Making Big Money Investing in Foreclosures - Without Cash or Credit

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Library of Congress Cataloging-in-Publication Data
Conti, Peter.
Making big money investing in foreclosures without cash or credit /
Peter Conti and David Finkel.
p. cm.
Includes index.
ISBN 0-7931-7365-5 (7.25 × 9 paperback)
1. Real estate investment—United States. 2. Foreclosure—United
States. 3. House buying—United States. 4. Real property—United
States. I. Finkel, David. II. Title.
HD255.C62 2003
332.63′24—dc21
2003010611
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Dedication
To Nino—you succeeded in business with the odds stacked

against you. Thanks for showing me what’s possible. I know that
you will get this message.
Peter Conti
To my best friend, Peter—you have added so much to my life

and I love you.
David Finkel
C O N T E N T S
Foreword xi
Acknowledgments xv
1. YOU CAN E ARN UP TO AN EXTRA $100,000

T HIS YE AR IN FORECLOSURES 1
Why the Time Is Now 2
Three Biggest Myths about Investing in Foreclosures 3
The Choice Is Yours 6
2. T HE BIG PICT URE OF IN VESTING IN

FORECLOSURES 9
Foreclosure Defined 9
What Foreclosure Deals Look Like 11
What You Can Offer a Homeowner Facing Foreclosure 14
Deficiency Judgments 14
Deed of Trust versus Mortgage 15
Nonjudicial Foreclosures (Trustee’s Sales) 17
Judicial Foreclosures (Used in Mortgage States ) 19
Best Foreclosure Stage to Buy In 22
Study the Rules 26
v
vi Contents
3. 12 WAYS TO STRUCT URE DE ALS WIT HOUT

CASH OR CREDIT 27
Four Factors That Make Purchase Option Strategies Work
with Foreclosures 28
Traditional Ways to Buy Foreclosures 30
The Foundational Foreclosure Buying Strategy 32
The Best-Kept Secret in Real Estate—Buying “Subject To” 35
Due-on-Sale Clause Not a Big Problem 37
Negotiating a Forbearance Agreement 39
You’ve Bought It “Subject to”—Now What? 40
Three Biggest Questions about Buying “Subject To” 41
Short-Term “Subject to” Rehabbing 42
A Smarter Way to Fund a Rehab 43
Wholesaling or “Flipping” Deals for Quick Cash Profits 46
Short Sales: Making Big Money on Houses with Little or No Equity 49
Six Steps to Close a Short Sale 51
Leveraging the Power of “Subject to” with Discounting Debt 60
Why Ever y Investor Can Be a Cash Buyer 70
Seven Sources of Funding for Deals Other Than Your Local Bank 71
One Final Strategy to Structure the Deal 89
4. 22 WAYS TO FIND MOTI VATED SELLERS 91

Making a Deal Work—Finding a Motivated Seller 93
Script for Qualifying Sellers over the Phone 94
Technique #1: “I Buy Houses” Classified Ads 97
Technique #2: “I Buy Houses” Signs 99
Technique #3: Magnetic Car Signs 101
Technique #4: Larger “I Buy Houses” Signs 102
Technique #5: Postcard Campaign 103
Technique #6: Sequenced Letter Campaign 106
Technique #7: Door Hangers and Door-to-Door Flyers 109
Technique #8: Co-op Mailing Campaigns 110
Technique #9: Visiting Sellers in Default in Person 112
Technique #10: Real Estate Agents 115
Technique #11: Networking with Attorneys 120
Technique #12: Send Out Your Bird Dogs 121
Technique #13: Empower Your Friends and Family to Pass
Leads Your Way 124
Technique #14: Buy Deals at Wholesale from Other Investors 125
Technique #15: Network with Other Professionals 126
Contents vii
Technique #16: “Trigger” Documents 127

Technique #17: Research the Notice of Default List at the Courthouse 128
Technique #18: Start a Foreclosure Ser vice Business 129
Technique #19: Go through the Back Door 130
Technique #20: Establish Relationships with Lenders in the REO
or Loss Mitigation Department 130
Technique #21: Establish Relationships with Realtors Who
Specialize in REO Properties 131
Technique #22: Create Your Own Ugly- or Vacant-House List 131
Tracking Your Marketing Efforts 132
5. T HE INSTANT OFFER SYSTEM—FIVE SIMPLE

STEPS TO “YES” 135
The Big Picture of the Instant Offer System 136
Five Steps to Get Sellers in Foreclosure to Say “Yes” 137
Step One: Connect with the Seller 137
Step Two: Set an Up-Front Agreement 139
Step Three: Build the Seller’s Motivation 141
Step Four: Talk about the Money 146
Step Five: Take the “What If” Step 149
How to Avoid the Seven Biggest Negotiating Mistakes
Most Investors Make 152
6. 24 FORECLOSURE PITFALLS T HAT CAN

COST YOU BIG! 163
Pitfall #1: Letting the Seller Stay in the House 163
Pitfall #2: Renting the Property Back to the Seller 164
Pitfall #3: Putting Serious Money in the Deal before the Seller Vacates 166
Pitfall #4: Giving Sellers All Their Money before the Final Walk-Through
167
Pitfall #5: Putting Serious Money in the Deal before Completing
Your Due Diligence 167
Pitfall #6: Not Accurately Determining the Real Market Value
of the Property 169
Pitfall #7: Not Checking the Title Carefully Enough 170
Pitfall #8: Not Buying Title Insurance If You Put Serious Money
in the Deal 171
Pitfall #9: Not Running a Credit Check on the Seller 172
Pitfall #10: Seller Declaring a Bankruptcy 173
Pitfall #11: Only Buying Half a House 174
Pitfall #12: Not Getting the Property Professionally Inspected 175
viii Contents
Pitfall #13: Messing Up Your Paperwork 175

Pitfall #14: Not Following Your State’s Foreclosure Laws 177
Pitfall #15: Falling into the Insurance Trap 178
Pitfall #16: Seller Pushing the Loan to Get Called Due 180
Pitfall #17: Seller Disappearing Once You’ve Bought the Property
and You Need a Signature 181
Pitfall #18: Having Liability Even When You Assign Your Contract 182
Pitfall #19: Seller Claiming Duress 182
Pitfall #20: Seller Claiming Misrepresentation 183
Pitfall #21: Seller Backing Out of the Deal 184
Pitfall #22: Investing in Your Own Name 186
Pitfall #23: Not Papering Your Trail 187
Pitfall #24: Taking Personal Responsibility for Seller’s Situation 187
7. HOW TO FLIP YOUR DE ALS FOR QUICK

CASH PROFITS 191
Seven Profit Centers in Your Deal 191
How to Flip or Wholesale Deals for Instant Cash Flow 193
Step One: Lock Up the Property under Contract 193
The Secret Clause That Allows You to Flip Your Deal 196
If You’re Still Wondering How You Can Sell a House You Don’t Own 196
Step Two: Find a Buyer for Your Deal 197
The Biggest Secret to Flipping a Deal Fast 199
Three Little-Known Power Ad Secrets 200
Building Your In-House Buyers’ List 202
Step Three: Close with Your Buyer 206
8. INVESTING FOR LONG-TERM WEALT H

BUI LDUP 211
Strategy #1: Rent Out the Property 212
Strategy #2: Sell Properties on a Rent-to-Own Basis 213
Strategy #3: Sell with “Owner Financing” 214
Using Land Contracts 222
Selling with Owner Financing—Step-by-Step 224
Sample Voice-Mail Script for Selling with Owner Financing 226
Signs—Your Most Effective Source of Buyers 226
Flyers—Your Ace in the Hole 228
Setting Up a Realistic Marketing Timeline 230
Two More Hidden Profit Centers in Your Owner-Financing Deals 231
Contents ix
Six Things Top Investors Do to Sell Fast 232

A Powerful Selling Strategy: Rent-to-Own into Owner-Carry Financing 233
Seven Secrets to Sell Your Properties Fast! 234
9. PUT TING IT ALL INTO ACTION 237

Step One: Test Out Three Different Lead Sources 237
Step Two: Meet with Three Sellers as Fast as You Can 238
Step Three: Dive In and Learn How to Invest the Right Way 238
Step Four: Establish Three to Five Secure Lead Sources 243
Step Five: Meet with Two to Four Sellers a Week, Every Week 243
Step Six: Start Cultivating Sources of Funding 244
Step Seven: Constantly Learn and Grow from Your Experiences 245
Tithing and Seeding—Getting Comfortable with Wealth 245
It’s Really Possible for You 247
Resources to Help in Your Investing 251

Index 257
About the Authors 263
Your Bonus Web Pack—A Free $245 Gift from the Authors 265
F O R E W O R D
As a CPA to the wealthy, I get to really see what they do that’s

different than the not-so-wealthy. Even more important, because I
see the financial statements and tax returns of both groups, I get a
picture of what’s true beyond all the hype. And the truth is, the
wealthy are different! They make their money in different ways,
they hold and grow their money differently, and they plan for taxes
years in advance. And, there is one consistent truth about the na-
tion’s richest people: They all either have made or hold their wealth
in real estate.
The secret that the wealthy have learned is that real estate in-
vesting has many benefits, including the following:
• Real estate gives you the ability to make money on other peo-
ple’s money. You might invest only 10 percent (or much less)
in a property, but as the property appreciates in value, your
entire investment, including the bank’s money, increases.
• The income you make from real estate is passive. It’s in-
come that your investment makes for you. Instead of you
working for your money, your money is working for you.
xi
xii Foreword
• Real estate ownership has tax breaks that are unavailable

for any other type of investment. With real estate, you can
take advantage of unique tax advantages, phantom expense
(depreciation), low-income housing, A DA improvements
and rehabilitation credits, tax-deferred sales of investment
property, and the tax-free sale of your principal residence.
Many of my clients are high-income, self-employed taxpayers

who have used these real estate loopholes to reduce their taxes
while they built wealth. Without real estate as part of the investment
and tax plan, they would have to continue to work just to pay their
taxes!
If you want to have more money, remember: It’s not how much
money you make, it’s how you make your money that will deter-
mine if you get rich.
If Real Estate Is So Great, Why Don’t More People

Succeed in Real Estate?
Real estate investing requires a different set of skills than other

types of investments. For example, you could invest in the stock
market via computer and never have to talk to another human
being. You could do your research and make all of your trades with-
out ever leaving your home.
That’s not the case with real estate. Real estate requires you to
interact with people. You need to build a team; negotiate with sell-
ers, buyers, tenants, and lending institutions; handle tenant rela-
tionships; and many more items, none of which you were taught in
school!
You can learn the skills you need in one of two ways: (1) with
a successful mentor who has a proven track record of coaching
others, or (2) through the experience of making mistakes and los-
ing money and time. If you have the ability to learn from your mis-
Foreword xiii
takes (and recover afterwards), you will likely succeed. However,

if you don’t have the time or money to make a lot of mistakes, con-
sider having a mentor coach you in building your real estate port-
folio and accomplishing your goals.
The other challenge with real estate is that it typically takes
more cash to get going than stock investing. You can open an ac-
count with a brokerage and start trading on $1,000 or less. On the
other hand, real estate properties might run $50,000 (or in some
markets $300,000 or more) for the most basic properties. If you
don’t have or want to spend the cash required for an outright pur-
chase, you’re going to need a loan. And typical financing means you
need to have good credit and a source of income to repay the loan.
One of the biggest barriers for the first-time buyer is the need
for cash and good credit. What if you don’t have either? The Men-
toring program developed by Peter Conti and David Finkel teaches
people how to buy with little or no money of their own, even if they
have bad credit. And, I know it works because I’ve seen the results
with their clients.
Why Now Is the Time for Learning to Invest

in Foreclosures
Property continues to appreciate at record rates in some mar-

kets, and at the same time, foreclosures are at an all-time high. The
person facing a foreclosure still needs a place to live, so the overall
housing demand doesn’t decline, it only changes.
Investing in preforeclosures is a way to enter the real estate
market with little money, even with bad or nonexistent credit. You
also create win-win solutions by saving other people’s credit at the
same time you are building your real estate wealth.
xiv Foreword
Why Using a System Is So Important Now
Real estate investing requires a range of skills that most people

haven’t been taught. You need to know how to identify deals and
opportunities; negotiate with buyers, sellers, renters, and lenders;
and then “sell” your properties on a rent-to-own basis for the best
possible return. David and Peter have distilled these critical skills
into an easy-to-use system.
There is a right way—and a wrong way—to invest in preforeclo-
sures. You are dealing with people whose emotions are high, and
you must be careful in structuring deals so they won’t unravel later.
There is currently a lot of money chasing a limited amount of
real estate, so you need the skills to compete effectively in this
market. This book can teach you the tips that Peter and David have
learned as they have mentored hundreds of students in these
methods.
I’m very honored that David and Peter have asked me to write
the Foreword to Making Big Money Investing in Foreclosures with-
out Cash or Credit, because I can wholeheartedly endorse their
system. They really do what they say, and I’ve had the opportunity
to see many of the deals that they and their students have completed.
My husband Richard and I use many of the scripts that they have
developed in our own real estate deals. Their ideas work!
—Diane Kennedy, CPA and Tax Strategist

