MISTAKE #1 - Ineffective or Lack of Marketing

First things first, without marketing your phone is not ringing.  Without your phone ringing you have no deals.  Marketing is the single most important aspect of your business.  A combination of your message as well as how it's delivered will be the difference between zero phone calls a day and 10 phone calls a day.  Your marketing message should be consistent with what you're looking to accomplish. 

If you're message is not to actually help other people, you're in the wrong business.  The key to getting people to respond to you is to give them all of the information they could ever ask for FIRST.  The law of the universe states that in order to receive you must first give.  Contrary to this, I look at most other investors marketing pieces and the message is completely different.  The message is more along the lines of, “what can I take from you?”   Understand that these people are going through some of the toughest times of their entire lives.

What most people facing foreclosure really want is peace of mind.  They want to know what their options are.  They get 15,000 letters from other investors saying the same thing over and over again, “We Buy Houses.”  Who cares?  The homeowner doesn't care what you do.  The homeowner only cares what you can do for them.  So, our marketing messages very simple.  We simply show homeowners what their options are and invite them to speak what us with a free consultation. 

In our consultation, we’ll custom tailor a solution depending on their exact situation.  We also give them a ray of hope in the sense that they actually do have options.  Most of these people think they have only two options, either catch up on their back payments, or lose the house to foreclosure.  And the reality is that they actually have many other options.  By being willing to give first, we naturally get what we want: more short sale deals.  Trust me, people call us every single day completely willing to sign over the deed to their house to us with us barely even asking.  There's no reason I can't offer help to the ones that we may never make a dime on.  The point is, they won't call you unless you're sending the right message.  And it's certain that they won't call you if you don't even market to them in the first place. 

I'm not suggesting that you have to start with a multimillion dollar marketing campaign.  Marketing can be as simple as putting up a few bandit signs per week at a cost of 99 cents per sign.  Marketing can be as simple as knocking on a couple of doors, or making a couple of phone calls, or networking with real estate agents, or handing out business cards.  (Or if you’re really smart… finding someone else to do all of this for you….)  This stuff is not rocket science, but you need to make it consistent in your business.  Both the message and the manner in which you present that message must be consistent.  This is the very first, yet most important aspect of any facet of real estate, not just short sales.  You skip out on this one, you will fail.

MISTAKE #2 - Improperly Screening Seller Calls 

Going After Deals that Aren't Deals

So many new investors call me with deals that they want to work on with me.  And usually after a series of only a couple questions, I can very quickly determine whether or not the property is worth even going after by breaking the deal down into two categories, the Seller and the Property:

Seller

• First and foremost, does the seller have a legitimate hardship?  Are they not able to pay their mortgage payment because they truly can't?  Or because they don't want to? 

• Is the seller being cooperative with your ideas and suggestions, or are they fighting you every step of the way? 

• Are these people that actually deserve your help?  What do I mean here?  Well, in order for people to deserve your help, they must be willing ready and able to assist you in helping them.  It doesn't do any good to try to convince anyone that you're their best option.  Your job is to give them their options and then let them decide.  If you ever find yourself in front of a seller, and you feel like you're talking them into something, know that you are in front of the wrong seller.

Property - Is the house worthy of pursuing?

• Is the loan balance already significantly less than the house is worth?  Here's an example that I hear from new investors from time to time.  A seller has a house that is in perfect condition.  There’s a mortgage on the property in the amount of $100,000.  The house, in its current condition, and in our current marketplace, is worth $200,000.  Is this property worth pursuing as a short sale?  The answer is no.  The house can solve its own problem.  There is already enough equity in the deal, so a short sale is not needed.  Why would a lender take a discount on this property?  They don't need to.  The lender could foreclose on the property, take it back into REO status, and then turn around and sell it later on and actually make money on the deal.  Why would they discount their mortgage to you?

• Enough time left before the sale date? o Often times, I see investors go after deals, and call me as an absolute emergency at the 11th hour.  They'll call me and say, “Shaun, I need your help.  I have a short sale deal here that's a hot deal, and we need to act fast, because the foreclosure sale date is in two days!!!” o Don't waste your time.  There are exceptions to the rule, but if there is not at least 10 days to the foreclosure sale date, you're wasting your time.  This varies from lender to lender but for right now think of 10 days as a guideline.

