What Do Most Investors Overlook When Evaluating A Property?

When you get a new lead comes into your business and it looks to be a great prospect….the first thing you always want to do is go visit the property and get a face to face meeting with the seller in order to get that property under contract ASAP. Once you get out to the property and give it a solid once over while establishing some strong re-pore with the seller at the same time….it can often be easy to forget about two things that could end up costing you thousands and thousands of dollars on your rehab budget. Most investors can get pretty good at quickly identifying all of the potential rehab issues that they can see while walking the property and talking with the seller, but what about those things we can’t see? So what are these two pocket book busting rehab items I was referring to that could really end up costing you a lot of $$? I’m talking about the sewer lines (or septic tanks) and any underground oil tanks!

Early on in my house flipping career these two items cost me a lot of money that I had not factored into my original rehab budgets! It can be easy to overlook these two things when buying distressed real estate for a couple of reasons; Either the seller will know nothing about any issues with them (or anything about the property for that matter) or they will play dumb and pretend there are no issues with either. So with that said it’s very important that you do your proper due diligence on both of these items in order to protect your pocket book and preserve your profit margins.

Sewer lines and septic tanks are the type of repairs where the same job can get bid by two different contractors and your two bids could easily be incredibly far apart. The reason for this is because it’s a dirty business (literally) and generally contractors will take you for whatever they think they can charge. That is why it’s very important to identify issues with sewer lines and septic tanks ahead of time, so you can use them to your advantage and get a much larger discount on the property. In my business we have a sewer scope guy on speed dial and I have him inspect all of our new projects before we ever buy them. If the line is bad or there are issues with the septic tank I will then get a bid from one of the notoriously more expensive company’s in my area and use that bid as bargaining power. The average seller is not very savvy to how much it would costs to make these types of repairs, so it’s a great way to increase your potential profit margin if you identify the issues ahead of time.

Underground oil tanks on the other hand can be difficult to account for even when they are found ahead of time….but you need to make sure you check with DEQ and county records in order to see if there are records of an underground oil tank on the property. The best situation that can occur from an underground oil tank is that there has been no contamination of the surrounding dirt and the tank can be removed or decommissioned for a nominal fee. However when there has been a leak in the tank and there is contamination in the dirt around  it, that can end up being pandora’s box. The reason being is that it can be hard to determine the extent of the contamination without digging up the yard and there is no way the seller is going to allow you to dig up the yard with excavation equipment before you own the property. That is why if contamination is found ahead of time don’t be shy about asking for a rather large reduction in price in order to account for the unknown. Generally this type of issue will scare a seller enough that they will happily accept your price reduction, but it’s important to find it ahead of time so the costs of cleaning it up don’t eat up your profit margin.

When I go look at properties these days I hope that we find these types of issues every time because I know they are two repairs that I can increase my potential profits margins with through large price reductions. In fact when I put a property under contract I always tell the seller that my price is firm, but these two issues are the only things that could cause me to reduce my offer. It’s important to remember that we don’t rehab houses for our health, but rather for profit, so you should be making more money for dealing with issues like these. Never ask for just $1 of reduction for every $1 of repair. I generally will try to make sure that we are getting at least a $2 reduction for every $1 that we have to spend on these repairs, and I have found that we can easily get that much if not more.

I hope that you found the information in this article helpful to your business…..now go flip a house!

How to Successfully Invest in Probates!

Probates….Probates….Probates….I have been extremely captivated by this niche of real estate investing ever since the first time I was introduced to it  back in 2003. Since that time I have given probate investing a shot a few different times…the first couple times didn’t result in any deals and ultimately left me frustrated and wondering why in the world anyone would want to pursue this not so glamorous niche. But on my third run at it I finally got some traction and ended up landing a “subject to” deal after running my first direct mail campaign…..and since then I have gone on to do a whole bunch of probate deals, all of which have made my company large sums of money. In fact today the main focus of my business is on probates (REO’s are a close 2nd) mainly because the potential profit margins can be huge and the competition is extremely limited.