A C K N O W L E D G M E N T S
Several very special people are part of our team at Mentor Fi-
nancial Group, LLC. Over the years, they have helped our students
create amazing results and open up new possibilities in their lives.
We want to thank them. From our Mentorship selection team of
Mike, Tommy, Julia, Byron, Bobby, Theresa, Marie, Jay, and Chuck;
to our operations and administration team of Paige, Theresa, Joey,
and Pam; to our client-support team of Emily and Sue; to our semi-
nar production leader Bob; to our technology duo of Alex and Mike;
to our Mentorship coaches Cheryl, Byron, Scott, and John—you are
all OUTSTANDING contributors who really do make a positive dif-
ference in the world.
We also want to thank the great team at Dearborn Trade Pub-
lishing who not only have done so much to make Making Big
Money Investing in Real Estate without Tenants, Banks, or Rehab
Projects such a huge success, but who put in so much time and
effort to make this book such a useful tool to foreclosure investors.
A special thank-you to editor Barbara McNichol who spent hours
working with us to make this book the best it could be, and to Mary
B. Good, acquisitions editor at Dearborn Trade, who helped guide
the project along.
xv
xvi Acknowledgments
This book would never have been written if we didn’t receive

such loving support and understanding from our wives. Joanna and
Heather, thank you for the encouragement and faith you’ve show-
ered us with.
Our final thank-you goes out to our students. When we sent
you an e-mail request to share your stories of foreclosure deals, you
literally f looded us with your responses. We are humbled by your
generosity. We spent hours around the office reading through all
your experiences and were touched by the part you let us play by
teaching you through our books, home-study courses, workshops,
or Mentorship program. All the stories we share in this book tell of
real deals that we and our students completed. While names and
descriptions have been changed in some cases, all the relevant
details of the stories remain accurate to the best of our knowledge.
You Can Earn up to an
Extra $100,000 This
Year in Foreclosures
1C H A P T E R
Three years ago, Sarah, a student in our Mentorship program,

went from being a highly paid executive of the dot-com boom to an
out-of-work statistic of the dot-com bust. Whether you’re an execu-
tive in the corporate world, a professional person with your own
business, or a blue-collar worker with dirt under your nails, you can
imagine how scary that reality was for Sarah. Nothing she had
learned over the prior 15 years of corporate life had prepared her
for the harsh realities of being on her own.
Sarah vowed that never again would she depend on some job
or corporation for her income. She decided to start investing in real
estate. A few months after she made this decision, Sarah came to
one of our workshops in San Diego. She sat right in the front row
and took page after page of notes. Hungry to learn how to become
successful investing in real estate, she came up and asked questions
at every break. How did things turn out for Sarah?
During her first 12 months of investing, she completed ten
deals and earned more than $150,000 net profit. Today, she special-
izes in buying preforeclosures and foreclosure properties in her
hometown and earns a lot more money than when she first got
started investing.
1
2 Making Big Money Investing in Foreclosures without Cash or Credit
We’re not going to tell you she had it easy—just as many of you
won’t have it easy—but it can be done. And you are the one who can
do it.
Over the past eight years, we’ve been blessed to have helped
launch the investing careers of thousands of people across the
country. In fact, over that time, our students have bought and sold
more than $300 million of real estate. We know we live in a cynical
world in which friends and family may say it can’t be done. But
we’re here to tell you that if thousands of our students can do it, you
can too.
Mark is a pilot for a large commercial airline who made more
than $100,000 from his first foreclosure deal. His greatest dream
was to make enough money with his investing that he could quit his
airline job and teach high school band classes. Music was his pas-
sion and his drive. Mark has now completed many more deals and
created a whole new life for himself. If he can have the courage to
successfully chase his dreams, you can too.
Cheryl is a stay-at-home mom who started investing without
knowing anything about real estate. She was able to buy 14 proper-
ties her first 24 months of investing and now buys more than that
every year. She specializes in buying foreclosures in her small com-
munity. If she could have the faith to step out of her comfort zone
and start buying properties, you can too.
Randy is a beginning investor from Hawaii. He finally found
his answer for all those people who kept telling him it couldn’t be
done when he made more than $60,000 on his first foreclosure
deal. If Randy can ignore negative inf luences and realize how big
the world of opportunity really is, you can too.
Why the Time Is Now
There has never been a better time to take control of your

financial destiny and get out of the rat race. All across the United
1 / You Can Earn up to an Extra $100,000 This Year in Foreclosures 3
States, foreclosure rates are climbing like rockets and bursting onto
investors’ radar screens. Now is the time to cash in on these un-
precedented bargains for yourself and help other people at the
same time.
Don’t miss out on how big the opportunity is to make money
investing in foreclosures. The following indicators have helped
drive the foreclosure rate up more than 400 percent over the past
30 years in the United States. And it’s only getting higher.
Personal bankruptcy rates are up 400 percent from what they
were 40 years ago. Gambling as a percentage of the average person’s
disposable income has increased by more than 700 percent over
the past 40 years. Consumer debt is at an historic high, while sav-
ings rates are at historic lows. For the past 30 years, the number of
people not covered by health insurance has climbed above 50 per-
cent. (Source: Federal Deposit Insurance Corporation Division of
Research and Statistics)
According to the Mortgage Brokers Association of America,
2.3 percent of all residential housing was in various stages of fore-
closure by the end of the second quarter of 2002. That’s huge! The
next time you drive to your local supermarket to shop, you’ll prob-
ably pass 1,000 homes. Of these, statistically speaking, 23 are in
foreclosure. That means in your neighborhood within a few min-
utes’ walk, two or three of your neighbors are going through the
process of foreclosing on their homes. These people need your
help; as you help them, you’ll earn a healthy profit.
Three Biggest Myths about Investing in Foreclosures
A ll of our lives, well-intentioned people have stated reason

after reason why we can’t or shouldn’t make money investing in
foreclosures. But what they told you was only half-true and fully mis-
leading. They passed on their beliefs without even understanding
themselves how costly buying into these myths could be for you.
Myth #1: It Takes Money to Make Money
There you are, sitting in your family’s dining room after enjoy-
ing a full holiday meal. You’re a young child; your family is gathered
and talking about life. How many times did you see the dreamer in
your family get his or her dreams shot down with a bullet like, “You
can’t do that. Where will you get the money to do it with”?
Were you the dreamer in your family who felt the sharp stab
from those well-intentioned remarks? Did people who inf luenced
you keep drilling into your head, “It takes money to make money”?
Where is this myth written in stone? And if it were really true, how
did people like Warren Buffett and Bill Gates start with nothing and
build net worths of billions of dollars?
‘‘
■ Peter’s Story
I started investing while I was an auto mechanic working for less

than $15 an hour. Not only didn’t I have a large chunk of investing
capital to start with, but my wife and I had two kids at the time.
In the home where I grew up, my dad had to work really hard to
provide for his wife and seven kids. One day, I reached an
emotional low when my boss yelled at me for helping myself to
some coffee that he’d set out for customers. That incident gave
me the courage to find a way to make investing work for me.
Sometimes it does take an emotional low to help you commit
to never settling for less again. ■
‘‘
■ David’s Story
When I started investing in real estate, I was living in the attic of

a converted garage! An injury had just forced me to retire from
playing field hockey on the U.S. National team. I was scrimping
by on my small savings and finishing up studying for my college
degree. That’s when I met Peter and he became my real estate
mentor. Over the next several years, he helped me buy dozens
of properties using other people’s money. ■
It doesn’t take money to make money. It takes specialized

knowledge of a profitable niche that you apply with disciplined and
passionate efforts over time, taking care to learn and improve along
the way. Even if it really did take money to make money (which it
doesn’t), no one said it takes your own money to make money. One
of the advantages of investing in foreclosures is that it’s easy to use
other people’s money to make money. You can potentially tap into
thousands of dollars in profits created through buying properties
using other sources of funding.
Myth #2: You Need Good Credit to Borrow Money
We can hear you saying, “Yeah, but we need good credit to bor-
row money so we can make money investing in foreclosures.”
This is true if your only source of funding is from traditional
lenders. In this book, you’ll learn seven other ways to fund your
way into a deal with someone else’s money—no matter what your
credit is like.
‘‘
■ David’s Story
I’ve had a hand in hundreds of real estate deals—acquiring interest

in millions of dollars worth of real estate—yet I’ve only applied for
funds through a conventional lender for two loans in all those years.
If I can do this, you can too. It’s just a matter of learning the real-
world secrets that successful investors have mastered.
For example, I bought and made more than $100,000 in profits
from a five-bedroom, three-and-a-half-bath house. The seller agreed
to act as my bank and carry back all the financing I needed to buy
that property after a small down payment. He carried back over
$400,000 without ever once asking to check my credit. Was the
seller unsophisticated? Was I taking advantage of him? No. He had
a net worth several times greater than mine (he was a real estate
investor in his 70s and I was just 28 years old at the time). He
regarded this as a win-win situation. ■
When you understand and apply the ideas in this book, you’ll
learn that motivated sellers don’t care about your credit; they don’t
care about your home life; they don’t care about you, period. They
care about getting out of tough situations and relieving them-
selves of major sources of pain in their lives. And sellers are only
one of several funding sources for your foreclosure deals.
Myth #3: If You Buy a Proper ty from a Seller in

Foreclosure, You’re a Shark Taking Advantage
of Another Person’s Misery
This false belief would have you believe that you are out there
swindling sellers by sneaking into their home, fooling them into
signing documents, and running away with all their cash before
they wake up to what you’re doing. Far from it!
Even if some investors do business that way, let’s make it abso-
lutely clear that’s not how we’re teaching you to do business. When
you help sellers in foreclosure, they are thankful for your taking
time to understand their situations and finding a win-win way to
solve a problem they’re embarrassed and scared to admit they even
have.
Investing in foreclosures is like holding the core of your being
up to a mirror. If you are a good person, what ref lects back is that
you help people and get paid well for doing it. Isn’t that what busi-
ness is all about—providing value and getting paid handsomely for
that?
The Choice Is Yours
When we tell people, “Anyone can make big money investing

in foreclosures,” most simply shake their heads and walk away. We
watch them passing on what might be their best chance to create
security and freedom for themselves and their families. They sim-
ply don’t believe—or can’t believe—they could be successful this
way. They say they don’t have enough money, or that they don’t
know how, or that it’s too hard. Sadly, many let themselves sink into
“lives of quiet desperation” that so many people lead.
But you’re different. Something inside made you realize it’s
possible for you to create your fortune with real estate. You may
not have all the know-how yet, but with the specialized knowledge
you’ll gain from reading this book, you’ll uncover dozens of ways to
find profitable foreclosure deals and structure them without using
your cash or credit.
We know this sounds too good to be true. But success takes a
great deal of study, disciplined action, and willingness to set aside
many deeply rooted beliefs you have about wealth. If you are will-
ing to add these three ingredients to the recipes explained in this
book, we guarantee you can and will make big money investing in
foreclosures.
The Big Picture of
Investing in
Foreclosures
2C H A P T E R
Investing in foreclosures and preforeclosures is a rewarding

and profitable niche for investors. Anyone with the right attitude,
the specialized knowledge, and the willingness to practice and
learn along the way can make money investing in foreclosures.
This chapter defines foreclosure, explains the concepts in-
volved when buying foreclosures, and walks you through several
sample deals. It includes examples of how other investors have
made healthy profits structuring deals with sellers of foreclosure
and preforeclosure properties.
As you read through these stories, do your best to get a feel for
how these deals f low and the common elements among them. Chap-
ter 3 explains how to structure each type of these deals. For the mo-
ment, though, it’s important to understand that you can make
money buying foreclosures without cash or credit.
Foreclosure Defined
Foreclosure is the legal process by which a person or institu-
tion that is owed money can force the sale of a property to pay off
9
the money that a borrower owes. Before getting deeper into the pro-
cess, let’s introduce some of the key players in the foreclosure game.
Bankers
When people go to a bank to borrow money, they’re asked to

sign two important documents: a promissory note and a security
instrument (either a deed of trust or a mortgage.)
The promissory note is the IOU or acknowledgment of debt. It
says the borrower owes the bank a specific amount of money and
lists the exact terms of the loan and the required repayment.
Imagine you were an officer at the bank. Would you give appli-
cants $300,000 based on their word alone? Wouldn’t you want a
guarantee that you would indeed get your money back? This guaran-
tee is the security instrument that, depending on what state you’re
investing in, will be either a deed of trust or a mortgage.
However, the deed of trust or mortgage is not an IOU or a
promissory note; it is a security agreement. It states that the bor-
rower will repay the loan and live up to the terms and conditions of
the loan, or the lender can force the sale of the property to raise the
money to pay for as much of the outstanding loan as possible.
Think about it this way: The loan process is like a teenager ask-
ing his parents for permission to borrow the car Saturday night. The
teenager gives his best pleading performance to borrow the car, say-
ing, “Please, Mom and Dad. I want to take Sally out to the movies.
I’ve always been responsible when you let me borrow the car in the
past . . .” Just as the teenager tries to convince his parents to lend
him the car, so do loan applicants present the best possible case of
their ability to repay the loan. They even show proof of their good
credit history (like the teenager declaring to his parents, “I’ve al-
ways been responsible in the past”).
Finally, the parents give in and grant permission for the teen-
ager to borrow the car but they lay down certain ground rules the
2 / The Big Picture of Investing in Foreclosures 11
teenager must follow: He must be home by 11 PM; he must tell them

exactly where he is going, with whom, and when. Setting out the
rules for lending the car is what a banker does in a promissory note—
including specific terms and conditions of the loan and how and
when it will be repaid.
But smart parents, just like smart bankers, know they also need
to establish the consequences of what will happen if the teenager
doesn’t live up to his side of the agreement. “If you’re not home by
11 PM or if you change your plans without getting our approval first,
or if you are reckless with the car, then you will be grounded and
lose all car privileges for a period of time.” Bankers establish conse-
quences too, although they take it about ten steps further. They
make the borrower sign a deed of trust or mortgage that establishes
the negative consequences if the borrower doesn’t live up to all the
terms and conditions of the promissory note.
The language in the deed of trust or mortgage says, for exam-
ple, the borrower agrees to keep the property properly insured,
agrees to properly maintain the property, and, of course, agrees to
make timely payments on the promissory note. If the borrower
doesn’t live up to these terms, then bankers apply the consequences
stated in the deed of trust or mortgage—specifically, they foreclose
on the house.
What Foreclosure Deals Look Like
Deal One
One of our Mentorship students found a couple about to lose

their home to foreclosure. A fter several conversations with this
couple, we agreed to buy their house worth $175,000 for what was
owed on it, plus the back payments. (The loan had an outstanding
balance of $155,000 and back payments totaled $9,000.) We also
agreed to give the seller $1,000 cash. We simply took over making
the payments to the lender on the loan the sellers already had in
place. Four years later, we still own this property. To date, we’ve
made more than $125,000 at appreciation from this property plus
we receive a cash f low of $250 a month from renting it out.
Deal Two
Michael, one of our students in New Orleans, found a moti-

vated seller with a junker of a house. He put the property under
contract to buy for $20,000. Its “after repair value” was $60,000
and it needed about $15,000 in repairs. Not wanting to get involved
with a rehab project ( not to mention that he didn’t have the
$35,000 cash needed to buy and fix up the property himself ),
Michael sold his contract to another investor for $2,200 cash—his
first of six deals during his first six months of investing.
Deal Three
Another student, Sally, bought a VA (Department of Veterans

