How to Prosper & Profit during Economic Chaos

Creative Real Estate Investor’s

Bailout Plan

By Richard Roop

Part 1 of 2
(First released in November 2008)

Housing prices have been under pressure (as of Nov 2008) for the last few years due to the sub-prime market meltdown. During this period I’ve recommended that creative real estate investors apply new money making strategies in their investing business to not only survive — but thrive.

For over a year now I began feverishly preaching important changes investors should make. However there are a number of investing principles I’ve always used and taught that are as valid today as ever before.
The real estate investing game has changed once again since the recent stock market crash became ‘mainstream’ in October 2008. But you don’t need new government laws, rules, restrictions and taxpayer money for help and protection.

Yes. The housing bubble collapse and dire economic forecasts are very serious. However, the good news is that you still have control over your attitude, your investing results, your profitability and your ability to create financial freedom and security.

If you’re scared, nervous or uncertain about your ability to succeed in buying, holding and selling real estate over the coming months and years, then what you really need is to build your very own ”economic stimulus” plan.

Let’s explore what has not changed… what has changed… and what you can do about it.

The days of lay down profits’ and easy lender financing for our buyers are gone. But the main way to get rich in real estate (or any other business enterprise for that matter) has not changed.

As a creative real estate entrepreneur you get paid for solving problems for buyers, sellers and private investors. The bigger the problems — the more you get paid. The more problems you solve — the more money you make.

I predict that an elite, proactive, optimistic group of creative investors (who adopt the right strategies needed today) will continue to collect more big cash paydays, monthly income and wealth over the next few years — more than ever before.

I want to help you join that club.

What Has Not Changed

I’ve been buying and selling single family houses as my main source of income since 1996 when I first began studying creative real estate. Later as I began attending boot camps whenever I could, attendees at these events began recognizing me as the “marketing guru” for real estate investors.

I first published my own real estate training system in 2001 and launched my sideline career as speaker, author, consultant and coach to real estate entrepreneurs.

Here are the real estate principles and strategies I’ve been sharing and advocating since 2001. They are as valid and as important today as they were “way back when.”

Note that much of the way I buy and sell houses does not rely on banks, mortgage brokers, real estate agents or qualified buyers. But that does not mean I do not take advantage of them when I can.

Marketing Strategies

  • Don’t rely on real estate agents to find you deals
  • Use direct response marketing to get motivated seller’s calling you
  • Focus buying “bread and butter” homes in demand by the largest pool of buyers
  • Establish tight “farm areas” where you can dominate and focus all your efforts
  • Spend a regular amount of marketing money each month to bring in leads
  • Double your income by following up on sellers who first rejected your offer

Buying Strategies

  • Generate uncommon profits by providing massive value to the marketplace
  • Buy with terms so you can offer a seller a higher purchase price than all cash
  • Don’t ever speculate or rely on appreciation
  • Always establish a sizable spread between your buy price and projected resell price
  • Present multiple offers that work for you and let the seller choose one
  • Avoid high-end or luxury homes unless you have a proven exit plan with little risk
  • Buy right so you can sell or occupy quickly by offering attractive price or terms

Funding Strategies

  • Don’t rely on using your own money or credit to acquire properties
  • Raise any cash you need for your deals from your buyer or private lender
  • Let everyone know about your private lending opportunity
  • Don’t rely on banks to fund your acquisitions or to close out your buyers
  • Take over existing loans “subject to” and have the seller wait for their equity, if any
  • Pay off owner carry-back notes at a deep discount if they ask for their money early

Selling Strategies

  • Don’t rely on real estate agents to bring you buyers
  • Sell with flexible terms to occupy your houses quickly for top dollar
  • Don’t rely on mortgage brokers to get your buyers financed
  • Establish a date your buyer will close with a new loan or move in as a tenant buyer
  • Buy and finance free and clear houses with owner carry-back financing
  • Occupy your houses with tenant buyers or sell on wraparound financing
  • Don’t rely on qualified buyers who can borrow now and buy any house on the market
  • Always get enough ‘consideration’ to protect yourself before a buyer moves in
  • Be prepared to take the house back if your buyer does not keep their promises
  • Build a buyer’s list and work that list every time you get a new property

Have you setup your real estate investing operation using many of these principles? I hope. If not, now is the time to implement them… all of them… immediately.

What Has Changed

I published an article for my newsletter subscribers in August 2007 entitled “Surviving and Thriving during Historic Real Estate Market Changes.” In it I asked:

“What will happen to your local real estate market as an escalating number of homeowners have trouble selling… or qualifying to buy a home… or paying back the money they’ve already borrowed? What will happen as these types of problems intensify and ripple across the country?”

Since then we have seen the greatest economic crisis in U.S. history since the Great Depression. The article went on to warn:

“I predict that all kinds of industries will get hit hard… especially real estate brokerage, construction and lending. The problems will bleed into other industries and anyone relying on a job for personal income and security will be, quite frankly, out of control. Some communities will be devastated. I see a negative, downward spiral which may last many months but could last several years.”

So where’s the opportunity?

“Many times throughout history wealth has been created out of chaos. By repositioning yourself NOW, making a few slight adjustments in your approach to creative real estate investing, not only can you avoid being part of the problem, but you can be the white knight in shining armor offering solutions… and getting paid handsomely for it.

If you have a strong desire to succeed in real estate then the current climate is your opportunity to make a huge contribution. This is your opportunity to help thousands of buyers and sellers over the next few years and literally set yourself up financially… for life.”

