Archive for October, 2011
Telemarketing is the most under-used and under-rated technique for finding discounted real estate notes. You can get the telephone numbers of most note holders by sending your diskette to TeleMatch (800) 523-7346 or (703) 658-8300. For a very nominal cost they will add phone numbers to your list of Note Holders.
The most important goal of telemarketing is not to buy the note, but to get the note seller to send you the appropriate documents. We have found that if a note seller will go to the trouble of finding the documents on the note, we can close the sale about 2/3 of the time. The problem is, what do you say to potential note sellers when you get them on the phone? The chances for rejection are astronomical, and your tolerance for that rejection will determine your success.
This is a game of numbers. And the more phone calls you make the more success you will have. If you have the telephone numbers of one thousand note holders, a good list of note buyers, and the skill and perseverance to telemarket, you are on your way to huge profits. The structure of a successful telemarketing campaign has four phases:
First, develop credibility with the note holder. This must be done within the first minute. We like people who are like ourselves. The first thing in telemarketing is to demonstrate that we are like the party with whom we are speaking. The odds are very good that the person will “like us back,” and we’ll be rewarded with a possible note to purchase.
Evidence shows that people can tell with 90% accuracy whether we are smiling and whether we have a positive or negative attitude toward them, simply by listening to our voices!
There are a variety of ways to make the opening very effective.
You can mail people things. (“We have a special report on how to profit on your note. Would you be interested in a free copy?”
You have sent them something already. (“We sent you a special report on how to profit from your note. Do you have any questions?”)
The Market Study Approach. (“We are conducting a market study on note holders. Do you mind if I ask you a few questions?”)
The Urgency Approach. (“We are buying notes this week only for a special price. Is there any reason you would not be interested?”)
The New Idea Approach. (“We have new and interesting way to buy notes that can give you extra cash, AND you can still keep the note. Is there any reason you wouldn’t be interested?”)
An effective opener depends on your credibility, your manner and your approach.
The second step is to describe what you can do for the note holder. I have found that it pays to mention only two to four benefits. Note holders have short attention spans and tend to be impatient. They will allow you to move to the close based on the importance of a few benefits.
This is where your active listening skills combine with your ability to communicate the advantages of selling their note to you. A good description is concise and directly meets the needs of the note seller based on your evaluation of why he needs the cash. If you can determine the note seller’s needs, you can craft an offer that will meet them.
“Mr. Note Seller, if we could give you $48,000 now, and you would receive the next eighty-four payments as well, is there any reason you wouldn’t be interested in letting us evaluate your note? We can fund the note quickly, give you best price and service the note for you. Is there any reason you wouldn’t be interested in knowing more?”
This is the most important part of the telemarketing session: getting the note seller to commit to bringing you the documents. This is not the time to have him sign a contract or commit to any money transaction. It is
sufficient to have him agree to locate the original note, closing statement and mortgage or trust deed and to meet with you, mail, or fax them to you.
Three types of closes are very effective over the phone, according to Dr. Gary Goodman in his book You Can Sell Anything By Telephone!
The “Assumptive” Close
ou assume agreement; you put your self in control of the conversation, so it is relatively difficult for the note holder to say “no.” You might say, “What we will do, Mr. Note Holder is set up a meeting, so we can evaluate the note you wish to sell. We can give you your money in three weeks.”
Notice you didn’t ask if he would sell the note. You assumed it. Unless he says, “I do not want to sell,” you can continue to get him to commit to finding the documents and send them to you or meet with you.
The “Check Back” Close
If you find the “assumptive” close too aggressive, you can soften it by checking back with the note seller to assure him that you are proceeding based upon genuine desire. This is not difficult to do. You can say, “So, I’ll drop by your house tomorrow at 4:00pm to pick up the documents. Is that okay?” The word “okay” is a very persuasive word because the note seller is conditioned to respond positively when they hear it, and they can decline if they want to.
The “Choice” Close
This is the most common type of close, and it is very effective. It offers the prospect the choice between one thing or another. When being asked to select an option, it is unlikely that the note seller will walk away from the conversation with nothing.
The “choice” close is useful in setting appointments by telephone. You can say, “My schedule shows that a good time for me to meet with you would be on Tuesday morning between 9:00 and 10:00, or will Wednesday be better for you?”
It becomes difficult for the prospect to decline an appointment at some time because we have phrased the request in the manner of a choice. If we had asked if we could come by at all, this would make it easy for the prospect to decline altogether.
When the note seller agrees to meet with you, confirm his
wisdom and understanding of what you expect. You should:
1. Repeat that you will meet him on Wednesday at 7:00pm at his house to look over the loan documents
2. Congratulate him on a wise decision
3. Clarify what you will do and what you expect of him
4. Allow him to ask questions
5. See if you can gauge how likely he is to find the papers and follow through on the meeting
End the conversation on a positive note
“Fine, Mr. Note Seller, we’ll meet at 7:00pm on Wednesday at your house. You will have a copy of the note, deed of trust, and closing statement for me to review. Once again, we work with national companies. We can get you your money in less than three weeks and you can still retain the payments for the next two years. Are they any questions you would like to ask me? Great, I want to thank you for your time and your patience. I will let you get back to Monday Night Football, and I will see you on Wednesday.”
If you have a scripted idea of what you want from each phone call, you will have a much better chance of getting the results you want. If you have some knowledge of how to make people like you and can develop rapport with the seller, you will be closer to doing a deal.
Remember, the point of the telemarketing program is not to buy the note, but to get the documents. If a note seller will go to the trouble of finding the documents on the note, you can close the sale about 66% of the time.