Affairs) foreclosure house and rehabbed the property. To fund the
deal, Sally borrowed the money from her mother and agreed to pay
it back at 9 percent interest when she resold the property. Sally
kept the house as a rental for a while, paying her mom “interest
only” payments every month and enjoying a positive cash f low
since she bought the house so inexpensively. Last year, Sally resold
the property and netted $35,000! In fact, Sally was so excited about
this first deal, she started a second one right away. She borrowed
the needed $5,000 down payment from her credit union to pay to
a seller in preforeclosure, then took over the payments on the
seller’s loan. As a result, she got $15,000 of equity and a positive
cash f low from day one. She currently has more than $52,000 of
equity in this one deal alone.
Deal Four
Gina, a full-time investor who read our book Making Big

Money Investing in Real Estate, found a motivated seller who had
moved from Colorado Springs, Colorado, to California because of a
job change. The seller was about to lose his Colorado property to
foreclosure when Gina helped him find a way out. The house was
valued at $400,000 with two liens against it: a first mortgage of
$351,000 and a second mortgage of $25,000. The seller wanted to
save his credit from being ruined by a foreclosure; he knew he
wouldn’t get any money out of the sale. So Gina negotiated with the
first mortgage holder to accept a short sale (discussed in Chapter 3)
in the amount of $300,000 and the second mortgage holder to ac-
cept $8,000 as full payment for the money owed. This meant Gina
was able to buy that $400,000 house for a total price of $308,000.
Then she resold the house 30 days later for $360,000. After all clos-
ing costs, she netted $30,000. It was a win-win-win deal for every-
one. The seller was thrilled to save his credit; the buyer was thrilled
to save $40,000 on the purchase of his home; Gina was thrilled to
make a healthy profit of $30,000.
Deal Five
Maggie, a Mentorship student from North Carolina, found a

motivated seller who was about to lose a house she’d inherited from
her mother because of foreclosure. Instead of fixing up the house
and keeping it, Maggie sold her contract to another investor for
$15,000 and gave $5,000 of that money to the seller. Pleased with
the outcome, the seller sent Maggie a note that read: “Thank you
so very much. You’ve been a blessing to me. Before my mother
died, she asked me not to lose her property. So this has been very
painful for me. Thank you for helping me.”
Homeowners in foreclosure are going through a lot because
they’re dealing with the personal anguish of a very public failure.
Add to this their possible feelings of shame, failure, and embarrass-

ment and you’ve got the picture. They may also feel depressed and
on the defensive. Some may simply be in denial, waiting for a knight
in shining armor (or lottery winnings) to save the day. Many behave
indecisively because they’re confused about what’s happening to
them. So when you help sellers get out of tough places, you help
them move on. You are providing a great service.
What You Can Offer a Homeowner Facing

Foreclosure
As a knowledgeable investor, you can benefit many of these
homeowners by:
• Helping them save their credit

• Helping them salvage some or all of their equity
• Helping them end an embarrassing situation
• Helping them release some of the worry and stress they feel
• Giving them a fast solution to their foreclosure problem
• Providing expert help in deciding what to do next, maybe
even handling all of the details
Deficiency Judgments
Many homeowners think that once the foreclosure sale is over,
their worries end. This may not be true. In many states, the lender
can get a deficiency judgment from the court. This means the bor-
rower (homeowner) still owes the lender any money that the lender
lost from the whole process. Many times this pushes the home-
owner to declare bankruptcy to escape this debt burden.
Because the law doesn’t allow the lender to make a profit on a
foreclosure, any money made at the foreclosure sale in excess of
the amount owed the lender, including the foreclosure costs, will
go to the borrower. However, rarely does the borrower get any-
thing for his or her equity in a foreclosure sale because the house
is usually sold well below market price.
The lender can receive money for such fees as:
• Late penalties
• Accrued interest
• Attorney’s fees
• Court costs
• Filing fees
• Title work fees
Deed of Trust versus Mortgage
Each state has specific laws about how the foreclosure process
operates in that state. One big distinction is whether your state uses
a deed of trust to secure real estate loans or a mortgage.
While some states use both, all states use one or the other of
these documents in the majority of loans. So find out if your state is
a deed of trust state or a mortgage state by asking a local title com-
pany or real estate attorney which document is commonly used. You
can also log on to Your Bonus Web Pack, which includes a chart
showing which type of state you are investing in. (For more infor-
mation, see “Your Bonus Web Pack” at the back of the book.)
A deed of trust and a mortgage perform essentially the same
role, namely, securing the lender’s loan to a borrower. Let’s explain
some important differences.
A deed of trust is a three-party agreement involving these
players:
1. Trustor: The borrower

2. Trustee: A third party the bank chooses to look after the
bank’s interests
3. Beneficiary: The lender.
When people borrow money in a deed of trust state, they sign

a document (deed of trust) that gives legal title to the property to a
trustee for the benefit of the lender (beneficiary). Now, the bor-
rower really owns the property and has all kinds of rights to enjoy
the property up to a point. The borrower cannot do anything that
will jeopardize the lender’s security in the house (like let it go into
disrepair). A lso, the borrower cannot stop paying the lender its
money without the trustee foreclosing on the house.
In a deed of trust state, the process of foreclosure is also called
a nonjudicial foreclosure because the foreclosure process doesn’t
take place in a courtroom in front of a judge; it happens by a
trustee’s sale of the property. The trustee must follow a specific set
of rules established in each state. The final step is the sale of the
property by an auction run by the trustee for the benefit of the
lender (beneficiary).
A mortgage, while used for essentially the same purpose, has
some important differences. First, a mortgage is only a two-party
agreement between the mortgagor ( borrower ) and mortgagee
(lender).
With a mortgage, there is no third-party trustee to look after
the lender’s interest; the lender does this itself. When a mortgagor
(the person who borrowed the money) defaults on the terms and
conditions of the mortgage ( the most important of which is to
make timely payments to the lender as spelled out in the promis-
sory note), the lender (mortgagee) proceeds with a judicial fore-
closure on the property. It’s called a judicial foreclosure because it
takes place in a courtroom before a judge. Typically, a judicial fore-
closure used in mortgage states takes longer than a trustee’s sale.
Remember, each state has its own way of doing things and you
will need to research and learn the legal ropes in your area.
Nonjudicial Foreclosures (Trustee’s Sales)
Here’s how the foreclosure process for a nonjudicial or

trustee’s sale foreclosure works. It applies in states that use deeds
of trust.
Step One: Borrower Is Delinquent—

Preforeclosure Stage
The borrower misses a payment on his or her loan and, after

the grace period, he falls delinquent on the loan.
Because foreclosures are costly to lenders and they prefer to
collect payments and not take back houses, most lenders will work
with a homeowner for a period of time, typically 60 to 90 days,
before they go to Step Two of the foreclosure process.
Step Two: Lender Files the Default—Notice

of Default Stage
At a certain point, the lender will no longer work with the bor-
rower and will start the official legal process of foreclosing on the
property. The lender files a Notice of Default (NOD) at the county
recorder’s office and mails a certified copy of the NOD to the bor-
rower. In some states the name of this document is different, but its
purpose and function is always the same. In Colorado, for example,
the document that lenders use to record the default is called Notice
of Election and Demand for Sale by Public Trustee. That’s just a long
way of saying an official notice that the foreclosure clock is ticking.
(Note: In Your Bonus Web Pack, we’ve included a state-by-state list-
ing of the exact process used by lenders to foreclose on the prop-
erty and the document used to start the foreclosure clock ticking.)
During this stage, the borrower may reinstate the loan. This
means the borrower can make up the back payments and late fees,
bringing the loan back into good standing. If the borrower does re-
instate the loan, then the foreclosure stops. If the borrower doesn’t,
the foreclosure process moves on to the next step.
Step Three: Lender Prepares to Force Sale of

Propert y—Notice of Sale Stage
If the borrower doesn’t bring the loan current during the 60 to

90 days following the Notice of Default, the lender will move ahead
with plans to force the sale of the property. This sale is called a
trustee’s sale because the trustee of the deed of trust that the bor-
rower signed conducts the auction.
In stage three of the foreclosure process, the lender records a
Notice of Sale and advertises the pending foreclosure sale in a
general-circulation newspaper for three to six weeks. In some
states, once the Notice of Sale (or the comparable document) is
recorded, the borrower no longer can reinstate the loan, but
instead must pay off the outstanding balance. In other states, such
as California, the borrower has up to five business days before the
sale date to reinstate the loan. (Check “Your Bonus Web Pack” at the
back of the book for more details.)
Step Four: Trustee Conducts the Trustee’s Sale—

Public Auction
We finally reach the courthouse steps. The trustee auctions

the property off to the highest bidder who must pay in cash or cer-
tified funds. At this auction, the lender opens bidding with the
amount of money owed (including late fees and other foreclosure
costs) and if no one bids higher than that amount, the bank keeps
the property. If someone does bid higher, that person has a set
amount of time (usually a few hours or sometimes immediately) to
produce the certified funds to purchase the property. Then the

trustee executes a Trustee’s Deed to the new owner.
Step Five: Buyer Waits for Redemption Period to

Pass—Redemption Period
The redemption period is a period of time after the foreclo-

sure auction during which the borrower can get the full amount of
what was owed (including all fees and other foreclosure costs) to
the trustee and get the property back. Meanwhile, the investor (or
lender) who “purchased” the property at the auction has to wait
out the redemption period. If the homeowner redeems the loan,
the trustee refunds money paid to the lender/investor and returns
the title to the property to the homeowner.
During this period, the homeowner usually lives in the house
for free while determining where to move next. The lender or
investor who “got” the house at auction cannot harass or remove
the homeowner until the redemption period has expired. (Note: In
the rare case of the lender or investor showing a court that the
homeowner is damaging the house and radically diminishing its
value, that person may be able to get court permission to remove
the homeowner.)
In most deed of trust states, the homeowner has no redemption
rights but it varies. In some states, such as Colorado, the home-
owner does have a redemption period of 75 days. Almost all mort-
gage states have redemption periods.
Judicial Foreclosures (Used in Mortgage States)
Step One: Borrower Is Delinquent—

Preforeclosure Stage
The borrower misses a payment on his loan and after the grace
period is ended becomes delinquent on the loan. This step is the
same in both a judicial and a nonjudicial foreclosure. The lender

prefers not to foreclose but to have the borrower make timely pay-
ments.
Once the lender believes it’s at risk of not getting the money,
it quickly proceeds to Step Two—which does differ from the nonju-
dicial process.
Step Two: Lender Files a Lawsuit—Judicial

Foreclosure Begins
The lender files an official document with the courts (a Com-
plaint) that initiates the lawsuit to foreclose on the property. The
lender also needs to give outside parties notice that the lawsuit is
occurring by recording a lis pendens with the county recorder.
This tells the world there’s a “lawsuit pending” on the property;
anyone who has an interest in the property can take the appropri-
ate steps to protect his or her interests. The borrower may answer
the complaint, which keeps the lender from getting a default judg-
ment and slows down the process.
Insider Secret: One of the biggest challenges you face

when investing in foreclosures is the increasing time pres-
sure you must work under. One insider secret is to help the
borrower file an answer to a lender’s complaint. This
sounds more complicated than it is. In reality, filing an an-
swer is quick and easy and will delay the foreclosure pro-
cess by up to a month. So just by helping your seller file
this document, you gain up to 30 days of time to figure out
how you’ll purchase the property!
Step Three: Lender and Borrower Meet in Court

If the borrower has filed an answer with the court to the
lender’s complaint, then a court date is scheduled, when the judge
will decide if the lender has the right to proceed with the foreclo-
sure (which is the normal outcome of this hearing). If the court

rules in the favor of the lender, it issues a judgment and sets a sale
date.
Step Four: The Sheriff’s Sale
Typically three to four weeks after the sheriff’s sale is adver-

tised, the auction takes place and the property is sold to the highest
bidder. Once the sheriff’s sale happens, a Certificate of Sale is
issued to the buyer. In most states the previous owner has the right
to redeem (buy back) the property for a set period of time, often
12 months. A sheriff’s sale is functionally the same thing as a
trustee’s sale.
Step Five: Buying the House Back after the Sale—

Redemption Period
The main difference in the redemption period in a judicial fore-

closure in mortgage states is that almost all mortgage states have a
redemption period. Also, the redemption period is typically longer
in mortgage states than in deed of trust states—up to 12 months in
some states. If the borrower doesn’t redeem the property during
this time, the new buyer gets title to the property through a fancy
document called a Sheriff’s Deed.
Insider Secret: In many states, the homeowner can sell

his redemption rights to a third party—an investor like
you! Imagine a case in which a house is auctioned and no
one outbids the lender, but you know the house is worth
significantly more. You connect with the owner and pay
that person to assign his redemption rights to you. Then
you use the redemption period to raise funds to pay the
money owed to the lender (including all costs, penalties,
and accrued interest) and buy the house back. Sometimes

the best deals can be made after the game appears to be
over.
What happens to the homeowner after the foreclosure auc-

tion? It depends. If the borrower has any redemption rights (usually
the case if the lender used a judicial foreclosure), then the new
owner of the property must typically wait until the entire redemp-
tion period is over before getting the homeowner out of the prop-
erty. If the property is rented, the new owner will require that the
tenants pay the rent to him. After the borrower’s redemption rights
have expired or immediately after a trustee’s sale (for nonjudicial
foreclosure), the new owner files an eviction action—usually called
an unlawful detainer—against the occupant. Unless the trustee
made a serious mistake in the foreclosure process, the judge almost
always sides with the new owner.
Best Foreclosure Stage to Buy In