This opportunity is even greater today. This article went on to ask:

“What’s most important to you? Your family? Your health? Your freedom? As you may know, overwhelming personal financial problems can lead to stress in relationships, depression plus other serious mental and physical health issues. You’d probably agree that your health, family, friends and personal freedom are more important than money. But a lack of money can lead to many problems in today’s society. It is a harsh reality.

So… creating your own financial independence is a good thing. It’s good for you — and it’s good for those around you. It’s like a mother of three. Who will suffer if she does not take care of herself? She will… but her children will too. She needs to take care of herself so she can take care of her children. Likewise, you must take care of yourself so you can take care of your own. The time to act on this is now. The opportunity to achieve your financial goals is now as good as it may ever get.

Whether you call yourself a newbie, a real estate investor or a real estate entrepreneur, what’s happening now and coming just around the corner is serious and worthy of your immediate attention…”

My sobering prediction in 2007 on the recent government bailout moves…

“I believe the real estate lending industry is experiencing a multi-year collapse. Banks are tightening up. More people are having trouble qualifying to buy or refinance real estate. We will soon witness a huge shakeup in how people find housing that works within their budget and lifestyle, whether they want buy now or just rent. Either way, everyone needs a home.

Plus, sellers need help getting free from their properties now. That includes owner occupants, landlords, investors, banks, builders and retirees. Perhaps that includes you as well. The competition for qualified buyers will continue to intensify. Unless these sellers are successful, more unsold homes will go back to lenders. Many sellers will simple walk away feeling they have no other choice. As they do, real estate owned by institutional lenders (REO’s) will skyrocket. The government will step in I believe… but how useful would you expect that to be?”

The government attempts to stem off a severe recession will fail. If anything, they’re making things worse. They should just let the free markets work themselves out naturally. Those who supported rampant speculation on Wall Street, bad business practices or the incredibly flawed government intervention need to take their medicine. Unfortunately there are many victims of this mess.

But you do not have to be a victim. You can take the right actions now to protect yourself. Here’s part of the answer:

“Your friends, family and neighbors could soon be in a pinch if they have a home loan that begins to adjust… or if they need to sell soon. Far too many people have used their equity as an ATM. The number of homeowners with no equity is growing. Home prices are under pressure in many markets because of growing unsold inventory. This is wiping out much (if not all) of the gains from recent market appreciation.

Who will home sellers be able to sell to when there’s a glut of home on the markets? Who will buyers be able to buy from? Who will finance these buyers? Who will tenants rent from until they can own?

What if the answer to all those questions was YOU?

Imagine if sellers who needed to sell could turn to you as their buyer… and buyers sought you out because you’re the one person who could sell them a home. What if you could provide affordable and attractive housing to all the other people who want (or need) to rent? You would certainly be in a ‘toll booth’ position, wouldn’t you?”

Changes to Make in Your Approach Now

We have been recommending new ways for creating profits and protection throughout 2007 and 2008. They include:

Marketing Strategies

  • Focus on using direct mail marketing to target homeowners with more equity
  • Get a bigger bang for your marketing dollar by targeting the smaller “motivated lists” such divorce, probate, expired listings, landlords filing eviction, vacant properties, etc.
  • Target free and clear houses and ‘out of the area owners’ mailing every 90 days
  • Avoid targeting homeowners with little or no equity unless you have a systematic short sale investing operation
  • Use systematic direct mail to follow-up on sellers who first rejected your offer
  • Place more value on the leads that come from your marketing
  • Start getting more referrals from real estate agents and mortgage brokers

Buying Strategies

  • Avoid over prescreening or making offers on the phone
  • If you would consider buying a house for what the seller owes or more, set the appointment regardless of how motivated they appear
  • Do a value building presentation, spending more time to communicate why your offer is fair and why they should act quickly
  • Assume declining home prices will continue and make your offers accordingly, buying better by projecting a lower resell price or value in the future
  • Avoid paying interest on seller carry-back notes
  • Avoiding rehabbing “junkers” if you’re relying on a retail buyer to cash you out
  • Flip wholesale deals but know what your wholesale buyers will pay all cash
  • Focus on houses where a buyer can cash out without borrowing more than the FHA lending limits for you area

Funding Strategies

  • Only offer monthly payments to a seller up to the projected net income on the house
  • Only buy houses “subject to” that have enough equity to support a small private investor second note that can fund all the money need to buy, fix and hold
  • Pull out part of your profit in cash with a private investor first mortgage on a free and clear house and have the seller take back a second mortgage at 0% interest
  • Be aware of the new challenges with closing agents on doing simultaneous closes

Selling Strategies

  • Plan to get your buyers cashed mostly through FHA lending criteria
  • If needed, close on your contract or have your payments begin only after finding a buyer
  • Get creative on your buyer’s down payment or purchase deposit by considering trades, sweat equity or a ‘down payment assistance program’ where they build up their down monthly
  • Competitively sell offering a great price, attractive terms or both as needed
  • “Wholetail” by listing homes on the MLS below market when needing to get cashed out

All these strategies are still the ones you want to be adhering to.

Newest Strategies for 2009 and 2010

The most up-to-date “best practices” for generating cash each month, making all your properties cash flow and for building a tremendous amount of wealth over then next 5 to 7 years are fully revealed in Richard Roop’s Free & Clear Cash Machine and Advanced Strategies for Free & Clear Cash.

(Go to Part 2 of 2 here)