What is Lead Generation?
Twenty-five years ago I want to a local real estate meeting in, NY and heard a speaker from Texas and what he said to me has stayed with me to this day: “Have more opportunities that you can take advantage of and you’ll be forced to select the best opportunities.” In essence, that’s exactly what a lead generation system is.
It’s a system for leads to buy houses coming to you on a daily basis from a variety of sources. The primary way to seek real estate opportunities is by some campaign of marketing and advertising that produces leads for you to analyze and determine if the property is a flip, a rehab, or a rental.
Imagine all the leads coming into a funnel from all your sources and as they come through the funnel, you decide what course of action to take with the seller. The bigger yhour funnel, the more leads you’re analyzing and potentially the more transactions you’ll create.
Bandit signs Referrals Classifieds Flyers Internet TV Direct Mail
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Garbage Review 3 months Options Rentals Rehabs Flip
Some leads cost money and some leads cost time. Time is the most valuable resource I have and there is a limited amount of it so I prefer to use my time to analyze leads and I’ll pay to get them. If you invest $10,000 per month on marketing and receive 200 leads then your cost per lead is $50. If you’re able to convert five of those leads into purchases, then your conversion rate is 2 ½ % and the cost of marketing per house acquired is $2,000. That is a small amount to pay when you can utilize your skills of flipping, rehabbing and renting. Our average flip fee is $10,000 and our most lucrative fee was $50,000. A very close friend of mine has a $100,000 flip fee under his belt. Certainly that is a rare occasion worth celebrating. Once your make a few solid flip fees you’ll be like me – the ringer on your phone will sound more like a cash register. I always feel I’m one ring away from a $50,000 flip fee.
The more leads you have to analyze the more opportunities you avail yourself to and consequently the more likely you are to create money-making transactions with your Buy/Sell Machine.
If you’re serious about this business and you’ve got the skills, heck if you’ve got the money- I can personally teach the skills of negotiations and design your personal system of lead generation.
Before you can begin the exciting process of negotiation, you’ve got to have the leads to work on, so first things first: Decide on a system to produce leads in your marketplace. If your time is more valuable than your money or vice versa, there’s a system to fit everyone’s budget.
How serious and how determined are you?
Flip, Rehab or Rent
The thrill of this business for me is the phone call. When my lead generated calls are directed to my phone line and I know my TV commercials are on the air, I get that little kid feeling that Christmas is one ring away. Every time that phone rings it could be a $50,000 flip fee that involved very little effort on my part and once I wipe the drool away from my chin, I answer the phone. When most people receive a phone call they hear a song or some annoying ring. I hear a cash register and that is music to my ears. And when I get 10-20 calls each and every day it’s like a symphony and I’m the director.
My money-making orchestra has four sections in it:
- The horn section is the flips. They play the loudest and if only one section is going to work and work well, I would pick this. Think of the trumpet, only 3 little buttons: The seller, you and the buyer.
- The percussion section would be the rehabs. There’s a lot of moving parts here and it requires a lot of precision and timing, as does every rehab.
- The strings would be the long term rentals using the metaphor that there are “strings attached” to these properties since you’ll be holding them for the foreseeable future. And finally
- The woodwind section would be long term options because they can be very quite and rise into a crescendo when you exercise them. That is, there is quiet for a long time and over time the options can become quite valuable and, finally, one day, you exercise your options and cash them out. Is that a flute I hear in the background as I skip all the way to the bank?
So, flip, rehab, rent or option – what should you do? I love this part, the excitement of
Analyzing each phone call or internet lead to quickly ascertain THE SELLERS NEEDS and determine in which direction the negotiation should go.
IT DEPENDS ON THEIR NEEDS
Every seller’s situation has particular needs which must be met to successfully negotiate an acceptable agreement for the seller.
As buyers, we cannot change the needs of the seller yet it is imperative through leading with questions that you, the buyer, must be certain as to what their needs are. We’re not interested in their wants, desires and hopes – just their needs. Most sellers think they need all cash and it’s simply not true. They perhaps needs some cash and it’s up to you to find out how much and how soon.
In many instances you could rehab or flip a house but it could depend on your available cash on hand or how many properties you currently have under rehab as well as the availability of crews and current market conditions. For these illustrations, I’ll assume you’ve got the money, crews and could rehab if the right opportunity came along.
#1. Spring Hill
Purchase Price: $50,000 – all cash
Assigned contract for $40,000 flip fee. We were able to pick up a fast $40K without lifting a finger – that was good enough and it required signing the contract with the seller and one phone call to a known rehabber.
#2. Clearwater (Great Lakes)
Purchase Price: $60,000 – all cash
This was an easy rehab and the upside was so large that we decided against flipping it for $40,000 and instead made approximately $80,000 after the rehab.