Which stage is best to buy in? While there are advantages to
buying in each stage, our preference is to buy in the first one—pre-
foreclosure—for three reasons:
1. You have much less competition. Because you’ve found

most of these deals before other investors even know about
them, you’ll be able to negotiate one-to-one with the seller
without other investors knocking at the door. This gives
you the chance to negotiate a better deal. Remember, once
a foreclosure officially starts, every investor in town knows
about it and will be mailing, calling, or visiting the home-
owner.
2. You can get into investing with very little money. When
the foreclosure process is in the early stages, the home-
owner tends to owe less money in back payments. Combine
this fact with a simple yet powerful technique called subject

to financing (see Chapter 3) and sellers may be willing to
deed you the property in exchange for your making up the
back payments and taking over the burden of the monthly
payments. The seller gets a fast out and saves his credit, and
you buy another investment property that often has a posi-
tive cash f low from day one (plus a chunk of equity). You
also get to leverage your way into the deal without taking on
the liability of personally guaranteeing any debt.
3. You have plenty of time to find a solution. Because the
foreclosure hasn’t technically started, you have at least a
few months to close on the property and find your end user
for the property (whether it’s another investor to sell the
deal to or a tenant buyer to sell the house to on a rent-to-own
basis or any of a number of different exit strategies).
Your second-best choice is to buy during the reinstatement pe-

riod. In many states, even after the foreclosure has technically
started, you can still make up the back payments and reinstate the
loan. You bring the loan up-to-date and make payments every month
as the seller did before getting behind. The major benefit to buying
this way is that you can still use the existing financing as a way to
leverage yourself into the deal. The downside is that once the official
foreclosure has started, you’ll encounter a lot more competition
from other investors who now know about the seller’s situation.
Your third-best choice is buying after the sale has occurred,
either from the bank or by buying the seller’s redemption rights.
If you plan on being a cash buyer (and carefully read Chapter 3
before you decide you can’t be a cash buyer), then buying directly
from a bank might work well for you. Once a foreclosure auction
takes place in which no one bids more than the bank’s bid, the prop-
erty goes back to the bank and becomes a Real Estate Owned (REO)
property. It gets sold as quickly as possible by the lender who isn’t
in the housing business but the lending business. Therefore, you can
often get hefty discounts on these properties.
Also, once a property has been sold at auction, the seller still
has the right to redeem the loan and buy back the property in many
states. As an investor, one strategy is to find a seller who’s willing
to sell you his redemption rights, then you buy back the property.
This can be a highly profitable way to buy.
Ultimately, the biggest benefit of buying after the auction is
that most investors think the game is over so you tend to have less
competition. Also, you aren’t under a time crunch anymore. This
means you can actually take the time to properly conduct your due
diligence and have the property professionally inspected.
Your fourth-best choice is buying during the final days up to
the actual sale date. While you can still make many profitable deals
happen at this late stage, it’s stressful and hurried, plus it requires
access to a lot of cash in most cases.
‘‘
■ David’s Story
I remember one house we bought in an area of San Diego called
Chula Vista. The house was a three-bedroom, two-bath home in a
nice area. The sellers were at the final stages of a foreclosure that
they had dragged out as long as they could by declaring bankruptcy.
We felt pressure to close fast, both from the sellers and from the
lender. All along, we let the sellers know they would net about
$25,000 after their share of all the closing costs. The sellers were
happy with that; they left me three voice-mail messages in a week
saying how grateful they were, and how they understood that they
would be getting around $25,000.
Well, the closing date came and after all the costs were added
up, the sellers ended up with a net check for $24,500. This was
almost exactly the amount of money I had told them to expect. The
next week, I got two messages from the sellers yelling at me at how
unhappy they were with the money they received and how it was
all so unfair to them.
This was the first time I’d ever seen such an about-face in
sellers. Since that time, I’ve seen it on other occasions when the
seller was in the final stages of foreclosure. I’ve come to realize that
it isn’t about sellers being bad people; they’re simply in an
extremely stressful and scary place. Some people faced with these
pressures don’t react well and look for other people to lash out at.
If you are going to buy during this stage of the foreclosure, be
aware of this possibility and keep yourself emotionally whole. This
took me quite a while to learn. ■
Our last choice is buying at the actual auction itself. While

many experienced investors make a great living buying properties
at the actual foreclosure auctions, we tend to avoid buying at this
stage for three reasons:
1. It takes all cash to play this game! This means no leverage

unless you have a private investor backing you up.
2. We believe it’s the riskiest stage you can buy in because you
won’t be able to inspect the houses or take your time to con-
duct your due diligence. When you combine this lack of
due diligence with the need for an all-cash closing, you’re
taking a big risk unless you really know what you’re doing.
3. The auction process itself generally favors the selling party.
We’ve dealt with enough houses to know that you never
want to be in a group of other buyers competing for the
same house. This competition—combined with the natural
human fear of losing a great deal—are two potent psycholog-
ical factors working against you.
Here’s one exception to buying at auction: If you are the only

bidder and you have checked out the house (and if you’re experi-
enced), then go ahead and bid on it. How can you be the only inves-
tor at the auction? Check out several auctions and get to know the
other regulars. Ask them which times and days tend to have the
fewest competitors. Just in case they aren’t willing to share that
information, look for a property where the auction date was post-
poned. Other investors may miss the delayed auction so you might
be the only one showing up to bid.
Study the Rules
Our advice is to buy as early in the foreclosure process as pos-

sible because that’s when you’re likely to make the most money. We
and our students have profited in the tens of millions of dollars by
buying distressed houses directly from the owners before the house
is sold at auction. We believe this is the easiest entry point to imme-
diately start making money investing in foreclosures.
As an investor, you’ll have to become familiar with the “rules”
and legal process of foreclosure in your state. (You can get a good
start by checking out your state’s laws in “Your Bonus Web Pack”
at the end of the book.) Know what things can stall a foreclosure
process to give you, the investor, more time. For example, just by
filing an answer to the lender’s complaint in some states can buy
you an extra month of time. Or, for example, in California, if the
lender puts down the wrong information on the Notice of Default,
you can force the lender to start all over with the paperwork,
which can buy you as much as two to three months of time.
Remember, it’s just a game. To get good at playing it, you’ve
got to study the rules. Just like champion athletes have to put the
effort in on the practice field, wealthy investors have to invest the
time and energy to master the rules of the game. It’s not glamorous,
but it’s the truth.
In the next chapter, you’ll learn 12 specific strategies to struc-
ture moneymaking deals without your cash or credit.
12 Ways to Structure
Deals without Cash
or Credit
3 C H A P T E R
How should you structure your offers to put together deals?

You are about to learn the 12 best foreclosure buying strategies.
Whether you are buying properties in foreclosure or in preforeclo-
sure, these strategies will allow you to start making money invest-
ing in foreclosures right away.
If you read our book Making Big Money Investing in Real
Estate, you’ll be familiar with a few of these buying strategies. But
you’ll notice that we have completely left out any discussion of buy-
ing with a lease option. A lease option is when you lease out a prop-
erty from a seller for a long period of time with an agreed-on option
price at which you can buy the property at any point during the
lease period. When buying foreclosures, a lease option is not the
way you’ll want to structure the deal. (It’s still a great way to buy
homes in nice areas with nothing down; it’s just not the best strat-
egy to use with foreclosure deals.) Rather, we want to share 12
other cutting-edge strategies that have four factors in common.
27
Four Factors That Make Purchase Option Strategies

Work with Foreclosures
1. Little or No Money Down
You can make all these buying strategies work without putting
a ton of your cash into the property deals. For the buying strategies
that do require cash, you’ll learn how to minimize the amount of
your money in the deal by tapping into insider sources to fund your
deals.
‘‘
■ Peter’s Story
One of our students found an REO (Real Estate Owned) property
that a lender had taken back in a foreclosure. Using VA financing,
our student was able to buy this $170,000 five-bedroom house for
just $117,100 (including $6,800 of closing costs). After talking
with her local bank manager, this student was able to get all the
closing costs rolled into the loan, so that she put nothing down. She
then went out and sold the house for $159,000 in a quick sale.
Not bad for a “zero-down” deal. ■
2. Find Funding, Even If Your Credit Is Bad
You can use all these buying strategies regardless of the condi-
tion of your credit. Some nontraditional funding sources for your
deals could care less if your credit has holes in it the size of Texas.
You’ll learn how to tap into these specialized sources of financing
that serious investors have been using for decades to make them-
selves millions of dollars. (The ideas you’ll learn have been called
the “best-kept secrets of millionaire investors.”)
3 / 12 Ways to Structure Deals without Cash or Credit 29
‘‘
■ David’s Story
Over the past seven years, I’ve had my hand in more than a hundred
deals and, with the exception of only two properties, my credit has
never been an issue. By that I mean the seller or person I got the
money from never ran a credit check. I know this sounds
impossible, but when you use the ideas in this book, you’ll realize
that while good credit can help, it’s not a requirement for making
money investing in foreclosures. ■
3. Minimize Your Risk
Making money is important, but keeping the money you make

is equally important. All these purchase option foreclosure strate-
gies help you isolate and minimize your risk.
‘‘
■ Peter’s Story
One of the properties I bought years ago when I started investing
was a two-bedroom condo that I purchased with conventional bank
financing with a healthy chunk of my own money as a down
payment and a personal guarantee on the loan. One time, a tenant
who had some unsavory friends was living in my unit. The police
came and knocked on my tenant’s door to talk with these “friends”
who broke the back window and jumped out the second story
window to run for it. Looking back, I still remember how much
emotional stress that tenant caused me.
Fast-forward to a deal I did using the Purchase Option ideas
you are learning. I have an investment property in Colorado Springs
that was vacant for two months. Because I had none of my money
into the deal and no personal guarantee on the financing, I didn’t
feel anywhere close to the same amount of stress as I felt in the past.
I simply fired the property management company and got someone
else to take over and fill the vacancy. It felt like a Monopoly game—
as if I were losing a little money in a game rather than the highly
personal feeling of having my hard-earned cash at risk on the

condo. That’s the way I like to do my investing now—to potentially
risk some of my profit, but to never have my capital or credit at
stake. ■
4. Help Sellers Win
You will be working with sellers who need your help. When
you buy a foreclosure property the right way, you create a win-win
transaction that helps sellers effectively deal with tough personal
situations.
‘‘
■ David’s Story
I purchased a three-bedroom house in San Diego on which the
sellers had gotten five payments behind on their mortgage. The
husband was fairly ill and I remember going back over to the house
after we had signed the contract and talking with his wife. After a
few minutes, she asked me to walk with her into the bedroom
because her husband wanted to see me. As we walked in and I saw
the husband stretched out in the bed, I felt awkward. But then he
started to thank me for helping them make the best of a bad
situation. He was having serious back problems and couldn’t work.
They were about to lose the house when I offered to help them
with a better way out. I left that day knowing I’d made a difference
as an investor. ■
Traditional Ways to Buy Foreclosures
Before explaining our Purchase Option buying strategies, let’s

describe how most people invest in foreclosures so you can see the
benefits of using the Purchase Option foreclosure strategies de-
scribed in this book.
Traditionally, most investors buying foreclosures sought houses

they could get good prices on (either directly with the owner,
through a real estate agent, at an auction, or directly from the bank)
for an all-cash closing. This meant either the investors took the
money out of their personal bank accounts or borrowed from a tra-
ditional lender. Truth be told, this was a good way to invest and
these investors made lots of money. But the majority of people who
wanted to get started investing found themselves excluded because
they didn’t have the cash or credit to do these deals the traditional
way.
Also, while these traditional investors made money, in many
cases they took on magnitudes of risk—risk they easily could have
avoided by using the strategies you are about to learn.
Let’s be clear, any way you structure a deal that allows you to
purchase a foreclosure and make a profit in a win-win way is fine
by us. Even if you just want to use our ideas to fine-tune your tradi-
tional foreclosure investing, this book gives you the tools and tech-
niques to do this. If you’re looking for more than that—if you want
buying strategies that are simple yet powerful enough that they
work regardless of the quality of your credit or the size of your bank
account—you’ll find these powerful ideas will supercharge your
investing profits.
‘‘
■ David’s Story
It surprises many beginning investors when I recommend that,
even if they do have money or great credit, they get started
investing without using their own cash or conventional bank loans.
They find it hard to believe that sometimes having money can be
detrimental to learning to be the best investor you can be. I’ve seen
money used as a crutch to make a marginal deal go through. I admit
I’ve been guilty of getting lazy and throwing money into a deal
where a little more imagination and prudent negotiation would
have served me better. But with an open mind and the right
education, not having money can be a force to push you to be a
faster, more creative, and more skilled investor.
What’s more, you’d be surprised how fast you can pour

your liquid cash reserves into real estate. I’ve watched traditional
investors pour more than $1,000,000 into several deals in a
matter of months and then have to wait until they sold those
properties before they could free up enough of their money
to go out and buy more properties. You’ll never regret learning
to buy without money. It will make you a much more savvy
investor for those times you do decide to use your own
money or conventional financing. ■
The Foundational Foreclosure Buying Strategy
If you are just getting started investing, structuring deals with

sellers in foreclosure can seem overwhelming as you try to remem-
ber the various ways of conducting them. If you were locked into
using only one buying strategy with sellers in foreclosure, however,
the one we recommend is buying properties subject to the seller’s
loan. It’s that powerful.
If you read Making Big Money Investing in Real Estate, you
already know we often use a lease option as the foundational tech-
nique when buying investment properties from motivated sellers
who aren’t in foreclosure. This buying strategy is the foundational
buying strategy for working with homeowners who are in foreclo-
sure.
When beginning Mentorship students come through our work-
shops, they struggle with information overload. It can be compared
to a new mechanic who is given a toolbox with an overwhelming
number of unfamiliar and specialized tools. That’s why we highly
encourage you to master one or two tools first. Once you get com-
fortable using those tools, then layer in another tool, then another
and another.
As you read through this chapter with all its buying strategies,
you don’t need to “get” them all on the first go-around. Lock onto
one or two buying strategies that you can put to work making you
FIGURE 3.1 Assessing the Costs
After-repair value of house $225,000

