My partner, Michael, has been working hard the past several months finalizing the details of a pre-foreclosure option that we can offer to our clients. Prior to now we had stayed away from much of this segment of the real estate world due to the onerous levels of work involved. Granted, it can be a very lucrative type of deal for an investor but as the agent working with the investor it can burn some serious time cycles and if you’re not the one getting the return at the end of the day it’s not the best business practice to throw this in with your other business willy-nilly because you’ll lose track of time on other clients and that isn’t a good thing.
Our work strategy has always been about finding good deals for our clients. We’ve also been able to do that by building our business methodically and with targeted intentions. In putting together this new program we have found a partner that has his sole business in the pre-foreclosure space. Basically, he’s already out finding deals for himself but he can’t possibly take on each one – so he’ll farm out some of the deals to agents like me and Michael so that we can offer them to our clients. He’s got a team of people doing the up-front work so they can cover a big territory too. It’s a big win all the way around because this guy still gets a little revenue for his work, we get to offer a good product to our clients that has been screened by the 1st guy and then also by us, and the client gets to walk (hopefully) into a built-in equity situation. And, don’t forget (although I guess I hadn’t mentioned it yet), the seller also gets to walk away from a bad situation – and in the majority of these cases they get some money to start their life over and limit the damage to their credit.
We’ve had one informational meeting on it already and several clients have signed up to receive the listings. The forms we put together were reviewed by our attorney and we are recommending clients talk to their CPA’s/accountants about the investing strategy. Where necessary, they should talk to an attorney to look into an LLC if that is appropriate for their situation. Right now we’re expecting clients to net some significant returns and we’ll be working hard right along with them with analysis, strategizing on end pricing, offering our Concierge Services and more. We hope to also offer syndicates at some time in the near future so investors can spread the risk and limit out of pocket funds in some instances.
The other good news for these deals is that we have a couple of lenders who can help provide quick turnaround financing (if the client qualifies) which is nice since comparatively a true foreclosure deal requires all cash. The benefits of leverage and the potential to walk into built-in equity – these are good things.
But, like all investing strategies there is always risk. One client asked the question at our meeting about what the riskiest part of the deals would be. My personal answer was that the client would be the highest risk element. Why, you ask? Because more times than not I’ve seen first time flippers get out of control with their budget and their time. Unrealistic budgeting and a lack of planning and focus is what kills the return on these kinds of projects. Poor choices in partners is another one. Some people jump into it thinking “Hey, me and my buddy (or insert other person here such as relative, spouse, potential sweetheart) can do this. We saw a show on HGTV and we think we can do better than them.”
You’ve GOT to be realistic and also know your strengths and weaknesses. If you can’t calculate the square footage of a room and know how to convert prices back and forth between square feet and square yards – you might run into a problem. If you think black marble flooring is a good idea in a starter home – you might run into a problem. If you hire your nearly blind friend to help with painting – you might run into a problem. Do you get my drift? If you don’t keep track of your receipts and compare your payments to your budget – you might run into a problem. I saw all of these things happen in one project and the bad ending for that client – who, by the way, didn’t use me when they sold the property because at that point they’d blown it and in the process they’d disenfranchised me in terms of wanting to work with them. Their end product was no good and they didn’t make the money they expected.
If you’re interested in learning more about this new program Team Reba is offering use the contact info on the sidebar of this blog and give us a call or send us an email.
Happy House Hunting!