• Do you have an effective exit strategy? It's great to go after properties and get huge discounts on loans, however, it doesn't do you any good to get that kind of a deal if you can't turn around and sell the property later.  I often see new investors go after deals that are in complete and total war zones.  Some of them have been very successful in negotiating large discounts on these deals.  Here's the problem: who's going to buy that house later on?  Don't get me wrong, I have bought a ton of properties in lower income neighborhoods, and you can make a lot of money in these types of neighborhoods.  But what I'm talking about here is the house that's in that TOTAL war zone area.  If you are afraid to go into this neighborhood to go on the first appointment, how many buyers to you think are going to qualify for a mortgage in that type of a neighborhood as well as actually want to live in that neighborhood?

• Does the house need a lot or repairs?  Or is it perfect? o Here's another one I see quite often.  In newer investor comes to me with the property that has a mortgage balance of $200,000.  The house is an absolutely perfect, pristine condition.  Every single comparable property in the neighborhood has sold for $200,000.  The houses in this neighborhood are also selling in less than 30 days because it's a highly desirable neighborhood to live in.  In this situation, the investor calls me and based off of what he heard at a seminar or read in a book, he thinks that he should be able to offer 70% of the current value and it will be accepted.  70% of $200,000 would suggest making an offer on this property in the amount of $140,000.  Why would the lender except an offer like this?  o While it's true that it does cost money to foreclose, contrary to what some other courses might teach you, it doesn't cost $60,000 to the lender to foreclose.  The lender would be better off to foreclose on the property and then sell it later.  This investor is not thinking in terms of making his deals a win-win-win situation.  The only person that would be winning in this deal is the investor…  Not the bank.  o On the other hand, if this same house needed a complete gut rehab, you would have much more of a justification for coming in at a significantly lower price.

• Are there any other weird things about the house that would affect its value? o Is there anything else that you can think of about the house that might affect its value?  Or at least its perceived value?  There is a difference, you know.  o For example, are there railroad tracks running right through the backyard?  Is the house on a busy street where it's difficult to raise children?  Are their airplanes flying 10 feet above the house every six minutes because it’s only a quarter-mile away from an international airport?  Did there used to be beautiful green grass fields around the house when the homeowner bought it 10 years ago, but now there's a Wal-Mart in the backyard?  These are all things that have a negative impact on either value, or perceived value.

MISTAKE #3 - Not Giving Enough Justification for your Offer

Another huge mistake I see newer investors make is that they don't give enough justification as to why they're offering what they're offering.  If the property is now parked directly in front of a Wal-Mart, that doesn't help you out in any way unless the lender knows about it.  If the property needs a significant amount of repairs, wouldn't it be a good idea to provide repair estimates with your offer?  If houses in this neighborhood are taking on average six months to sell, wouldn't it be a good idea to include proof of that in your offer (or counteroffer) as well? 

Think of it like when you were a little kid - remember this?  When you're a kid, and you want something really badly, isn't it true that you try to convince your parents up all of the reasons why you should have this one particular thing?  Isn't it true that you'll bug them over and over and over until they say yes?  And you'll continue to think of more and more reasons why they should let you do or have this one particular thing?  (I’m sure you all know what I’m talking about here…) Is it also true that when you didn’t want to do something that your parents have asked you to do that you would kick and fight and scream and think of every single reason why you shouldn't have to do it?  Didn't you come up with excuses as to why it wasn't a good idea to do what they were suggesting that you do?  In a way, you're kind of doing the same exact thing with the lender, only in not quite as immature of away. 

The point is… you must be able to justify your offer to the lender.

Justify it with repair costs.  Justify it with information about mold remediation.  Do so with pictures of the Wal-Mart in the backyard.  And remember, if you put yourself in the bank's shoes, would the justification that you're relaying to them be enough reason for you?

MISTAKE #4 - Not Attending the BPO

This is an absolutely critical part of the short sale process.  The BPO agents’ job is to go to the property, take pictures of the property, and give his or her best evaluation as to what the property is worth in it as it is current condition.  If you're not there to provide your opinion and/or justification on these issues, you may as well not even try to do a short sale at all.  This is where 90% of investors who try short sales fail right off the bat. 