Current “as is” value of house $200,000
Needed repairs (paint, carpet, etc.) $204,000
Existing first mortgage $190,000
PITI payments on first mortgage $201,350
Back payments owed $204,000
money, then add in other layers of strategies later. If you have too
many options at once, you run the risk of freezing up when meet-
ing with a seller.
Imagine you were meeting with a motivated seller in the early
stages of foreclosure and that seller owns a well-kept house in an
area you like. You sit down with this owner and after you’ve spent
time getting to know her situation thoroughly, she says, “I just want
out. I don’t care about the equity. I just want to walk away from the
house. I’m at the end of my rope and if you don’t want to buy it for
what I owe, then I’ll just let the bank come and take it.”
You see the seller looking right at you and know all she wants
is to stop this foreclosure that’s draining all her energy. The house
is worth $200,000. With $4,000 worth of paint and carpeting, it
would probably be worth $225,000. She owes $190,000 as a first
mortgage with monthly payments of principal, interest, real estate
taxes, and insurance (PITI) totaling $1,350 (see Figure 3.1).
She’s got two real problems. First, she’s behind three months
in her payments. With late fees, that comes to more than $4,000—
money she simply doesn’t have. Second, even if she could find a
way to make up the back payments, she still has no way of scraping
together $1,350 each month after that. More than anything, she just
wants you to take the house for what she owes and she’ll go find a
place to rent for $800 a month, which is all she can really afford.
Many investors would look at this situation and calculate if it
makes sense to take $200,000 cash to buy a house worth $225,000.
(The $200,000 cash is the total cost for the property of paying off
the $190,000 loan, plus the $4,050 of back payments, plus $4,000
of cosmetic work, plus $2,000 of closing costs.) But if you were a
cash buyer, this deal wouldn’t work for you because that $25,000
of equity would get eaten up quickly with holding costs, plus the
closing costs of the second closing once you resold the house.
Some investors might go ahead and buy it any way with the
intention of holding the house as a long-term rental. Fair enough,
but it really wasn’t much of a bargain for a cash purchase.
Other investors would tr y to get that $200,000 ( or a large
chunk of it) by borrowing it from a conventional lender. While this
would be a way to leverage your way into the deal, it comes with
three main disadvantages.
1. The cost of the money. After adding up all the costs of

getting that new loan, you would have eaten up around $5,000 of
your equity. Here are some of those costs that make your banker,
not you, rich:
• Loan origination fee

• Prepaid interest or “points”
• Credit check fee
• Property appraisal
• Document delivery fees
• Recording fees
2. Your lender will require that you sign personally on
the loan. That means if anything goes wrong with the house or
the housing market in your area, regardless of whose fault it is, your
credit (and potentially other assets) are on the line.
3. You’ll have to jump through the hoops of qualif ying

for traditional financing. That requires credit checks, long
loan applications, bank statements, and tax returns the lender
wants to review. And just when you thought it had everything, your
lender almost always finds two or three more things. Does it tell
you about all this up front? No! The lender waits until the week
before you’re supposed to close. So you spend the last week before
closing scrambling to make the deal work. (Notice that we’re just a
bit jaded about this.)
Who needs all that stress? Wouldn’t it be better to step in and
take over making payments on the seller’s loan? You can do this
once you have the specialized knowledge you are about to learn.
The Best-Kept Secret in Real Estate—

Buying “Subject To”
Over the years, thousands of investors across the country have

asked us to mentor them to become financially free. If you were one
of our Mentorship students and brought this deal to us to discuss,
here’s how we’d coach you through the deal:
You: The seller just wants to walk away from the house
and doesn’t want anything for her equity. I know there is a deal
here. Help!
Mentor: OK, let’s take this step-by-step. Tell me about her
motivation to sell.
You: She was living with her boyfriend who was helping
to make the payment each month. But six months ago they
split up. She struggled to make the payments for a few months,
then she just couldn’t do it anymore. She’s three payments
behind now and you have all the other financial details I sub-
mitted through the Mentorship student’s Web site. She said if
I don’t buy it, she’ll let it go back to the bank.
Mentor: Do you remember from the home-study materials
about the strategy of buying subject to the existing financing?
You: I remember some of it.
Mentor: Tell me what you remember because this is how

I’m going to coach you to buy this house. The best part is that
you’ll be able to do it with nothing down and very little risk.
You: Well, it means I buy the property but don’t pay off
her loan. I just have her deed me the property and make up her
back payments, then each month I just send in the payment to
her lender. Is that right?
Mentor: Yes. She deeds you the house for a token payment
up front. Usually, we’ll use ten dollars. Strange as it seems, for
this to be legally binding, you need to pay something. It’s
called consideration, which is just a fancy legal term that
means you gave her something of value to make the contract
binding. You then clean up the property and start marketing
it. Chances are, you’ll be able to sell the house either on a rent-
to-own basis or on an owner carry (see Chapter 8) and collect
$8,000 to $20,000 up front, depending on whether you sell it
or rent-to-own it. Then using your new buyer’s money, you’ll
send in the back payments to the lender along with a letter
explaining this is to bring this specific loan current. Each
month after that, you’ll send in the payment to her lender with
the loan number on the check.
Top Five Benefits of Buying “Subject To”
1. You’ll make money up front from your buyer, which you’ll

use to bring the loan current and pay yourself back for the
minor fix-up you did.
2. You’ll make a monthly cash f low.
3. You’ll get all the tax benefits because you’ll own the prop-
erty.
4. You’ll earn extra profit as the principal balance on the loan
pays down each month (amortization).
5. You’ll get a big check on the back end of the deal when your
buyer or tenant-buyer cashes you out.
Going back into our coaching session . . .
You: Can I really do this? It sounds too good to be true. Is

this legal?
Mentor: That’s a really common question. The answer is
yes; this is a perfectly legitimate way to buy property. For years,
savvy investors have been using this method to intelligently
buy properties and make a lot of money doing it. In fact, I’ve
used this buying strategy myself on more than 75 houses over
the past 9 years and it’s made me wealthy. Still, there are risks
you need to be aware of—you must look out for yourself in the
deal.
You: I’ve heard there’s something called a due-on-sale
clause, which means if I bought the house like this, then the
lender would call the loan “due in full.”
Mentor: That’s right. The lender has the right granted in
the deed of trust or mortgage securing this loan to call it due
in full if the house is sold without getting cashed out. But the
due-on-sale clause, which is the biggest reason investors are
leery of using this buying strategy, is really a paper tiger.
Due-on-Sale Clause Not a Big Problem
Just about every loan written for the past 20 to 30 years con-
tains a due-on-sale clause. According to this clause, if a borrower
sells the property without paying off the loan, the lender has the
right to accelerate that loan and call it due in full within 30 days.
Here’s what the technical language typically sounds like:
If title to the property described herein, or any interest

therein, is transferred without the Lender’s prior written
permission, the Lender may declare all sums secured by this
agreement immediately due and payable.
Sounds tough, doesn’t it? But the due-on-sale clause is more

intimidation than substance. Banks don’t like borrowers to sell
without the new borrower assuming the loan (and paying points,
loan fees, etc.) or obtaining a new loan (paying loan costs, poten-
tially higher interest, and starting the amortization of the loan from
scratch!).
Interestingly enough, Black’s Law Dictionary defines a due-
on-sale clause as a “device for preventing the subsequent purchas-
ers from assuming loans with lower than market interest rates.”
However, would a bank call a 15 percent loan due when the current
market rates were 8 percent? Probably not. But if the loan is at
8 percent and the market rate is 15 percent, you can bet your local
lender would just love to call the loan due just to force you to refi-
nance the property at a higher interest rate. (The banker figures
that even if you refinance the property with a different bank, at
least you would have to cash out its old loan, giving it more money
to lend at a higher interest rate.)
So banks are not in business to accelerate loans unless either
you f launt it (i.e., you make it overt that you bought the house with-
out paying the loan off) or the interest rates have jumped dramati-
cally.
‘‘
■ David’s Story
I’ve seen a lot of investors miss out on huge profits because they
just don’t understand how far banks will go not to foreclose on a
property. Banks don’t want to own real estate; banks don’t want to
have bad loans on their books. They simply want people to pay
them on time and take care of the house. When you understand
this, you recognize how much power you have when negotiating
with lenders to find creative solutions to help sellers solve their
problems. The key is to communicate with the lender about what
you need to make this work for its best interest, which is to have
the loan brought current.
Many times, I have a three-way call involving me, the seller,

and the lender. The seller introduces me to the lender as “a friend
who knows more about this real estate thing than I do and who is
helping me understand what exactly is going on and how I can
make sure you get your money.”
Then I take over and find out the specific details and exact
status of the loan. Many times, I negotiate a payment plan known as
a forbearance agreement with the lender right there on the phone.
One word of caution: Don’t tell the lender you’re buying the
property because the lender will resist your buying it without
paying off or assuming the loan. If the lender asks any questions
about who you are (which almost never happens), simply repeat
that you are a friend of the seller. ■
Negotiating a Forbearance Agreement

While talking with the lender before buying the property sub-
ject to the existing financing, work out a payment plan with the
lender that helps you spread out the amount of money owed in back
payments over time, or even better, adds the back payments onto
the principal balance of the loan. This payment plan or workout is
known as a forbearance agreement.
Remember, you’re negotiating with the lender on the seller’s
behalf and not as a new investor looking to buy the property. Get-
ting the seller’s permission to do this is easy. You can hold a three-
way phone conversation with the lender or just get written permis-
sion from the seller to allow the lender to discuss the matter with
you.
From the lender’s point of view, there are two main issues to
work through:
1. How soon you can start making the current and future
monthly payments
2. How you propose to pay the past-due amount (the payments
in arrears)
In general, most lenders are more concerned with the monthly

payments starting up and with the stability of these future payments
than with when the past due amount will be paid. As a creative in-
vestor, you have lots of options. For example, you could negotiate to:
• Start making monthly payments now, delay for three or six

months the other money owed (arrears), then make it up in
one or several payments.
• Pay the arrears over time (3, 6, 12, or 18 months) while mak-
ing the monthly payment from here on.
• Get a moratorium on any payments for several months
(explaining to the lender why the seller needs this period of
time and why things will be securely different at that future
date).
• Add the arrears to the principal balance and start immedi-
ately to make the monthly payments. (This is sometimes
called recasting the loan—adding the back payments to the
loan and restarting it.)
• Make up the back payments in one payment with monthly
payments to begin in 30 days.
Make sure you get the lender to acknowledge in writing any

agreement for a workout plan. Never rely on an oral agreement. And
don’t send money to the lender until you have conducted all your
due diligence (see Chapter 6).
You’ve Bought It “Subject to”—Now What?

One of the best parts of buying a house “subject to” the exist-
ing financing is that it opens up so many options for your exit strat-
egy for the property. (We’ll be going into detail on these different
exit strategies in Chapters 7 and 8.) These options include:
• Hold and rent it.

• Immediately resell the property to a retail buyer.
• Wholesale the house to another investor.

• Rehab and resell the house to a retail buyer.
• Sell on a rent-to-own basis.
• Sell on a wraparound mortgage or land contract.
‘‘
■ Peter’s Story
One of the real estate agents I work with met a motivated seller at
a baseball-card show. The seller was one payment behind on his
mortgage on a four-unit building. I agreed to pay the seller
$119,000, of which 3 percent was in cash to cover my agent’s
commission and the balance was me taking over the property
subject to the seller’s existing first and second mortgages. I also
agreed to make up the month’s back payment on the first and
second mortgages and to make payments on them each month
thereafter. I kept the building as a rental and four years later
sold it for an $80,000 profit. ■
Three Biggest Questions about Buying “Subject To”
1. How will the seller get a new loan if this loan stays
in her name and appears on her credit record? This can be
a potential sticking point with a seller. But most lenders will credit
the seller with having made the full payment as long as you can
show them proof the loan has been paid for 12 plus months (e.g.,
canceled checks, etc.) and that the property has been sold (copy of
the purchase agreement).
In some cases, the new lender won’t give a 100 percent credit
for the payments but rather only a 75 percent to 80 percent credit
just as if the property were being rented out on a long-term basis.
In this case, it may have some effect on the seller getting a new
loan. As long as the seller has the income to make up for this and
his income-to-debt ratios are in line with the lender’s requirements,
this won’t be a problem.
Also, most people you buy from using this strategy are in fore-
closure for a reason—they can’t make the payments. Their need to
solve this problem is a hundredfold more important to them than
getting another loan down the road. Besides, if they lose the house
to foreclosure, they’ll have an even tougher time getting a loan later
on because their credit will be trashed. This way, you save the
seller’s credit by bringing the loan current and making timely pay-
ments each month after that.
2. Who gets the tax write-offs? The person whose name

is on the title. That is you the investor. Or if you resold the property
on either a land contract or wraparound mortgage, then your
buyer would get the write-offs.
3. What if the seller doesn’t want her name on the loan

forever? Negotiate for the longest time possible, then use a clause
such as the following in your purchase contract:
Buyer agrees to pay off the Seller’s loan(s) described

above in this agreement within ____ months of closing of
title. This clause shall survive the closing of title.
Short-Term “Subject to” Rehabbing
As you may know from reading Making Big Money Investing

in Real Estate, we’re not big on recommending rehab projects.
Here’s why: We see people start investing with the idea to buy an
ugly house, fix it up, then resell it. But invariably they forget to fac-
tor in the real costs involved with a rehab project—financially, time-
wise, and emotionally.
The Real Costs of a Rehab Project
• The financial cost. Most investors do factor in this cost up

front. However, many find that once they start doing the
work, hidden repairs eat into their profits.
• The time cost. It’s easy to forget to factor in the intense
month or two of work to get the house rehabbed and back
on the market. This is especially important if you do some
or all of the work yourself, rather than hiring outside con-
tractors. Make sure the profit in the deal is worth all the time
and energy you put in.
• The emotional cost. This is the cost most investors fail to cal-
culate. Having thousands of dollars at stake for a two- or
three-month period can create stress, especially if you don’t
have the financial cushion to cover additional rehab costs or
a slow resale market.
A Smarter Way to Fund a Rehab

