cities as we know them would not exist.

Using Leverage
Commercial real estate development is defined as the creation of real property investments,
“realty,” as opposed to personal property, or “personalty.” When buildings are built they become permanently attached to the land and, therefore, forever part of the real estate. Commercial real estate development is the business of creating this income-producing real estate. Why and how is this done? What prompts builder, buyer, and tenant to get involved is the attraction of using leverage to increase their profit. Leverage is the reason real estate investment can work for everyone.
A simple example of leverage occurs when people use a mortgage to buy a home. If you buy a property for $100,000, using a conventional down payment of 20 percent, you need to borrow $80,000 to complete the purchase (also known as 80 percent loan
to value). Simplistically, if you sell the property in one year for $120,000, you have made a gross profit
Buzzwords of $20,000. However, the deal is better than it
Leverage is the principle appears, as you have used the leverage of the borby
which we use other people’s rowed $80,000 to increase the rate of return from 20
money (OPM) to increase the rate percent on the gross price of the property, to a 100
of return on our capital investment. percent rate of return on the $20,000 cash down payment
you originally invested ($40,000 from $20,000).

Why Is the Small Investor Switching to Real Estate?

During the late 1990s, the traditional stock market changed dramatically. Traditional P/E ratios increased to 50 or more times earnings, with seemingly no upper limit. People no longer purchased stocks with the expectation that they would get an annual return on investment. They counted on the “bigger fool” theory to make money. This theory rests on greed as well as supply and demand, overriding investment considerations
and turning people into speculators rather than investors. A modern-day holder of stock is counting on someone else to come along who will pay more for the stock than he or she did. Due to this increasingly insatiable demand for a place to put capital, the stock market of the new millennium has dramatically reflected the bigger fool theory.
In the new millennium, investors got a harsh
awakening as they started to realize their
stocks had become dramatically overpriced.
The resulting bear market has helped to
In the past, the price
evaporate many a paper profit. The daily paid for a share of stock was a
volatility and lack of clear direction of the stock multiple of its per-share earnings.
market are indicative of this increasingly preva-The price-to-earnings ratio, or
P/E ratio, is the price divided by
lent, unsound reasoning when buying and sell-
the earnings per share, either
ing stocks. Ironically, the stock market does not proven or projected.reflect the real health and competitiveness of the companies involved. The country’s industries
are in great shape, cycles included; it’s just that their stock value needs to be put back into an investment mode. Once we return to a real and sustainable P/E ratio, stocks will again become a viable alternative investment. People working in the market
are constantly trying to hype the market values, but since the readjustment, stocks in the Dow Jones Industrial Average have been up an down between 10 and 11,000, with no appreciable long-term gain.
When individuals want to go back to being legitimate investors, they must take a good look at real estate as an investment; it still trades on a multiple of cash flow to establish value. It retains the added attraction of appreciation, with the interim tax benefit of depreciation. In short, it is a more constant and reliable vehicle for investment.
In some cases, it can be a vehicle for speculation as well. One very poignant advantage that real estate has over stocks and other investment vehicles is that it is a finite commodity. Other than volcanic eruption at sea, there has been no real estate created for several million years. The continued growth of the world’s population virtually
ensures appreciation as the available land is absorbed.
Real estate investment can give you monthly income, tax shelter, and long-term appreciation. The stock market used to provide only income and appreciarion,
today it has lost sight of the fundamentals of value. Real estate is easy for most people to understand. Not only can you make money with it, but also you can see it, change it, and use it. You live, work, and play in it. It surrounds your entire life. Unless you are a cave dweller, you cannot go through a single day without using someone’s real estate investment. Why not make it one of yours?

What Happened to the Stock Market?