Purchase Price: $150,000 – subject to $148,000
This property could easily have gone all 3 ways. It was subject to the existing debt at approximately 7% and was a perfect candidate for a rental. We could have flipped it for a fast $30,000 but in the end we had our best crew available and decided to make the extra money so we rehabbed it and sold it to a homeowner.
#4. Port Charlotte (Abscott)
Purchase Price: $140,000 – seller held financing at 0% payable $600/month
OK folks, this is a no brainer! 100% financing at 0% interest, so baby you know we keep this as a long term rental. There was very little room on the rehab to retail and it would have wasted 0% financing. We probably could have flipped it, but being on a canal to a small lake we like this as a long term rental for appreciation as well as financing.
#5. New Port Riche (Knoll)
Purchase Price: $115,000 – subject to $105,000 at 7%
Too easy. No mortgage to qualify for and a good enough interest rate with very little money down required. It’s rented.
#6. Spring Hill
Purchase Price: $54,000 – subject to 6.5%
This property was perfect for a rental having good financing, but I didn’t like the location and the fact that it was a 2/2/1. It also was perfect for a rehab, but the city (it’s in Spring Hill, FL) has a lot of properties on the market and we decided to grab a super fast $15,000 flip fee with one phone call to a known buyer.
#7. Tampa, FL (Pinto Pl)
Purchase Price: $215,000 – subject to entire purchase price at 8%
This property was in perfect condition to retail “as is” for $265,000. It would have made a great rental but the interest rate of 8% was more than we like to pay and with insurance rate increases the property would have been a negative cash flow. It made not sense to flip it for $10-15K since there was no work to rehab it. This property was just a matter of time for the right buyer to find us through our retail marketing system. It took four months of us making the mortgage payments prior to the sale.
#8. Sun City, FL
Purchase Price: $125,000 – $30K down and the balance of $95K at 0% secured by a corporate guarantee with payments of $1,000 per month for 95 months.
As is value: $180,000
OK, OK. This is not your usual transaction but it worked out perfectly for me in my negotiations with the seller. The house was listed for over $200,000 when I bought it from the seller without the realtor as the seller called me direct. I contacted the listing realtor and informed him of the sale and wanted to meet with him to consider the possibilities of an after repair value or as is and allow him to continue to list the property. The seller was motivated and wanted out. Since I was able to negotiate a 0% loan without a mortgage, I sold the property for cash and netted $161,000 after the realtor’s commission. When the smoke cleared, I had an additional $131,000 in my pocket – and had to pay back $95,000 at $1,000 per month at no interest. This is a great way to raise working capital without having to pay interest. It works best on free and clear houses, but it can also work on houses with a substantial amount of equity. It didn’t make a lot of sense as a flip as the property had a funky layout to it. And I really didn’t want to do all that work and wait and get who know what. So BANG! – $35,000 profit, plus a $95,000 no interest loan. I would like to do the same transaction 100 more times today before 5:00 pm!
#9. Sebring, FL
Purchase Price: $65,000 – subject to $50,000 at 7%
This property was a good candidate for all three profit centers. We decided it was too far away for a rental and I had an available crew so we did the rehab. Sebring, FL is about 1 ½ hours from where I live so we decided that we would do an internet auction on www.FastHomeAuction.com Bam! $138,000 net without any commission to pay. Now, that’s what I’m talking about. And fast – WOW!
You may realize a pattern from my illustrations above. These were all transactions we’ve recently closed and now that you’ve seen than, allow me to give you a little more insight:
Rentals: Good subject-to financing (as defined by a low fixed-rate mortgage) or a seller held mortgage with a minimal down payment (that’s relative to your working capital) make good candidates for me in my marketplace. Ideally, the house would have positive cash flow, but if you’re buying and getting a large equity, great financing, 3/2/2 in a good neighborhood, then I would absolutely overlook negative cash flow.
Flippers: Houses that don’t fit into the rental program, are all cash purchases or simply require more work and time than I am willing to commit at a given point in time.
Rehab: The properties I rehab must have a strong upside of not less than $35,000 and hopefully over $50,000. Part of my decision is based on how much money is required up front. It’s okay to make less than $35,000 on a rehab especially if you took over someone’s mortgage and it was an easy rehab. Market conditions and your available cash will dictate how many rehabs you want to do at any give time.
Traditional Sources of House Purchasing Leads
Below is a list of commonly used marketing and advertisement.
- Classified ads: Advertise to buy under houses wanted to buy. My favorite ad over the years has been “Ability to give a firm offer to buy your house within 24 hours.”