There are tactful, legal, and ethical ways to influence a BPO agents’ decision as to the value of the property.  Remember, not only do you need to justify your offer to the bank.  The BPO agent is the person is telling the bank how much the property is worth.  Wouldn't it be a good idea then to relay the same justification information that we talked about above to the BPO agent as well?

MISTAKE #5 - Fear of Negotiating with Loss Mitigator

When I first got in this business, I was scared of talking to the loss mitigation rep at the bank.  I was scared because I felt like I didn't know enough to be able to talk the lingo required.  While it's true that you do need to have a solid base of education to be able to have an intelligent conversation with a loss mitigation rep, they are just people too!  Don't forget that.   To negotiate most effectively, you will do 95% of your negotiations on paper before you ever even have to pick up the phone. 

So don't feel like you have to be some slick salesperson to speak effectively to loss mitigator.  All short sale offers are required to be written offers, with specific paperwork, in a specific order.  The justification for your offer should be written down and included in the offer letter.  This means that the negotiations can be well thought out in advance since you can obviously take your time and really think about what you're going to say when it's in written format.  There's no need to feel like you have to be the slick salesperson with a quick comeback for everything that a loss mitigator says to you.  For those of you that hate pushy salespeople, don't worry, you don't need to be one to be effective in this business.

MISTAKE #6 - Not Keeping Constant Communications with the Homeowner and/or Making False Promises

Your seller needs to be informed of where you’re at in the process throughout your negotiations. 

Without you keeping them informed, they will, without a doubt, lose trust in you.

The entire short sale process is exactly that.  It's a process.  And processes take time.  So during that time, your job is to keep the homeowner informed and well educated as to what to expect next. 

We do this in our initial conversation with the homeowner so there's no question about it later on.  We also let them know that there may not be new information to relay to them each and every single day, so we inform them that we’ll call them to provide an update on their property every Friday.  This way, they’ll always know exactly where they stand in the process. 

This does a couple things:

• First it lets the homeowner know that we will keep them informed on a regular basis.  This builds trust. 

• Second, it frees up the rest of our week to do other tasks, work on their deal, and go after new deals.  This one small change we made in our business free up a con of our time throughout the week. 

Every Friday, we sit down and call each of the homeowners for just a few minutes and let them know where we're at.  This sets the expectation upfront and frees up valuable time to be spent on other aspects of your business.

MISTAKE #7 - Focusing on Money Instead of Changing Lives

This is a lesson that I had to learn the hard way.  You've heard of motivated sellers?  Well, when I got started I was actually a motivated buyer.  Many brand-new investors are the same exact way.  This is very obvious to others and comes across in the way you speak to people, and in the way you negotiate.  If you're doing this just for the money, you may succeed for a certain period of time, but the long run you will fail. 

Remember, when you're working with people who are facing foreclosure, many times these people are going through some of the toughest times of their entire lives.  You can either focus on what you can take from them at this point, or you can focus on how you can make a difference.  YOU have an opportunity to influence people's lives for the better.  YOU have the power to literally bring families back together again.  None of this can be accomplished by focusing on the money you stand to make.  I chose to focus on short sales in the real estate industry because this is the one aspect of real estate were I feel that I can truly make a difference. 

If there's one thing that you take away from this section, understand this:

When you give other people what they want first, the money will come automatically.

True wealth (Short Sale Wealth!) in real estate comes not only from money.  It comes from the quality of the relationships of people that you touch each and every day.  And you will be able to sleep much better at night because of it.

MISTAKE #8 – Not having a system in place

Let's face the facts of this business.  The real estate game can be one of the most fun businesses that individuals can get into.  This business is a “little guy’s” business.  Have you ever noticed that there are no publicly traded residential real estate investment companies out there?  There’s a reason for this. 

Real estate investing is a business that I’ve seen individuals start with literally no money and end up financially free within a few short years.  This business is one that just about anyone with the will and determination to succeed can do.  I met a gentleman recently that makes over $500K per year consistently buying residential real estate.  Before he started this business he was a janitor at a high school.  There’s no doubt that investing in real estate can be rewarding.  This business can also be the worst nightmare of your life if you aren’t set up properly. 