The traditional investment for most Americans not actively involved in the investment
industry falls into two major categories: stocks and notes. Stocks are shares of ownership in companies, and notes are debt instruments issued by a borrower. They differ in fundamental ways. Stocks can pay a dividend, and the per-share value of the stock may go up or down in price. Notes pay only interest, based upon the purchase price of the note; the interest rate may vary from investor to investor. Other investment
choices are futures, hedges, currency trading, and a plethora of derivatives of the above. The modern investor has so many choices that it becomes confusing unless a deliberate study is made to sort it all out.

Most people have neither the time nor the inclination
to sort out this menu of investment choices.

They prefer to leave the work to the self-proclaimed A mutual fund is a com-experts. For the individual with no desire or time topany formed to hold stock in analyze all these choices, this multiplicity of invest-
other companies, providing a mix
ment vehicles has given birth to yet another class of
of stocks and mutual funds that
investment called the mutual fund.
theoretically give an individual a choice between high-, medium-, There are funds that trade only certain stocks, such and low-risk investments. A REIT is as high-tech companies, single industries, foreign
a Real Estate Investment Trust, a
companies, foreign currencies, certificates of deposit,
mutual fund whose assets are real
or treasury bills; the list is endless. Suffice it to say,
estate properties or real estate–
backed, debt-based securities there is something for everyone. Someday there will
(mortgages). It is usually publicly be a fund that holds shares in other mutual funds.
owned. With the resulting management overhead and brokerage
fees, the net result is that dividends get pretty thin by the time they reach the investor.
Miraculously, there is even a type of security (a certificate of ownership issued against an equity) or mutual fund, if you will, called a REIT. This type of fund was first formed in the 1970s for the purpose of allowing the public to invest in real estate. Its shares provide the investing public with an undivided interest in a variety of large, commercial real estate projects.
Other than buying a home, American investors have always looked to the stock market
as their primary way of achieving a piece of the American dream. Their only other hope was to start a business of their own. For those who work for wages, the only viable venue for equity investment has been the stock market.

Landlords and Landladies

Those who have been in business for a long time, especially, may be
motivated sellers. Being a landlord can be tough, tiring, and stressful.
Often, small-property owners don’t have systems and management policies
and procedures in place. They may have been lax about collecting
all the rent; maybe they haven’t been raising the rent; perhaps they
haven’t been keeping up with the maintenance and the property is in
disrepair. They likely bought it 20 or 30 years ago for very little money,
and they may not understand today’s real estate market as well as they
should, so they’ll sell it for below market.

“For Rent” Ads
When you call on For Rent ads, you get in touch with landlords or landladies,
real estate investors, property managers, or Realtors acting as
property managers. Landlords and landladies are excellent sources for
investment property and lease-option deals. (See Chapter 4.) Everyone
who owns rental property knows that all of the tenants pay the rent on
time and never call about repairs, right? Wrong.

Landlords have rent collection problems, repair problems, vacancy
problems; they can be constantly dealing with headaches, but they can
be highly motivated to sell. If you talk to 20 to 30 small-property owners,
managers, landlords, and landladies, you’ll probably find some
deals, and they often have more than one property to sell.
Auction companies announce that they’re auctioning a house, a commercial
property, or a farm 30 days from now. You want to call that
auction company, gather all the details, and get on its list to be invited to
the auction. You also want to meet dealers at the auction company
because they’re out to find deals like you are. They find motivated sellers
who are willing to auction their property. Sometimes those sellers
say, “I don’t want to auction; I don’t want to advertise; I don’t want to
pay your auction commissions. But do you know of anyone who will
buy property quickly?” Many auctioneers are also brokers and sell a lot
of property, so try to develop good relationships with them.
Other Investors
You can meet other investors at auctions because, when you buy at an
auction, you usually have to close within 10 or 20 or 30 days with cash.
Would you like to know a lot of investors who are looking to buy properties
with cash? Absolutely, because when you find a deal, you can
wholesale it to them; you can partner with them; you can use their
funds, their cash, their credit. They’re your real estate partners. Again,
as in any business, networking is invaluable. Go to every auction, meet
everyone, and add them to your database.