If you do plan to buy foreclosures, rehab and then sell them at
retail prices, here is a better way to structure your deals. If you use
this strategy, you will limit your risks and lower the amount of up-
front money you put into the deal.
Imagine you find a seller who has a dumpy house in a nice part
of town. The house needs serious repairs—about $30,000 worth—
but once they’re complete, the house will be worth $330,000. The
seller is four months behind on the $210,000 first mortgage, which
has monthly payments of $1,800, and agrees to sell you the house
for $230,000.
You could put 20 percent down ($46,000) and get a loan for
the remaining $184,000. In this case, you’d still need $30,000 cash
for the repairs. If you did this, you’d net around $36,000. This
would give you a return on investment (ROI) on your $83,500 of
43 percent—not bad, especially when you consider you made that
return over a three- to four-month period (see Figure 3.2).
FIGURE 3.2 Traditional Way to Fund a Rehab
After-repair value (ARV) of house $330,000

Your price $230,000
Needed repairs ($330,000)
Closing costs (when buying) ($302,500)
Loan costs ($334,000)
Holding costs ($335,000)
Closing costs (when selling) ($332,500)
Realtor commission (when selling) ($320,000)
Net profit $336,000
Down payment $346,000

Closing costs (buying) $332,500
Holding costs $335,000
Repair costs $330,000
Total cash invested $383,500
Net profit ÷ cash invested = ROI

$36,000 ÷ $83,500 = 43% ROI (in a 3- to 4-month period)
However, we suggest you buy the house for a price of $230,000

subject to the seller’s first mortgage of $210,000. . . . You’d then im-
mediately make up the $8,000 of back payments to reinstate the loan
and get started on the $30,000 worth of repairs. You’d agree to give
the seller his money out of your profits when you resell the newly
rehabbed house to a retail buyer.
The seller wins because he not only stops the foreclosure, but
he also receives money within 90 to 120 days. (Notice that we
switched to 90 to 120 days instead of three to four months. The
change in terms makes the seller feel like he gets his cash faster—in
days not months.)
We call this strategy of structuring the deal a short-term sub-
ject to rehab. Its main benefit is that it allows you to reduce the cash
you need up front to approximately $45,000. This is not only
$38,500 less cash needed up front—pushing your ROI to 89 per-
FIGURE 3.3 A Better Way to Fund Your Rehab—Short-Term “Subject to”

Financing
After-repair value (ARV) of house $330,000

Your price $230,000
Existing first mortgage taking subject to ($210,000)
Needed repairs ($230,000)
Closing costs (when buying) ($222,500)
Holding costs ($225,000)
Closing costs (when selling) ($222,500)
Realtor commission (when selling) ($220,000)
Net profit $ 40,000
Back payments made up on seller’s existing mortgage $228,000

Closing costs (when buying) $222,500
Holding costs $225,000
Repair costs $230,000
Total cash invested $ 45,500
Net Profit ÷ Cash Invested = ROI

$40,000 ÷ $45,500 = 90% ROI (in a 3- to 4-month period)
cent—but it means you won’t need to get bank financing for the
other $184,000 to make this deal work! (See Figure 3.3.)
This saves you many hours of getting your loan application and
paperwork together and dramatically lowers your risk in this deal.
It also saves you about $4,000 in loan costs for the money you’d
have had to borrow if you didn’t buy the house subject to the exist-
ing financing.
‘‘
■ Peter’s Story
One of the first foreclosure deals I ever did was a junker of a house
I bought for $9,500 subject to the seller’s financing. I didn’t
make a ton of money on it, but I still have a photograph of the
house on the wall of my office because after buying this house,
I really felt like an investor. ■
Wholesaling or “Flipping” Deals for Quick

Cash Profits
In the world of real estate investing, if a deal doesn’t fit what

the investor is looking for, then it’s usually passed by. Once you
understand how to keep your radar screen open to finding deals
that don’t fit your investing strategy but that you can wholesale to
other investors, you’ll make thousands of dollars more each and
every year.
Most investors look only for deals that fit into their limited view
of how they buy and sell properties. For example, if an investor buys
foreclosures that need fixing up and then resells these properties to
a retail buyer, he develops tunnel vision in his search for this type
of deal. This tunnel vision can cause him to completely miss out on
the chance to buy a foreclosure subject to existing financing or turn-
ing the property into a long-term rental. This can be costly because
for every single deal that meets this one-track investor’s criteria, five
other deals slip by. This investor loses potential profits forever, sim-
ply because he wasn’t open to other approaches.
While it’s important to create a niche with your investing and
develop a cookie-cutter process you can repeat within this niche,
we also know the most successful investors profit from the deals
they spot, even if these deals aren’t ones they keep for themselves.
Imagine you were just starting out in the fishing industry. You
bought a boat and spent your days putting out your nets and hauling
in tuna. But one day when you come back into port, you notice that
the boat docked next to you is selling a type of fish you’ve never
seen sold before. The captain says that it’s called yellowfish and
that, while he never understood why people liked it, he’d found a
few local restaurants that bought these fish at a healthy profit. In
fact, he tells you he doesn’t even specialize in catching yellowfish;
they just end up in his nets while he’s looking for tuna.
Over the next few weeks, you notice you’ve been hauling in
many of these yellowfish while fishing for tuna. You think. Rather
than throwing these fish back into the ocean (what you have been
doing since you got started), why not sell them to local restaurants
too. So that day, you put the yellowfish you catch into a separate
cooler. When you get back to shore, you talk with four local restau-
rant owners who agree to buy your catch. You’re amazed at how
easy it was. In fact, you made such good money with such little
extra effort that you start to cultivate relationships with more res-
taurants so you’ll always have ready buyers for these yellowfish.
You can do exactly the same thing in your foreclosure invest-
ing. It’s called wholesaling or f lipping deals—when you take a deal
you’ve contracted with a seller for and sell your rights under that
contract to a third party. This third party, often another investor,
pays you a cash fee to assign your interest under that contract over
to him. He then buys the house from the seller. It’s like taking the
yellowfish you didn’t want and selling them to another person for
a quick cash profit.
Just like the fisherman looking for tuna, you might be looking
primarily for sellers in preforeclosure who will let you make up a
few months’ back payments and deed you the house subject to their
existing financing. Your plan calls for you to hold on to these houses
for ten years or more. But you keep coming across sellers in foreclo-
sure who just want to dump their houses. They aren’t willing to sell
their homes to you subject to, but they have lots of equity and are
willing to give you a great cash price. You see that these houses (the
yellowfish) will need a big rehab effort and you aren’t interested in
doing the work. But, still, you paid for the marketing that got these
sellers to call you and you invested your time to meet with them, so
you decide to f lip these deals. You negotiate the best deals you can,
then find other investors to buy the deals from you for a cash fee.
‘‘
■ David’s Story
Here’s an example of a wholesale deal that Byron, one of the
coaches in our Mentorship program, did a few months back. He
found a seller who owned a fourplex that needed some cosmetic
fixing. The seller, a referral from another seller Byron had worked
with, was five payments behind and headed for foreclosure.
Although Byron met with the seller and locked up a great deal, he
didn’t want to keep it for himself, doing the repairs and managing
the fourplex. Instead, he sold his rights under the purchase
contract to another investor for an assignment fee of $15,000.
The seller got a fair solution that included stopping the
foreclosure and making $13,000 when the investor closed on
the house. The investor who bought the deal got a great price
and terms on a solid rental property in an area where he was
already building his portfolio. And Byron made $15,000 for five
hours of time invested. It was a win-win-win transaction. ■
So the next time you find a deal that doesn’t meet your buying
criteria, negotiate the best deal you can (whether for a cash sale or
a subject to deal or some other strategy) and sign it up. Even if you
don’t want to keep the deal, try to f lip it to a third party for a fast
cash profit. (See Chapter 7 for details on how to f lip properties. )
‘‘
■ Peter’s Story
I picked up a contract on a house in need of a total rehab. I looked
at all that necessary work and said, “There’s no way I’m going to
spend the next two months fixing it up.” So I sold my contract for
$1,500. All totaled, I spent less than ten hours of my time on the
deal. That meant I earned more than $150 an hour. Considering
I was still working as an auto mechanic for a lot less money at the
time I did the deal, that money helped me change my self-image.
I could see my time being worth so much more than I was
getting trading dollars for hours in the garage. ■
Short Sales: Making Big Money on Houses with

Little or No Equit y
When you are investing in foreclosures, you’ll likely run into

sellers who have little or no equity in their properties. You might
think that if they have no equity, you can’t help them. In fact, when
most investors look at a deal in which the property has no equity
and the existing financing payments are too high to cover by put-
ting a tenant into the property (which rules out buying subject to
the existing financing), they pass on the deal because they don’t
see any way to structure it and still make a conservative profit for
their time, effort, and risk.
But there is a way—called a short sale—that lets you to take
many of these no-equity deals and turn a fair, fast, and healthy profit
on them. In a short sale, you negotiate with lenders to take less than
what they’re owed as full payment on a loan. For example, a lender
has a $200,000 first mortgage on a house in foreclosure and is will-
ing to accept $147,000 as full payment on the loan.
Why would lenders take less than they’re owed? It’s because of
all the real costs they face when they’re forced to foreclose on a
property. First, a lender may lose money when it forecloses on a
house. Foreclosure costs include attorney’s fees, staff time, court or
legal process fees, plus the huge discount that auctioned properties
sell at.
Next, a lender may know the house’s condition has severely
deteriorated since the time it made the original loan, so the prop-
erty may be financed over the “as is” value.
Finally, lenders face strict federal regulations regarding the
ratio of bad loans they have on their books and the amount of
money that must be kept in liquid reserves to balance this. With all
these painful consequences of having to foreclose, it’s no surprise
that many lenders are willing to take a short sale to quickly solve an
otherwise drawn-out process.
‘‘
■ Peter’s Story
Cheryl, one of the real estate coaches in our Mentorship program,
received a call from a motivated seller in response to a postcard
and f lyer she had mailed him. The seller had spent $15,000
rehabbing the house, which he did all wrong. Then his wife got
laid off from her job and they were losing the house to foreclosure.
The house was worth $120,000 and had two mortgages on it—a
first for $75,000 and a second for $8,000. The seller agreed to sell
it to Cheryl for $50,000 provided she could get his two lenders to
accept a short sale in that total amount. She contacted the lenders
and sent them the ugly photos of the property, her repair list
and bids, the low comps for the house, and the seller’s financial
information. They had their Realtor come out and do a broker’s
price opinion (BPO).
When the negotiations with the lenders were over, the first
mortgage holder accepted a short sale in the amount of $49,000
and the second mortgage holder accepted a short sale in the
amount of $5,000. Both lenders made their acceptance of her
short sale offer contingent on Cheryl getting them their money
within 21 days. She immediately got on the phone to three private
lenders she worked with and borrowed the money to buy the
property and make the needed repairs. Cheryl refinanced the
property and pulled $20,000 out of it. She currently has the house
on the market to sell it on a rent-to-own basis for $140,000. ■
Best Situations for Short Sales
Here is a list of the most common situations in which short

sales are appropriate. Note: The loan(s) must be in default or the
lender(s) will not accept a short sale.
• Situations in which the property in foreclosure is financed

so high that the lender stands to lose a significant amount of
money if the house goes to auction.
• Situations in which the physical condition of the property

has deteriorated so badly that only an investor would buy it
at an auction and command a steep discount in price before
bidding on it.
• Situations in which a large second mortgage is at risk
because the first mortgage holder is foreclosing, allowing
you to negotiate a short sale on the second mortgage.
• Situations in which your networking contacts tell you a spe-
cific lender has too many “nonperforming assets” on the
books (i.e., too many bad loans) and you find a foreclosure
property with a lien owed to this lender.
• Situations in which there’s a mortgage from a private party
(e.g., a seller-financed note) who would be willing to take a
significant discount in the amount owed just to end the emo-
tional nightmare of the foreclosure.
• Situations in which the seller has some other type of lien or
private debt that’s in danger of either being wiped out by
the impending foreclosure or going unpaid because of the
seller’s financial distress.
Next, let’s look at the specific steps to close a short sale.
Six Steps to Close a Short Sale

Step One: Lock Up the Propert y under Contract
Your first step in any short sale (indeed, your first step in any
real estate deal) is to identify and meet with a motivated seller to
lock up the property under contract before you spend time work-
ing with a lender to accept a short sale. If you need the short sale to
make the deal profitable for you, make sure you insert a clause in
your purchase contract with the seller specifically stating your
agreement is contingent on the lender accepting a short sale. That
way, you can build in enough profit in the deal to make it worth
your time.
Here’s what the legalese version of this clause reads like:
This agreement is subject to Buyer negotiating a short

sale with the existing lien holders that will allow Buyer to
pay no more than $_____ [the purchase price you are willing
to pay which is less than the total owed] total for the property.
Seller acknowledges that he or she shall get NONE of the pro-
ceeds from the sale of this property other than the original
deposit of $1. [This final sentence is important because lend-
ers will not accept a short sale if the borrower is making any
profit from the sale.]
Step Two: Get Written Permission to Discuss the

Loan with the Lender
Lenders won’t talk with third parties unless the borrower

(property owner) has signed a document expressly authorizing the
lender to discuss the matter. The Authorization to Release Informa-
tion (see Figure 3.4) should be faxed over to the lender as soon as
possible. Typically, it takes a few days to get the authorization to dis-
cuss the loan into the lender’s computer system.
Step Three: Call Lender to Open Negotiations
When you call up the seller’s lender, ask to speak with the Loss
Mitigation Department, which is the name of the department that
deals with houses in foreclosure or preforeclosure. Be sure to reach
someone who has the expertise and authority to help you.
Here’s a sample script of your first call to the lender:
Investor: Is this the Loss Mitigation Department?