About the author…
Jon Richards was the founder of NoteWorthy Newsletter, the major newsletter for buyers and brokers of cash flows on the secondary market. It has been published monthly since October 1989 and is the largest paid subscription newsletter in the industry. Jon was the publisher of the NoteWorthy Newsletter until his death in 2003. Jon was a licensed real estate broker, long time real estate investor and an expert in finding, appraising, buying and brokering discounted notes and mortgages. He was the professor and tenured instructor of Real Estate at the College of Alameda in California.
“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”
With the implosion of our economy, most Americans have been affected in some way. Whether it’s loss of job, income, house, investments or savings, we’ve all suffered.
What does this have to do with IRAs? Everything! IRAs are our safety net for our financial future and retirement. Social security, for anyone younger than 40, is uncertain at best.
Most institutional IRA custodians offer limited options for you to invest your funds and thus you are at the mercy of their investments. Typically, these are geared toward the investor who desires to have little input on his or her financial future and would rather hire someone to make decisions. Doing this leaves your financial future up to the best guesses of your advisor and the random fluctuations of the market.
Do you want to gamble with biased investment opportunities with an institutional custodian or do you want to be involved in protecting your financial future? Self-Directed IRA custodians like Equity Trust Company allow you to take control of your IRA investments. That is, you provide direction regarding your investments and hey follow your instructions as long as it’s within the guidelines set by the IRS. But, with so many investments available, what should you invest in? When considering your investment choices, keep in mind that every investment has two components that are invariably interwoven: degree of risk and rate of return. Usually the higher the rate of return, the more risk involved. As we get older and approach retirement it’s quite normal to look for more safety in our investments instead of the rate of return. It’s very painful to lose a piece of your nest egg and then try and make up for it when you’re older. When you’re younger, you have more time to recover from any losses that may occur due to higher risk investments. In the end, a loss of capital at any age will severely impact your overall accumulation of wealth.
Real estate and real estate byproducts have been one of the best bets for stability over the long run. Set aside the recent foreclosure debacle that was fueled by runaway lending practices. Real estate and byproducts of this industry such as, rental properties, mortgages and options are still one of the safest places to put monies – IF DONE CORRECTLY!
Owning Real Estate in Your IRA
The silver lining in today’s real estate market is that opportunity abounds for cash buyers. Forget about the days of negotiating the terms of sale, as this REO market is purely discounted cash purchases on volume acquisition. The real estate landscape has changed and knowing which markets and structuring safe investments in your IRA is paramount.
The problem with owing real estate is your IRA is the liability that comes from property ownership. You never want to expose your IRA to lawsuits. It is much safer for your IRA to be a lender instead of an owner. What if you could get the benefits of ownership by being a lender? That is, receive the cash flow and the “buy in equity” without going on a title. That is exactly what can be accomplished by using an EQUITY PARTICIPATION NOTE (EP). An equity participation notes keeps you off the title and is secured by a recorded mortgage. Thus, your investment is protected by the recorded mortgage, which puts you in the chain of title. The terms of the note could be that you receive 50% or 99% of all the cash flow and future income from the sale of the property.
Equity Participation Note Example
Recently, an investor bought a 50% interest in one of our properties. We own the property in a land trust and the investor paid us $30,000 for 50% of the net rent and future cash out to the lease/option occupant.
Here are the numbers: $30,000 paid by Investor The net monthly income, after expenses, is $650 per month. The investor receives $325 monthly, which is cash on cash rate of return of 13%. That’s a safe rate of return and the kicker is when the occupant closes out the option at $90,000 the rate of return will exceed 52% if closed in one year.
There are many variations on the theme of Equity Participation Notes and they are an IDEAL investment for self-directed IRAs. You can allow the investor to receive the first six months or 12 months of cash flow and their return is ever higher. In addition, the percentage of the EP notes could be higher. The key is well-selected properties bought under value that are managed properly from the onset.
Turn Your IRA into a Bank to Ensure a Secure Investment for Absolute Returns – That is, be a pure lender.
Let’s assume a house is worth $85,000 in today’s market, based on a lease option purchase price. There is a tremendous lack of credit in today’s institutional lending environment, which opens up the door for private investors to fill the void. How would you like to lend $35,000 for a first mortgage position on this house at 8% amortized in full over seven years? That would be a payment each month of $545.52. An 8% yield in your IRA is like a 16% yield outside your IRA when you factor in state and federal income taxes. From a safety standpoint, this investment is very sound and your loan to value is approximately 42%. And what if the borrower didn’t pay? You’d have terrific equity in a house and could rent it forever. These are the kind of opportunities that are opening up for investors in every part of the country.
Self-Directed IRAs Provide a Tax-Free Vehicle for Higher-than-Average Returns These types of investments are not available at traditional IRA custodians. They limit you to their own financial products like mutual funds and CDs that just don’t provide the kind of return that alternative investments can. You must have returns that beat inflation. CD’s don’t do that and there is an inherent risk in the stock market.
Only a truly self-directed IRA can offer you the control you need to make the right investment choices to ensure you own financial future. When you combine a strong and secure investment with the tax-free environment offered by a self-directed IRA, you truly have an unbeatable combination. For more information on owning real estate in your IRA through Equity Participation Notes and achieving above average safe yields, sign up at AllInvestorNetwork.com (you’ll also get a free property analyzer). You will be notified of our upcoming webinars and receive our newsletter. Call anytime 813-435-1551 ext. 1000 for more information.
About the author…
Jim Case is a real estate investor with over 30 years of experience and cofounder of The All Investor Network. The All Investor Network (AIN) is a free online community for Professional Real Estate Investors and those just starting out. It has been designed to help you promote and grow
your business. Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.
REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!