- Mortgage Foreclosures: You can get this information at the court house under Lis Pendens, which means action pending, or you can subscribe to service providers such as foreclosuresdaily.com. I’ve had plenty of success over the years saving people from mortgage foreclosure as well as making terrific money making transactions.
- Real Estate Tax Foreclosures: This varies from state to state. In some states you can buy the house at the tax sale without any right of redemption from the owner. Other states offer tax certificates for a number of years and then they sell the property at a tax sale. Check at your county clerk’s office for the rules regarding these sales in your area.
- Probate: This is a rich source of leads as many spouses or beneficiaries of an estate prefer to sell the deceased’s property, particularly if they live out of state. We’ve had success doing direct mail marketing to these people and the information can be accessed at your county clerk’s office. Some service providers have this information as well and, for a fee, you’re one click away.
- Expired Multiple Listings: If you’re a realtor, or know one, you can access this information. Sometimes you can catch a frustrated homeowner that is finally motivated to sell.
- New Listings: This works best in an area in which your familiar with values. As new properties come on the market, have your realtor automatically offer 50, 60, or 70 cents on the dollar. This will smoke out a motivated seller. If they “bite” on the offer over the phone with the realtor, then you view the property and can possibly negotiate it down further. Doesn’t work? I bought 43 houses from the same realtor doing exactly this and I offered no more than 60 cents on the dollar. If you’re working more than one area, as I am, then it’s important to work with more than one realtor. This can be a burn out job for the realtor if your success ratio is low.
- Bandit signs: These are the obnoxious signs that you stick at intersections. As obnoxious as they are, they work. The very first day we put them out we bought a house and flipped it for $20,000.
- Flyers on doors: We use door hangers when we see a property with deferred maintenance and no one is home. We always knock on the door because it’s best to talk to people face to face whenever possible.
- Loan companies: A lot of times these companies lend money to homeowners and investors who then begin to struggle. I’ve worked with a few over the years and was able to acquire four properties once the loan company foreclosed and got title. You could offer your free inspection services, or charge only $15 a trip to do an inspection report on the property which gives you a good reason to talk to the owners. These can be great leads since the mortgage may be delinquent and not in foreclousre, thus other investor would not be aware of this potential opportunity.
10. FSBO: For Sale by Owners advertised in the newspapers or with signs on their house. It’s great practice for investors to learn how to talk to people. In fact, for beginning investors, it’s a must. However, you won’t get comfortable until you’ve done it may times. I’ve been in front of thousands of sellers and the more your practice, the more comfortable you become with yourself in any situation. If you are a beginner, you should call as many as you can a day. Sunday papers are rich with these sellers and also stop at the houses and get fact to face. It’s a great source of free coffee and you’ll meet some nice people along the way. More importantly, you’ll improve your skills and refine your negotiations.
11. Walk neighborhoods: After hurricane Charley hit Port Charlotte and Punta Gorda, FL we bombarded the area with bandit signs and went door to door hanging flyers on vacant houses. This directly led to 28 house purchases and over a half-million dollars in profit. But you don’t have to wait for a storm. Walk the neighborhoods in which you desire to own long term rentals and talk with the people you come in contact with. Always be friendly and ask if they know anyone else who needs to sell. Leave a card if they take it and any type of compliment you can make about their house, kids, car – anything.
12. Housing Court: Every city has housing court and this is a great place to hang out and find burned out landlords. These investors (and some homeowners) face prosecution if they don’t bring their properties into compliance and sometimes would prefer to sell. Every court has a liaison between the building inspectors and the judge and if you can get some time with him and share your goals of buying and fixing up houses, he may be able to refer people to you. Buy him lunch, gratitude goes a long way with these city employees. Otherwise, hand your card off to the defendants as they leave (stay outside the room) and pleasantly ask if they or anyone they know needs to sell a house. Remember, you want people that need to sell, not want to sell.
13. Eviction Court: Same as above, especially for burned out investors.
14. Classified ads under “Houses for Rent”: “Hi, my name is John Smith and I’m calling about the house you have for sale”. “Our house is not for sale” “Oh, I thought you wanted to sell it.” You can fish out an owner who would prefer to sell rather than rent and it’s excellent practice to either buy their house or get a lease option on it.
15. Local Real Estate Meetings: This can be a rich source for you to buy houses from flippers or flip houses to rehabbers or renters. Make it a point to meet as many “players” as you possibly can and continually make it your business to know who does what and think in terms of how you can benefit these folks and vice versa.
16. Mailman and/or UPS Guy: In my area, everyone knows someone who is buying houses. After delivering hundreds of packages for closings, the UPS guy asked me what I did – he wanted in! Be bold – ask the mailman, the utility people you see if they know of any houses that people may need to sell. We rented to a guy that worked for the electric company and before long he was providing us with leads. As I recollect, nothing panned out but you know what – we tried. We actively took part to create our success and while one marketing course didn’t work – other did. You never know unless you try and when it comes to negotiating: if you don’t ask, you don’t get.