Legal Notices
Newspapers post legal notices of divorces, bankruptcies, and foreclosures.
Follow all of those and get to know who the players are. Call
them; look at the deals. Find attorneys who are representing people in
bankruptcies, divorces, and foreclosures and see if you can contract any
of their deals. Call a few lawyers and ask where they advertise foreclosures
and bankruptcies. Get a copy of that paper and go to work.
This may sound a little morbid, and I prefer not to do it, but some of
you might. In the newspaper, look for a list of people who have just
passed away. These people may have owned property, but their family
members often live in other communities. You can perform a service for
that family by helping them liquidate the real estate. They don’t want it;

they usually don’t know how to sell it; they certainly don’t want to take a
lot of time to make decisions. You could offer them a quick sale and
they might be motivated.
If you contact them, of course, be sensitive to what they are going
through, saying, “I’m sorry to hear about Rose passing away. Is this a
good time to talk?” Ask them whether property is involved and what
they plan to do about it. Could you help them by offering to get rid of it
quickly? If you call on enough obituaries, you’ll probably get deals.
Small Newspapers
You can also run classified ads to find deals. You can run them in newspapers,
on radio, TV, and billboards. Do you have any local neighborhood
shopping newspapers, community weeklies, or even the Thrifty
Nickel? Putting ads in these small papers doesn’t cost much—$10, $20,

$30, or $40. One of my students did a study in Memphis, Tennessee,
and found that—per time and per dollar—people get a much better
response out of the smaller neighborhood newspapers than they do in
the larger papers.
Use the following sample “I buy houses” ads:

house in any condition that you want to sell, I’ve got cash, know-how,
and banking connections. And I’m eager to buy your home. Please call
[investor’s name] at 000-0000 right now for an extraordinary no-risk

Legal Newspapers
Every major city has a legal newspaper in which people advertise bankruptcies,
foreclosures, divorces, estate sales, probates, and related
events. Get a copy of this newspaper and look at it at least once a
month. Then follow up with phone calls.

Foreclosure Attorneys
In every area, you’ll find two or three attorneys who specialize in foreclosures.
Find out who they are and talk to them They may not be able
to give you a lot of information because of client confidentiality, but
they might be interested to know someone can buy their properties, pay
off the banks, or help their clients get rid of their properties.

Driving for Dollars
Pick an area that’s in transition: one that is getting better or an area
where people are fixing up houses. Watch for lots of activity—houses for
sale, houses for rent. Then start driving around looking for signs of possible
motivated sellers: vacant homes, needy homes, condemned homes,
For Sale signs, For Rent signs, For Sale by Owner signs. You ought to
get excited if you see gutters hanging off, 10-foot-high grass, garbage

piled up, holes, junk cars. There’s a basic premise to follow: The worse
shape the house is in, the better the deal. These are the signs of opportunity.
Write down the address, locate the owner through the property tax
records, and phone or write them to see if they want to sell.
One of my students in his early twenties, a young man in Memphis,
Tennessee, just sends letters to homeowners of vacant properties he
finds driving around—about 50 to 100 letters a week. He had been
making $25,000 a year working part-time on the night shift, but he
made that much on one real estate deal. He has now made about
$200,000 in 12 months just using this idea consistently. He doesn’t
work the night shift anymore.

Signs of Motivation

You can look for signs of motivation by getting the Sunday newspaper
and looking in the real estate section for places for sale. More specifically,
look for the following sources of motivated sellers.
“For Sale by Owner” Ads
If people are trying to sell property and don’t want to get a Realtor
involved, it shows motivation to sell. Maybe they can’t afford a Realtor,
don’t have time to get a Realtor, or simply want to sell it themselves.
This can lead to getting a good deal quickly because you can negotiate
directly with the decision maker.
Some investors just work with a list of properties; others work only with
Realtors and make a fortune. Everyone is different. It all works.
However, about 80 to 90 percent of the deals I do never go through a
Realtor. They’re never listed with the Multiple Listing Services. In the
newspaper, you have nonlisted properties for sale by owner, and you
also have listed properties that are for sale by real estate companies. You
may be able to make a living by responding only to For Sale by Owner
ads and asking them why they’re selling.