The next time you go to McDonalds, take notice of something.  Isn’t the fryer always on the left hand side of the restaurant?  Isn’t the drive thru always on the left also?  Aren’t the bathrooms always in the rear right side of the building?  (Are you picturing this in your head right now?)

How about Sam’s Wholesale Club?  Isn’t the entrance always on the right hand side of the building?  Isn’t there always someone there checking to make sure you have your Sam’s card with you? Isn’t the electronics section the very first thing you always see as you walk in the front door and to the left is the customer service department?

What about Walgreens?  Imagine someone blindfolding you and dropping you off right in the middle of Walgreens.  Isn’t it true that you could open your eyes and immediately know where you are?   Why do they do business like this?

The answer is simple.  These companies have a system.  As simple as this sounds, it’s the difference between a successful business and one that never seems to get off the ground.  Having a system in place is fundamental to any long term reward in any business.  The way McDonalds sees it, why reinvent the wheel every time they build a new restaurant?   Why not just come up with a template, duplicate it over and over again, and let the system take care of the rest?   The reason that McDonalds became so successful selling franchises is not because they have the best burger in the world.  Let’s face it… I’m no cook and even I can make a better hamburger on the grill than I could get at McDonalds.  They are successful because they have a system.  They have a tested system, and that system works.

It makes sense, doesn’t it?  Why can’t we do the same thing with residential real estate, you ask?  The answer is… now you can.  There’s no sense in reinventing the wheel every time the phone rings with a prospective seller.  There’s no sense in changing what you do every time you put a property on the market for sale.  You don’t have to take time figuring out what paperwork goes where when you submit an offer to a lender.  This can all be a part of a system that operates virtually identically every time.  Big companies do this all the time.  It seems like very few real estate investors understand this though.  Not only does this make your life much easier, but it also makes training other people so much easier!  Do you think the CEO of Walgreens trains the cash register operator at their stores?  Heck no!  Walgreens has a training “system” in place that shows the cash register operator exactly what to do and what not do to in almost any situation that could possibly present itself. 

When you have a system, your business no longer controls your life.

When you have a system, your business no longer relies solely on you to continue to grow.  You can grow with your business rather than have your business control your every move.   I have friends that are very successful in the real estate business, but I also have friends that are miserable and don’t understand why.  When you have a system, you can assign tasks to others so that you can take time away from the business and come back to have it operating much the same as it was before you left.  And let’s get to the good stuff… when you have a system, you can do more deals with less effort!  This equates to a bigger bottom line.

MISTAKE #9 - Lack of Continuing Education

Let's be real here for a minute... you absolutely MUST be dedicated to continuing education regardless of what business you're in.  Times change, people change, the real estate industry changes.  I'm sure you know by now that if you're doing real estate the same way you were two years ago, you're going to have a very different result.  Real estate, just like any other business, has cycles. 

You can make overwhelming sums of money in both an up market and a down market if you have the proper education.

Many new investors have come to me recently worried about the economy, and worried about what's going to happen in the real estate market over the next 12 to 24 months.  I couldn't be more excited about real estate right now.  The truth is, if you're well educated, you can actually make more money in a down market because there's abundance of opportunity and less competition.  The only way you can do accomplish this, however, is by being committed to your education.

Think I'm kidding?  In the past 12 months alone, I have spent over $26,000 on continuing education in real estate.  This includes books, courses, CDs, and live seminars I’ve attended.  I have a complete library of courses on real estate, and I absolutely love it! I believe that spending this money on education is nothing more than an investment in myself and in my family’s future. 

Not only that, but isn't it just FUN when you learn something new?  Isn’t it FUN to learn one new idea that takes your business (and life) to a whole new level?  It's kind of ironic that I was the guy that absolutely hated school growing up.  I think the reason I hated it so much is because I was learning about so many things that I wasn't necessarily interested in.  Learning how to create win-win-win situations where I walk away with a big check interests me though.  Changing lives interests me.  Making a difference in the lives of other people interests me… 

Regardless of whether you decide to pursue your education in short sales through me or elsewhere, if I could offer you a little bit of advice – make education a priority in your life.

The way I see it, if you're not growing, you're dying. And I don't plan on dying anytime soon!  Do you?

Happy investing, and remember… Give First!

Shaun McCloskey