New Age Marketing and Branding
As the wholesale/flipper business grew in popularity, more and more companies started massive marketing campaigns through the mediums of television, radio, billboards and the internet.
Massive action usually creates massive results, but results can be good or bad. Marketing dollars must be allocated after carefully testing what campaign is generating the most qualified phone calls. Look, you can make your phone ring all day long, but if it’s all mobile homes in a mobile home park, you may have wasted those marketing dollars. Every siggle lead generator that I’ve written about I’ve done and have had mixed results.
Homevestors facilitated the development of the wholesale market by creating multiple franchises in the largest cities throughout the U.S. As I recall, they would charge four franchisees $45,000 each in the Tampa market with additional fees of approximately $600 on every house purchased. They were the Big Boys in every town because if they had four franchisees in Tampa and other cities, then between the four they could easily invest $50,000 a month in marketing and they were. Their billboards showed up everywhere and if you go to Google right now and type in “Sell house in Tampa”, they show up, along with other buyers (like myself).
The initial success of Homevestors was astounding, so naturally other entrepreneurs jumped on the bandwagon and created their own branding using proprietary websites and toll free numbers. It works! Television advertising became the way for massive house buying leads that directed sellers to call or visit your website.
It is imperative to invest your dollars wisely as you could target the wrong audience and/or pay three to four times than what is necessary for the same air time. Think I’m kidding? I know for a fact that I was getting much more air time than my competitors and on the right channels at the right time of day! I’m still on the air with regularity while they’re literally nowhere to be seen. There is a lot more to airing commercials on TV than just putting a commercial together and calling a station and taking their least expensive spots or their most expensive spots.
As in all advertising, you must target your market audience and then measure the results by how many leads and how many of these leads were converted to purchases. I’m not exaggerating when I say that I get 200-300 leads every single month as a result of our TV advertising. And this is just one part of our lead generation system. When we’re opened up full throttle with the pay per clicks on Google turned on, we get 400-600 total leads per month. Remember what I said about Jim Dykes? “Have more leads than you can take advantage of and it will force you to sort out the best opportunities.” You have to have be able to quickly analyze an opportunity as a yay or nay or possible, then as to a flip, rehab or rental WHILE YOU’RE ON THE PHONE. I love this stuff! Just writing about it makes me wish the leads were directed to me right now – instead they’re directed to one of my trained buyers.
COMMON SENSE MARKETING
Your name, toll free #, commercial and website make a difference.
Jay Abraham has written a book on marketing and one of the first areas he covers is Headlines. A headline tells people what you do or what action you want them to take. A particularly good name could also be a headline. So let’s examine a few in our industry and dissect their names for branding purposes:
Homevestors – To me, it seems like they invest in homes, but it doesn’t direc you to take action and it’s not clear as to what they do.
1-800-NOAGENT – I used to be a part of a company that paid $2,000 a month in Tampa just to use this name and website. But what does the name imply? Is it clear who they’re reaching out to?
Sell Your House In 1 Hour – Hmmm. Let’s see. The name is a headline and it states that you can sell your house in 1 hour.
Primarily we only buy from motivated sellers and usually these sellers have a problem to solve, for example: Divorce, re-location, financial reasons, death of spouse, maintenance, whatever. They have some problem and we’re offering a FAST SOLUTION for the problem relating to their home
A word about internet sites and toll free numbers…
If you’re going to get a vanity number, don’t be concerned that it spells out a word and especially don’t get a vanity number that has one too many letters in the word, i.e. 800-Rescue911. Landlines will disregard the last two numbers, but cell phones will not and the call will not go through.
I believe you’re toll free number should begin with 800 because that’s the original toll free number and many people could hear 866, but subconsciously they’ll dial 800. It’s the same with the internet. Get a “.com”. People inadvertently type “.com” on all the time opposed to “.net”, “.info”, “.TV” or “.org”
Here’s the bottom line to all this lead generation information:
We live in the information age whereby people have and use the internet for everything. If you want to be a big dog – advertise on the internet.
The TV can be directed to your target audience and if you want to be a top dog in your market you’ve got to be on TV.
Billboards help brand a name and can make the phone ring. My personal experience was that they did not justify the price and my marketing dollars were reallocated to TV.
Radio did not work for me. I could have tried other stations and times, but instead I chose to reallocate these dollars to a proven, reliable lead generator – TV. Again, you must know where (what channels and shows), when (time of day) and how (how to buy the air time).