Lender: Yes, it is.
Investor: Great, then this is the department that handles
short sales?
FIGURE 3.4 Sample Authorization to Release Information Form
AUTHORIZATION TO RELEASE INFORMATION

Authorization dated ______________________________________________________________________________
Borrower: _______________________________________________________________________________________
Property: _______________________________________________________________________________________
Regarding loan number: _____________________________________________________________________

To: __________________________________________________________________________________________
(Lender’s Name)
__________________________________________________________________________________________
(Lender’s Address)
__________________________________________________________________________________________
(Lender’s City, State, Zip)
__________________________________________________________________________________________
(Lender’s Phone Number)
I (We) hereby authorize you to release information regarding the above referenced loans to _______________
____________________________________________________ (Authorized Party) and/or agents/assigns. This autho-
rization or a copy of it may be sent via facsimile transmission and be fully valid and binding. This authorization is a
continuing authorization for said persons or company to receive information about my (our) loan including dupli-
cates of any notices sent to me (us) regarding my (our) loan. In addition I (we) hereby authorize you to discuss any
aspect of our loan with Authorized Party.
_________________________________________ ______________________ ___________________________

Borrower Date of Birth Social Security Number
Lender: Yes, we do. May I help you?

Investor: I hope so. My name is Peter. Who am I talking
with?
Lender: Liz, I’m the department administrator.
Investor: I’m very glad to meet you, Liz. I was hoping you
could help me with a small matter. What needs to happen for
your company to accept a short sale on a defaulted loan?
Listen carefully as the lender tells you the specific criteria

you’ll need to meet before this lender will accept a short sale. Each
lender requires a slightly different process before accepting a short

sale. Some require the borrower to go to a credit counselor first
before they’ll even discuss a short sale. Others require you send
them a written proposal and signed contract with a seller before
they’ll discuss a short sale. Still others will let you negotiate the
short sale right over the telephone, provided you have faxed your
Authorization to Release Information. Be sure to play by the
lender’s rules. In fact, many lenders will fax or mail you a written
outline of their specific guidelines for a short sale if you ask them.
Six Tips When Working with Lenders on a

Short Sale
While every lender follows different procedures, these power-

ful tips will help you successfully negotiate a short sale:
1. Keep a detailed log of all the calls and letters listing the date,
time, who you spoke with, what you discussed, and any
important details you’ll need later. You will always be in a
stronger negotiating position if you can reference the exact
history of your conversations with a lender.
2. Make sure you’re dealing with the real lender and not a
“loan-servicing” company.
3. Be sure you’re negotiating with the person who has the
authority to say yes. Ask if that person is able to accept the
short sale or if someone else will have to make that deci-
sion.
4. Respond to all the lender’s calls and letters. Lenders in this
department are used to working with borrowers who hide
and ignore their correspondence. You can build a really
strong relationship from which to negotiate a winning deal
by consistently communicating with the lenders.
5. Gently remind lenders of their real costs to foreclose on

properties. The best way is by asking questions to draw out
what hassles and expenses they face if they have to fore-
close, take the property back, and resell it. (See the sample
script later in this chapter.)
6. As a last resort, hint at or openly discuss the “BIG B”—bank-
ruptcy. When the lender learns that the borrower might be
forced to declare bankruptcy if you can’t work out a short
sale, the lender just might have a change of heart.
Step Four: Send In Your Short-Sale Packet
If you need to send something in writing to the lender as part

of your negotiation of the short sale, take the time to turn the
packet into a tool to help you get a great deal. Here are the pieces
to your successful short-sale packet:
• Cover letter. This letter gives the overview of what’s

included in the packet and why you are sending it. Highlight
the condition of the house (if it’s in bad shape), the seller’s
treatment of the house (if it looks like the seller has stopped
caring for the house), and the slow market for this type of
property (if it’s a slow market in your area for this type of
home). Also emphasize how your offer will provide a quick
solution, allowing the lender to get cashed out in 30 days (or
faster if possible). Finally, emphasize the real costs to the
lender of having to go through the cumbersome and expen-
sive foreclosure process.
• Purchase agreement. This is the contract that says the seller
agrees to sell you the property subject to the lender accept-
ing a short sale on the amount owed. Be sure that this agree-
ment specifically states the seller will receive no money
from the sale. Lenders will not accept a short sale if the
seller is making any money.
• Low comparables. Include some printed statements of what

other comparable homes are selling for. Obviously, you’ll
select the low comparables, not the high ones. If there aren’t
any low comparables, skip this item.
• List of repairs needed and high-grade bids. This list of
repairs should be as extensive as possible and include the
highest authentic bids you can get to have repair work done.
Total this list and bring the message home to the lender that
the property is in rough shape.
• Ugly photos. Take the ugliest photos of the property you can
get and include enlarged copies of these photos. This helps
the lender “get” the facts of your list of repairs in an emo-
tional way. If the house is in great shape, which is rare with
foreclosures but it does happen, skip the photos and list of
repairs.
• Credibility factors (use only if they will help build your
case). If you’ve done short sales before, include reference
letters from lenders and past homeowners. If you have good
credit or lots of cash, send proof of this to support your abil-
ity to perform on your offer should the lender accept. Exam-
ples include preapproval letters from other lenders for the
short-sale amount, financial statements, and credit reports.
• Hardship letter from the seller. This letter should be either
in the seller’s own handwriting or on her stationery. The
seller must explain why she can’t afford the loan anymore
and all the tough situations she’s experiencing. You may
have to help coach your seller to write an effective letter.
• Net sheet (HUD-1). This is the draft of the settlement state-
ment that shows the lender the exact money to be received
from the closing if your short-sale proposal is accepted.
• Financial information on seller. The lender often wants to
see the real financial condition of the seller. This means you’ll
need to include copies of the seller’s prior two years’ tax re-
turns, W-2s, a financial statement, etc. The lender wants to
make sure the seller clearly can’t afford to pay the loan.
• Your offer to lender. Finally, include your formal short-sale

offer to the lender. Be sure to state your offer is available for
a limited duration of time and explain why you feel you can
only offer this amount of money and still conser vatively
make a profit.
Three Criteria of Irresistible Short-Sale Offers
1. Fast and sure closing—their most important criterion. No

60- or 90-day escrows; they want to finish the deal in 30 days
or less.
‘‘
■ David’s Story
Not long ago, my mom and stepdad negotiated their first short sale.
The house right next to the one they live in had been empty for
more than a year. There had been a big fire and the house was only
partially fixed up. After several weeks of trying to find the right
people to even make their offer to, my mom and stepdad found the
woman who had inherited the property after the old owners had
died. This new owner lived quite a distance from the property.
Two more months of legwork and my mom finally got the loss
mitigation department on the phone. The house had a loan on it for
approximately $120,000. The lender agreed to a short sale in the
amount of $87,000. There was one catch: the lender said it
would need that money within seven days—which they did! They
rehabbed it and moved into it. Soon after, they decided to sell
the old house they owned right next door. The moral to the story
isn’t that if my mom can do a short sale, you can too (although it
could be). The bottom line is that you’ll need to be ready to
close fast; the lender just wants to get the deal over with. ■
2. Cash only! Lenders won’t finance a short sale for you.

3. No contingencies. Lenders will be leery of short-sale offers
that have so many weasel clauses, they look like Swiss
cheese. One easy way around this is to use a liquidated
damages clause to give you a pain-free, covert way to walk
from the deal if worst came to worst. ( In Making Big
Money Investing in Real Estate, we discussed liquidated
damages clauses on pages 95–96 and 147–49.)
Step Five: Follow Up with Lender on the Phone

Once you have delivered your short-sale packet to the lender,
don’t sit back and wait for the lender to call you. Take the initiative
to politely but doggedly follow up on your offer. Use each call as a
chance to build rapport with the people in the lender’s office and
prod the deal one step closer to completion.
Once the lender accepts your offer, move to step six.
If your offer gets turned down, this is a great chance to negoti-
ate a deal. But before you rush in with a higher offer, pose the fol-
lowing question:
I understand that our offer just wasn’t a fit for you.

You’ve all been so nice about the whole thing that even if I
can’t get my partner to offer more, I want you to know how
much I appreciate your help and professionalism. Just so I
can talk with my partner about this, what’s the minimum
our offer would have to be for your company to even con-
sider it?
Insider Secret: Never raise the amount of money you’ve

offered until the other side has given you a counteroffer.
This allows you to take whatever the lender says as a coun-
teroffer and use that as an entry point to negotiate a lower
price. While you might not be able to get the lender to give
you a definite number the decision makers would accept,
usually you can get them to give you a ballpark figure that
you’d have to be close to for the lender to “even consider”
your offer. This is just as good as the lender giving you a
definite number for your negotiating purposes.
Step Six: Close on the House
Whether you are going to close on the house yourself or f lip

the deal to another investor, the final step is for you to cash the
lender out and buy the house. Make sure if you plan to f lip the deal
to someone else that you have a backup plan in place if this investor
doesn’t come through. Make sure you honor your word with the
seller and the lender.
‘‘
■ Peter’s Story
I received an e-mail from one of our students in Salt Lake City.
Nick had been working for a pharmaceutical company until two
months ago when he quit to go into investing full-time. At the time,
Nick had done five deals and still owned three of the houses. He
found a motivated seller who was two months behind on the
payments on a beautiful two-story house. Originally, Nick
structured the deal so he would net $20,000. But after listening to
David’s radio show, Real Estate Radio (<www.davidradio.com>),
he learned about short sales. Nick talked with the lenders again
and found out that the first and second mortgages were with the
same company. After using the ideas from the radio show, Nick
got the lender to accept a short sale. All totaled, Nick netted
more than $110,000. ■
Use this powerful strategy when the seller has little or no

equity, or even when you want to increase your profits in an ordi-
nary foreclosure deal. You can build in your profit by solving the
lender’s need while solving the seller’s problem, too.
Leveraging the Power of “Subject to” with

Discounting Debt
One reason it’s critical to master buying with the subject-to-
existing-financing strategy is because you can combine it with
other buying strategies such as discounting debt.
For example, imagine you met with a seller who’s three
months behind on her two mortgages. The seller owns a three-
bedroom house in a working-class neighborhood. The house needs
some minor cosmetic work—new carpet and paint—for it to be
worth $280,000. The financial details are as follows:
Loan information:
1st Mortgage of $210,000 at 6.75% interest with PITI payments of
$1,500/month
2nd Mortgage of $45,000 at 12.9% interest with PI payments of
$650/month
Cost to reinstate mortgages:

1st Mortgage: $5,000
2nd Mortgage: $2,200
Market conditions:
After-repair value of house $280,000
Cost of minor cosmetic repairs $284,000
Market rental value $281,700/month
If you were to analyze whether it would make sense for you to

bring both loans current and purchase this house subject to the ex-
isting first and second mortgages, you’d probably decide that the
high-interest-rate second mortgage creates a negative-cash-f low situ-
ation. It just wouldn’t be worth doing if you left both loans in place.
Here’s how we would coach you to structure this deal:
1. Connect with the seller and find out why she’s having prob-
lems making the payments. After talking with her using the
Instant Offer System (see Chapter 5), you would discover

that she has a gambling problem and is having major finan-
cial problems in other areas of her life. When you ask her
what she would really like to see happen, she answers that
she just wants to walk away from the house with a few thou-
sand dollars and start fresh somewhere else. You negotiate
for a while, determining that if she sold it herself and fac-
tored in closing costs, real estate commission, back pay-
ments, and cosmetic fix-up work, she would probably owe
money at the closing. At this point, the seller sighs and says
that she just wants to walk away from the whole thing and
be done with this nightmare.
2. We coach you to sign up the deal. You agree to make up the
back payments, buy the house, and take over the property
subject to the first and second mortgages. You create one
very important contingency in the deal, though: You make
sure the seller understands and agrees that the only way
you’re willing to move forward is if you can negotiate with
the second mortgage holder to take a discounted cash pay-
off for the amount of money owed. Earlier, you learned that
this strategy is called a short sale. Notice that you’re looking
to short only the second mortgage and not the low-interest-
rate first mortgage that you want to keep in place.
3. Get on the phone and call the second mortgage holder. After
getting the facts on the table (e.g., the seller has a gambling
problem and won’t be able to pay the first or the second
mortgage; the seller may have to declare bankruptcy; the
house needs some fix-up work before it will even sell; etc.),
we put an offer on the table for the second mortgage holder.
Here’s how that negotiation could go:
Investor: Of course, you could always just move for-
ward and foreclose on the owner. Some lenders don’t care
about the fact that they wouldn’t get much of anything after
they factored in the costs to foreclose and have some inves-
tor pick up the property at a low cash price. The good thing
is that we don’t think this owner is the type of person who
would get angry with the world and rip apart the house
before the sale, just to spite you. I mean, you never know,
but my gut says she’s a pretty straight person. Anyway, in
order to make this deal work for us, about the most we
could give you for your note would be $5,000, maybe a little
bit more.
Second mortgage holder: There’s no way I could get
my bank to accept such a low offer. You would have to do
much better than that.
Investor: Boy, I can sure understand that. If I were you,
I might just say, “To heck with getting any money at all, let’s
just foreclose to teach the owner a lesson.” So I can under-
stand that, from your view, you would need to get more
money. I’m just trying to see if we can find a fit where I
would even want to choose this deal over some of the other
houses I’m looking at. And who knows, maybe we’ll find
that we just can’t find a fit here. If that turns out to be the
case, I want you to know that I’ll be OK with that and that I
really appreciate your time and openness to try to find a win-
win fit here. What would be the lowest amount you could
take to make this acceptable to your bank, knowing that it
still needs to be low enough to work for us as investors?
Second mortgage holder: I don’t see how we could
accept less than $10,000 for the note.
Investor: Really [scrunching up your face to get the
right tonality of incredulity and disappointment ], the
lowest you could take is $8,000 to 10,000? [Notice you just
used the range technique here.]
Second mortgage holder: Well, we might take as little
as $9,000 . . . but we’d need to have it in certified funds
within 21 days.
Together we just negotiated a $36,000 discount off the second