So what is it that allowed me to achieve success the third time around that I couldn’t find on the first two tries? Well in hind site there were a number of things and all of them were small details,  but those small details are what can make or break your business when it comes to probate investing. With that said I am going to go over a few of the smaller details to probate investing that are often overlooked or not focused as much as they should be:

#1. Some people are not going to have nice things to say about the fact that you want to buy the house of their deceased family member. This is one aspect to probate investing where you just need to have thick skin and get over it. I don’t like to deal with these types of people as much as anyone, but you can actually set up your marketing systems to limit any interaction with them. By doing this it will make your life much much easier and make probate investing a heck of a lot more enjoyable for you. It’s amazing how getting bitched out by an angry seller can really affect some people….I used to absolutely hate it, but now I have learned to embrace it. In fact we save all of our angry messages from perspective sellers and we call them “direct mail’s greatest hits” around the office….its a good way to make light of it. In fact maybe someday I’ll put them on our membership site so that everyone can have a laugh at what comes out of some peoples mouth over a non threatening letter. Anyway the bottom line is that you need to set up a screening system for your leads so that these angry sellers don’t steal your motivation to invest in probates.

#2. This niche has very little to do with the actual property and a lot more to do with the rapport you build with a seller! When I first started going out to probate appointments I was striking out constantly because I was so focussed on the actual property and not nearly as focused on my relationship with the seller or their attorney. Now’a days I always go out to view properties with my marketing manager so that while one of us is building rapport with the seller the other can thoroughly check out the property. Recently we just purchased a property from a seller who also showed the property to the “phoenix redevelopment” guy in our city, and we ended up with the property even though our offer was less than what Phoenix offered. The only reason this happened is because I took the time with talk with the seller about his situation and what he as the personal representative has had to deal with….and in return we ended up building a solid friendship through the purchase process. Now I’m not saying you need to become friends with every seller, but remember whenever you go check out a property it’s like a sales call, so build some rapport and start selling yourself….but make sure to ask questions and listen! If you do this I guarantee you will like the results.

#3. You have to create a system for getting your marketing letters out on a weekly basis! In my business I have actually hired and trained someone to research all of the new probate listings as they come out so that we can market to them on an weekly basis. If you don’t have a system in place that makes you (or someone you hire) accountable for getting your marketing letters out every week then your chances of success will decrease dramatically. I believe momentum is the most important factor in real estate investing (and in life for that matter) so if you loose your momentum with probate marketing it’s extremely hard to get it up and going again….trust me I know from personal experience! Just make sure you create a marketing system before you start and stick with it! This is probably the biggest reason why people fail at probate investing….remember 75% of success is just showing up.

#4. Don’t rely on just one way to generate Probate leads! It has been taught in every Probate home study course that you need to mail the Personal Representative….and this is true, but that doesn’t mean you need to stop with just mailing PR’s. I am a huge fan of marketing one time and getting deals from that source for a long time to come (sort of like our bank REO strategy of marketing REO listing agents). So with that said we put the same amount of effort (if not more) into marketing Probate Attorneys as we do marketing Personal Representatives. Once you get a good relationship with a Probate attorney they can send you great deals with NO COMPETITION for years to come!! I just purchased a probate deal last month from an attorney who was the sole decision maker for accepting offers on a property that needed a good amount of work. I made an offer that I knew was ridiculously low, but since nobody really cared how much money they got for the property (since it was in bad shape) they accepted my offer. I was then able to wholesale that particular deal for a 15K profit in under an hour from the time I singed the contract. As you would suspect I will be continuing to build my business relationship with that attorney (through marketing) and many others in order to keep growing the probate side of my REI business.

Buying probate properties has become my absolutely favorite way to get deals for my real estate business…..but it wasn’t always this high on my list that’s for sure. However by making a few small changes to the way I approached probate investing it dramatically changed the amount of success my business was having. Keep an eye out later this year for our educational marketing product that is dedicated entirely to generating more probate leads than your business can handle. We have spent the time in the trenches perfecting the best forms of marketing for this niche and very soon we will be making all of this valuable money making information available to you! I hope you enjoyed this article and hopefully it will help you with your future probate investing.

Do you have questions about Probate Investing? Post a comment with your questions and we will answer them on a FAQ page!

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