Selling the Lease

Selling the Lease by Jim Aviza

With so many options available to renters and so many properties that are very similar, how can you get them to choose you over the competition?  Appeal to the emotional aspect of their housing needs.  Selecting a home is more than a matter of economics to renters.  As investors, we know how to determine market values for rental and purchases.  We’ve done our study of what people are willing to pay based on square footage, features, locations, amenities and so on.  But the one thing that can tip the scale in our favor is to provide an answer to their question, “Will I be happy here?”

From the start of working with your prospective renter, you should be building rapport.  Find out what their “triggers” are and use those to anchor them to your property.  Do they like sports?  There’s a great gym (or park) right around the corner.  Do they like cultural events?  Point out the theaters, galleries, museums, and other points of interest in the area.  Are they new to the area?  Talk about the wonderful people in the building, in the community or organizations they may want to join.  Do they like to cook or entertain?  Point out the counter space for food preparation, the openness of the floor plan for hosting gatherings.  Find out what their interests are and make it a point to turn features of your property into benefits they can envision as part of their future in that particular home.

They will also get a sense that you are interested in their happiness and that will carry over to liking you as well.  When people like you, they do business with you!   Remember to keep your relationship professional.  Do not blur the line between friends and a professional relationship.  Be personable, find out what they want and then help them see how your property suits their needs above and beyond the price, location and condition.

Don’t Be an Amateur Advertiser!

How do I know if my marketing is working?

It’s no secret that marketing is the key to the success or downfall of any business.  Marketing is the systematic and strategic plan you put in place to sustain or grow your business.  Marketing includes many components: the customers you target with your advertising, how often to advertise, how much you charge for your product or service, and how you fulfill your obligation to your customer are just a few pieces of the marketing puzzle.  Getting the interlocking pieces of your puzzle together to create the beautiful picture that is your business takes time, patience, and planning.  A lot of people confuse marketing with advertising.  Advertising is just one component of your marketing.  Advertising is really the vehicle you use to announce to the public what product or service you provide.  These are things like an ad in a newspaper, a commercial, or a direct mail piece.  Since it’s one of the most expensive pieces of your marketing, it warrants an entire blog dedicated to doing the smartest advertising you can by applying principles routed in marketing.  There are several common mistakes made in advertising.  In my opinion, these mistakes come from a lack of understanding of marketing.  The two are so intertwined it can be difficult to see where one starts and the other stops.

Get a smaller net and find concentrated waters:   Anyone can place an ad, but do you really understand why you chose to place the ad where and when you did?  Why did the ad say what it did?  A successful business owner can tell you specific answers to these questions based on sound research done by their marketing department.  If they can’t, well now they are just gambling and got lucky.  One of the keys to finding a great deal in residential real estate is to find sellers that are motivated.  People often cast such a wide net when advertising that it becomes cost prohibitive to find the few deals that makes sense.  Instead, I suggest getting a smaller net and finding more concentrated waters.  For example, some people might choose to buy a zip code mailing list and send postcards.  The problem is that while you do get a large distribution it’s also quite expensive and most of the people in the zip code are not going to be motivated to sell.  Instead find lists where the seller would be in a situation that creates the motivation.  For example, code enforcement lists or absentee owners with delinquent taxes.  When you track your advertising you will find you can send less mail and get more response.

And for goodness sake track your advertising:  Would you spend your money and not know what you are getting for your money?  Well, I suppose some people would, but my guess is a smart business person like you wouldn’t.  Keep statistics on your response rates.  Sometimes a change in the economic environment will lead to changes that need to be made in your advertising.  Just take a look at all the products on the grocery store shelves.  As our country recently fell on tough economic times the product packaging changed from razzle dazzle potato chip bags to grass roots old-school packaging to reflect our conservative spending habits.  You can’t expect your same message to work the same all the time and with every population of people.  If you aren’t tracking your advertising how will you know when it’s time to change things?  Also, look at your cost per lead and your cost per deal.  Basically, look at how much it’s costing you per lead, and also of all the leads you advertise to how much it costs to acquire the ones that actually turn into money makers.