“For Sale” Ads
These lead you to Realtors or to people who just listed their house for
sale with Realtors. They’ll likely try to get full price. These are probably
not the best sources; sellers working through Realtors usually aren’t
motivated to sell at a discount, although you might find some motivated
sellers in this group if you are willing to make enough calls.
Expired Listings
Expired listings can be a good source of deals. Contact some real estate
agents and ask them to help you make offers on all of the listings that
have expired or are about to. For example, let’s say someone listed a
house for sale with a Realtor for $300,000. The Realtor listed it for six
months and it has not yet sold, but the agreement expires at the end of
six months. Chances are the seller might now be more motivated. Do
you see how this list could be a source of some good deals for you?
Investment Properties Ads
Who would list properties for sale under the category of investment
properties? The following describes several possibilities.
Investors and Their Brokers
Investors can be understanding toward other investors, so sometimes
they sell the property for below what it’s worth. Or maybe the property
was purchased 30 years ago and hasn’t been fixed up or managed properly.
You might be able to buy it for less than market value because the
seller is motivated.

Avenues Leading to Motivated Sellers

If you do not find a motivated
seller, you can’t begin to make money in real estate.
When people are selling a house and are eager to get rid of it, the only
thing they care about is solving their problem. You may think they care
most about the money involved. That’s simply not true. You may think
they want to sell a house. That’s not true, either. This goes back to the
most important question: Why do people buy a home? To spend a lot of
money? No. Because it’s good to buy a home? No. It’s important to
understand why people buy homes; then you’ll understand why they sell
them, and then you’ll also know how to negotiate with potential motivated

Owning a home involves paying mortgages and spending money for
taxes, insurance, and repairs. Many people could rent something for a
lot less and live in a nice place with everything taken care of. But they
buy homes based on the emotions of security and status, which is why
some people live in houses that are too big and expensive for them. They
also buy houses to get into better school districts for their children. But
mostly, their decision has to do with emotion, not rationalization.
People also sell homes for emotional reasons. They either have a problem
or they’re avoiding problems. They have pain they want to “fix.”
They’re getting divorced; they’re getting remarried; they have to move
out of the city or state; they’re starting a new job. Sometimes, they have to sell their homes quickly. They may have to pay off the mortgage to
have money to buy another home. Or they’re in over their heads financially.
Or they’ve had a change in their life—a divorce, a family debt, a
job change, or money problems.
Your job as a real estate investor is to discover their problem and solve it.
Loss of job. Financial problems. Estate sale. Job transfer. Illness and no
health insurance. Recent divorce or remarriage. Overextended credit,
tax problems, tired landlords. These events can all lead to motivated
sellers, because here’s an example of what happens.
A homeowner has $400,000 in debt and the bank is demanding payment;
the house may be worth $555,000, but the homeowner may not
be able to get the money to pay off that debt or stop foreclosure. It’s
possible the home will be foreclosed and the owner’s credit wrecked.
You can help turn this into a win-win situation.
Perhaps all the sellers really want is to get $5,000 cash to pay off the
bank and move. If not, they could be foreclosed upon and end up in real
trouble. You could help the seller and the bank by putting the house
under contract for $405,000—$5,000 to the seller and $400,000 to pay
off the loan. Contact your network of buyers, investors, and real estate
agents; perhaps you could find a buyer who would pay $455,000 for the
$550,000 house. If it is a good deal, the buyers will come. At closing,
the bank has its loan paid off, the sellers have been saved from foreclosure
and have $5,000 to move, the end buyer gets a great deal, and you
earn $55,000 (less any closing costs you had to pay) for finding a good
deal and putting a buyer and seller together.