This isn’t a one night stand: When you are tracking your cost per lead, keep in mind that to be successful in advertising you have to be consistent and repetitive in your marketing.  It takes several points of contact with a customer before he or she will do business with you.  I watch many people get frustrated when they are not getting any response from their advertising.  They quickly give up and abandon ship, saying, “I tried that and it doesn’t work!”  In reality, they didn’t work it!  In my experience a well thought out direct mail campaign will take 4 to 6 months to see a significant response for your efforts.  That’s why I always tell people start with a small number of quality leads that you can sustain your marketing for 6 months rather than a large quantity that drains you after one mailing.

Know when to hold ‘em, know when to fold ‘em:  Advertising advice from Kenny Rogers?  People often ask me how many times they should keep mailing to a lead.  I always say, “For as long as the condition exists.”  For example, if you have a list of leads that you acquired from your research in probate, keep mailing for as long as that home is still in the decedent’s name.  In order for probate to settle, the property must be removed from the decedent’s name.  Once the property has transferred to someone else you can remove the lead from your database, right?  Well, maybe.  We find that if the property transfers to one of the heirs, we will continue to send advertising to them for several more months.  This is because sometimes the property is transferred in order to close probate, but the family is still liquidating the assets. Yes, this means that you’ll be reassessing the quality of your leads before you mail every month, but it’s necessary to control costs as your business is starting up.  Later on you may decide that it isn’t always necessary to do this, but as you are tracking your advertising you can make this decision based on financial fact.

While your advertising might be just a piece of your marketing, done correctly it can create wild success.  Remember, start small with a concentrated target, track it, be consistent, and re-qualify.  Create a system that you can transfer to an employee once your business is up and running.   We forget that we don’t have to do everything ourselves.  If you don’t have time to do this yourself, then hire someone.  If you say you can’t afford it, I say, you can’t afford not to.

Real Estate Success: Property Costs

Finding Real Estate Success: Paying Too Much for a Property

This Rich Dad Education investing series focuses on the common traits of successful students in addition to the mistakes that unsuccessful students make. The goal of this series is to help provide a guide to emulate the traits of successful students while simultaneously helping new students avoid the pitfalls that can occur to those starting their real estate investing career. One of the pitfalls that you want to avoid is one of the biggest mistakes new real estate investors make — paying too much for a property.

It is easy to understand why even new investors who are properly trained pay too much for a property. After acquiring the proper training, there is a tremendous amount of excitement at the prospect of completing one’s first deal. After spending time becoming familiar with the local market, new investors who overcome whatever fear they have make their first offer on a property. Unfortunately, most offers are not successful and the new investor thus is forced to find another property and make another offer. This too is unlikely to be successful. Fueled with enthusiasm and a desire to get their new real estate career rolling, it is very tempting for a new real estate investor to start increasing the number of offers in order to get a deal done.

Perhaps the new real estate investor gets a counteroffer that is above their parameters for purchasing the property. It is very tempting for the inexperienced investor to adjust their numbers to find a way to make the deal work. This leaves them very little room for error, but they find a way to convince themselves that they can make it work. Their impatience, coupled with their enthusiasm to make their first deal, leaves them vulnerable to paying too much for the property.

Other Mistakes New Investors Make in Purchasing Their First Property

Aside from the pitfalls of unbridled enthusiasm and impatience, new investors can make mistakes depending on the exit strategy they are using. Many new investors choose rehabbing as their first real estate strategy to master. In analyzing a property, a new investor needs to determine what they can sell the property for and account for all expenses. These include acquisition costs, holding costs, repair costs, selling costs, a discounted sales price, and the profit they hope to make. Without the proper training, it is very easy for new investors to make mistakes in these calculations. Even with the right training, many impatient new investors get creative in their calculations to make the deal work.

New investors who are purchasing a property for rental in order to produce cash flow often make the mistake of calculating what the home might resell for instead of properly calculating the cash flow it will produce. New investors can also forget to factor in a realistic vacancy factor in their exuberance to get a new deal done.

Every new investor wants to get that first successful deal done. It is an exciting time that can create momentum that lasts an entire investing career. The key phrase here is successful deal. Completing an unsuccessful deal can have the opposite effect, leaving a new real estate investor frustrated and unmotivated to put in the work to complete that next deal. If you follow your training and demonstrate patience, then you will eventually complete that first deal and turn a nice profit in the process.

Real Estate Success: Develop an Exit Strategy

Finding Real Estate Success: Develop an Exit Strategy

This Rich Dad Education investing series discusses some of the variables that determine student success. Some people are simply going to be more successful than others. While this might be the natural order of things, Rich Dad Education wants to do everything within its power to put every student who participates in its programs in a position to succeed. Identifying the traits of successful students is just one way to accomplish this.

It is safe to say that successful Rich Dad Education students have well thought out plans. Specifically, they have carefully developed plans in regards to each investment they make. Not only do they have a clear plan on how to purchase the right property at the right price, but they also know exactly what they plan to do with that property once they own it. For those inexperienced in real estate investing, this might seem very simple. However, it is far too common for novice real estate investors to jump into purchasing a property with only a vague idea (sometimes no idea at all) of what they are going to do with the property now that they own it. Rich Dad Education students can increase their chances of success by not only obtaining the proper training on how to locate and purchase properties, but also by developing well planned exit strategies.

The Pitfalls of Not Developing Your Exit Strategy

When a novice real estate investor purchases a property without an exit plan, they almost immediately create an exit plan involving selling the property for an immediate profit. There is nothing wrong with this exit strategy but when it is created on the fly, these new real estate investors have often not done their due diligence. These new real estate investors usually have not gathered information on how long houses in their market are for sale and are not prepared if it takes a little longer than anticipated to resell the property. If your goal is to turn an immediate profit, then focus on properties that will be easy to sell once you own them and in areas that have the right demographics for an easy turnaround.

When a new real estate investor doesn’t immediately turn their new purchase for a profit, then their exit strategy can quickly change to holding and renting out the property. Since the exit strategy was not thought out in advance, they don’t necessarily have a property that is easy to rent, or the property may be in an area that makes property management cumbersome. They might not have experience or training in the area of property management and thus are prone to making numerous novice mistakes. Property management can be a wonderful strategy that produces high amounts of passive income, but it should be a carefully thought out exit strategy.

Even experienced real estate investors are prone to making mistakes from time to time so one should not be afraid of an occasional mistake. However, when you purchase a property without a thought out exit plan, then you are asking for trouble. Students who achieve a high level of success think through their actions and develop a plan around their knowledge, training, and expertise. It is exciting to buy the first couple of properties, but take the time to know what you are going to do with them once you purchase them.

Real Estate Success: Knowing Your Local Market

Finding Real Estate Success: Knowing Your Local Market

This Rich Dad Education investing series focuses on identifying the common variables that determine student success. Students who attend Rich Dad Education elite trainings receive knowledge on how to broadly apply specific strategies and techniques in their real estate investing career. Students who participate in the Rich Dad Education mentoring program further hone their skills on their chosen techniques and start to learn how to apply them in their local market. Learning about the specific market that you are investing in is crucial. This knowledge plays a critical part in determining student success.

Understanding Your Market

Rich Dad Education students who find high levels of success normally have spent a great deal of time studying their market. They develop true expertise, not only in the area of training they have received, but also in how to apply that training in their local market. In essence, they know almost everything about the local market they invest in.

For new real estate investors, this might seem like a daunting task. Naturally, this type of expertise does not come overnight, but you would be surprised at how quickly you can gain a basic understanding of the market you are investing in. True expertise will develop over time as you apply your trade and continue to study the characteristics of your market.

Once Again, Start One Step at a Time

The advice to start one step at a time applies in the study of your local market as well. Start with a singular area of knowledge and you will find this knowledge builds upon itself quickly. Here are some ideas to begin your search. You want to know:

• Where properties are selling and what prices they are selling for
• The average number of days that properties in certain areas stay on the market
• The total number of homes that are for sale in each area
• Information on the local job market
• The rates of population growth and decline in certain areas
• Where schools and shopping centers are located
• The crime rates in the areas you are looking to invest in
• The percentage of properties that are occupied by owners and by renters
• Existing zoning laws and any restrictions on certain types of property

Once you have acquired knowledge in these areas you will have a tremendous advantage and you’ll be able to determine where you should focus your investment efforts and what types of property you should be looking to invest in. Naturally you will have insight into how much you can pay for a property as well. Students who become successful real estate investors take the time to learn their local market and are handsomely rewarded for their efforts. One would be wise to follow down the path of those who have previously succeeded and learning about your local market is a path that can quickly start paying dividends.