mortgage! This is pure profit for you in the deal. But wait, you say,
you don’t have that much cash to put in the deal. After you add up
the $4,000 of cosmetic fix-up, the $5,000 to bring the first mort-
gage current, $2,000 in closing costs, and the $9,000 to pay off the
second mortgage, that totals $20,000. You just don’t have that kind
of money. That’s a challenge, but it’s not insurmountable. Just like
we don’t put money into deals we do on a joint-venture basis with
our Mentorship students, we’re not going to send you a check for
the $20,000 either! But soon we’ll share several powerful tech-
niques to cultivate sources of funding for your deals.
Let’s get clear on your motivation to find the $20,000 to fund
this deal. You will be getting a house that you’ll have permanent,
long-term financing in place at 6.75 percent interest. After you sub-
tract all the costs, you’ll have an instant equity position based on
the $280,000 value of $47,000 and the house will generate a posi-
tive cash f low of at least $200 a month. Have we tapped into your
greed glands deeply enough to spark you into finding a way to fund
this deal?
Here are six ways to fund this deal (some you’ve read about,
some you will come across later in this book):
1. Sell the house with owner financing, collecting a 10 percent

down payment. This will get you $28,000 cash up front plus
a great monthly cash f low and a large back-end profit.
2. Get a cash advance on one or more credit cards to fund the
deal and then sell the house outright to a retail buyer.
3. Use your own money to fund this deal, knowing the profit
will ensure a very high return on investment.
4. Borrow the money from a private lender and pay a fair rate
of return on that money with the interest to accrue so you
can protect your cash f low.
5. Partner with another investor who will put up the money
and you’ll split the profits.
6. Wholesale the deal to another investor for $10,000 cash.
Are you getting into the spirit here? The key to remember is
that if the deal is good enough, you will find the money. You were
able to take a deal that many investors just wouldn’t have the skill
to make work and turn it into a huge moneymaker for yourself by
combining subject to financing with discounting the debt owed.
Many investors look only for properties with lots of equity.
You’ve already learned how to make a healthy profit by using the
short-sale technique. Here is another way to use that technique to
make even more money. The next time you review the title report
on a property you’re buying and find any liens against the property
you weren’t aware of, don’t panic. You just might have a great
opportunity to make more money by buying those other liens for
pennies on the dollar.
‘‘
■ David’s Story
I was helping a Mentorship student structure a deal on a $250,000
house that was in preforeclosure. The seller owed roughly
$180,000 and wanted to get enough money from the sale to pay
off $40,000 in debt that he had. Most were medical bills from a
health situation several months back. I recommended that the
student sign up the deal agreeing that she would make up the
$8,000 of back payments and buy the property subject to the first
mortgage of $180,000. The student would also agree to satisfy all
the other outstanding hospital bills the seller had accumulated.
I then recommended the student get written permission
from the seller to negotiate the outstanding bill with the
hospital. I felt that the student could get that $40,000 of debt
settled for as little as $10,000 to $15,000 and could work out a
payment plan with the bank to pay that money over the
course of 12 to 36 months. ■
In this case, dealing with the seller’s bills meant an extra

$25,000 to $30,000 of profit, made in a way that allowed the seller
to win, too. What other types of liens against the property can you
discount? Remember, don’t just think about debt as money owed to
a lender on a mortgage. You can negotiate discounts on just about
any lien against the property or, as you saw in the previous exam-
ple, you can also negotiate bills the seller has that aren’t even tech-
nically liens against the property and still get the seller to give you
full credit for that money as if you’d paid the seller the face value of
the debt.
You can discount things such as:
• Mechanics’ liens for work done on a house

• Personal judgments against a homeowner
• Personal debts (e.g., medical bills, credit-card debt)
• Business debts
Here are two key considerations to help determine if the lien
holder will accept less than what’s owed:
1. How unsure of collection is the creditor? How likely (or

unlikely) is the creditor of actually getting any money from
the debtor? Is there a lot of equity protecting the lien? Or is
the lien likely to get completely wiped out in a foreclosure
sale? Maybe the debt isn’t even secured against the prop-
erty, in which case the creditor will probably be even more
willing to discount deeper. Is it a first mortgage (in the most
secure position and therefore the hardest to discount) or is
it in third position after two mortgages? You get the idea
here. The more the debt is at risk, the deeper the discount
you should go after.
2. How badly does the creditor need the money? Obviously, a
roofer whose cash-f low situation is tight will be more likely
to give you a discount than a large mortgage lender. So find
out as much as you can about the people who are owed the
money.
‘‘
■ Peter’s Story
I always ask the sellers not only what they owe against the property,
but who they owe it to. I have found that private parties are
much more willing to take significantly less than what they’re
owed just to get their money fast. That’s why I love buying
properties where the prior seller carried back a large first or
second mortgage; many times, they’re willing to discount this note
if the current seller is behind in payments. Never underestimate the
power of “cash now.” I don’t even think it’s about greed on
the prior seller’s part; it’s much more about relief. They just
want to be able to get a clean break from that house they
thought they had sold years ago. ■
Imagine you found a seller who had a $360,000 house and was
$10,000 behind on the first mortgage of $320,000. A lso, there
were two liens against the property: a mechanic’s lien for $18,000
for the new roof and $15,000 owed to an ex-husband as part of a
divorce settlement.
First, you call the roofer to see what you can do:
Ring, ring . . .
Roofer: Hello
Investor: Hi, this is Ian, is Ralph there?
Roofer: This is Ralph. What can I do for you?
Investor: Oh great. It sounds like I caught you in the mid-
dle of something?
Roofer: No, I was just organizing things for my next job.
What can I do for you?
Investor: Actually, I was calling because I’m an investor
who sometimes buys notes and liens that look like they’ll be
wiped out in a pending foreclosure or bankruptcy. I’m sure
you probably knew about how the Sutton Street house you
have a mechanic’s lien on is about to be foreclosed on any day
now. It looks like you aren’t the only one the owner didn’t pay.
I don’t know if there’s any reason for us to be talking or not
about my buying your lien for a cash payment. You probably

wouldn’t even want to talk to me about my handing you a cash-
ier’s check in the next 14 to 30 days for your outstanding bill
on that property, huh?
Roofer: You mean you’d pay me cash for that lien? Why
would you want to do that?
Investor: Well, it wouldn’t be because I’m just a nice per-
son. I mean, I am a nice person but I want to be clear here
that’s not why I would get you cash, if I decided it would even
work for me. Like I said, I’m an investor who buys liens and
notes that look like they are about to be foreclosed out and
then I aggressively go after making money from the note. The
way I figure it, I know that if I get a big enough discount in
exchange for getting someone like yourself a cash payment,
then the big gamble I’m taking pays off for me on enough of
these things that I make a nice living doing this. But boy, you
probably wouldn’t even want to talk about selling your note
for a discount, huh?
Roofer: Yes, I would. How much would you give me for
the note?
Investor: To be frank, I’m not even sure if I want to buy
this note or not. May I ask you a few questions to see if this is
even a note that I would want to buy?
Roofer: Sure, I’d be glad to answer any questions. [Notice
how the conversation has turned and you, the investor, are
in the driver’s seat where you belong. Now it’s time to build
the lien holder’s motivation to sell.]
Investor: What have you done to collect on this note in
the past?
Roofer: We tried invoicing the owner for about two
months. And I went over to the property to collect the money
three times myself.
Investor: And that worked [big eyes]?
Roofer: No, he wouldn’t even open the door and talk with
me.
Investor: Really? Tell me about what that was like? [Voice
getting softer and using scrunchy face]
Roofer: I was so pissed off at the guy. I mean, I took three
guys off another job to fit in the roof on his house and then he
stiffs me. I started banging on the door and he shouts out that
he’s called the cops on me. I just took off.
Investor: What did you do then to collect?
Roofer: I filed the paperwork for the mechanic’s lien and
I figure he’ll have to pay me someday.
Investor: How does that mechanic’s lien thing work?
Does it mean he has to pay you off in 30 days or something [big
eyes]?
Roofer: No, basically it means it’s a lien against the prop-
erty so before he sells it, he’ll have to get me to sign off on
some papers or he can’t sell it. So he’ll have to pay me plus
interest before I’ll sign.
Investor: That makes sense . . . And so if the bank moves
ahead with the foreclosure, he’ll just pay you at the foreclosure
sale?
Roofer: No, if it goes to foreclosure, I probably won’t get
paid at all. I’d have to take him to court and get a judgment for
what he owes me and then try to collect on that.
Investor: Oh, OK. Well, I’m not sure if this is a lien I’m
going to want. It sounds like the chances of collecting are less
than I originally anticipated. If I were willing to buy the lien
from you for cash, what would you even do with the money?
Roofer: The money would be going back into my busi-
ness, which had to cover our costs for the roof. I had to pay for
the guys and most of the materials. I still kick myself for not
getting a larger deposit up front from the guy.
Investor: Well, at least you’re lucky enough to have your
business going so well that you don’t really need the money. It
just may be your better option to sit tight and hope he makes
good on the ten grand he owes the bank in late payments, and
then in a year or two, he may refinance the property and pay
you off or something, right?
Roofer: Doubtful. He’s the kind of jerk who would end up
losing the house to the bank. How much are you willing to pay
me for the lien?
Investor: Oh, well, I’m not sure if I would want to buy
it or not yet. I mean if you wanted some huge amount of
money like $7,000 or $10,000 for the lien, then obviously that
wouldn’t work for me. What’s the least you would take for the
lien, knowing that this would have to work for you, but it
would also have to work for me as an investor taking a mighty
big risk here? $700? $1,000? Or maybe a little bit more?
Roofer: I’d never sell it for that little; it just wouldn’t be
worth it. I’d need to get at least $5,000 for it.
Investor: Really [scrunchy face]. $3,000 to $5,000 is the
least you’d take? [Range technique] Are you sure you couldn’t
go lower?
Roofer: No, I wouldn’t take any less.
And away you go. You just got the note for $3,000 and were
able to pocket the other $15,000 as extra equity that goes along
with your purchase of the house. The call probably took you 20
minutes tops. Where else can you make $15,000 in 20 minutes on
the phone?
But wait, you’re not done yet. You still have that $15,000 owed
to the ex-husband! If you follow the previous ideas, you’ll probably
be able to buy that note for even less. Why? Because the ex-spouse
likely never expects to get paid that money anyway. She probably
lives out of state and she’ll be thrilled to get any money you pay now
and get closure to the situation. You might even get the note for as
little as $500 to $1,500, which would make you another $13,500 to
$14,500 on the house the moment you buy it.
Now do you understand why notes and liens and judgments

can often be a great profit center for you in a foreclosure deal?
Savvy investors know that the more little liens and private debt a
seller owes often means more profit for the investor.
You negotiate with the seller as if these debts couldn’t be dis-
counted and were at face value, but you know you can get them for
pennies on the dollar later by negotiating directly with the creditor.
‘‘
■ Peter’s Story
I recently got an e-mail from Paul, one of our students. Paul owns a
cleaning business and one of his employees was losing her $60,000
home to foreclosure. She had a first mortgage for $13,000 and a
second mortgage for $25,000 and owed $2,000 to a local hospital.
All together, Paul was looking at buying the house for $40,000.
He went ahead and talked with the second mortgage holder and
offered the decision makers $7,000 for the note. They countered
him at $9,000. Paul went back and asked them to meet him
in the middle at $8,000. They agreed. Next, he called up the
hospital administrators and offered them $500 for their bill. After
having their board review the offer, they accepted. All totaled,
Paul went on to have a positive cash f low by renting the house for
three years before selling it for a $30,000 net profit. Over the past
four years, Paul has built up a net worth of a million dollars and a
monthly cash f low of $10,000 from his investment activities. ■
Why Every Investor Can Be a Cash Buyer
Many investors mistakenly believe the only way you can buy
with cash is by having perfect credit for borrowing money or by
having the liquid cash sitting in a bank for them to tap into. We
hope you’ve already seen that this just isn’t true. You’ve learned
about subject to financing, f lipping deals, and discounting liens.
You’ve learned that sometimes you can get the seller some or all of
his equity out in cash and buy subject to the seller’s loan. And
you’ve learned about f lipping deals that get the seller cash—and get
you cash too! Now it’s time to learn the seven sources for funding
your deals, listed in the order you prefer to tap into them.
Seven Sources of Funding for Deals Other Than

Your Local Bank
This is listed in the order of desirability for you, the investor.
Source One: The Seller
The single best source for you to fund the deal is the seller. We
know this might sound strange. After all, isn’t the seller so finan-
cially strapped that he can’t even make his monthly payment? Well,
yes, but remember the seller has existing financing in place, and in
some cases has equity in the house to lend you.
You’ve heard of using other people’s money ( OPM) . Now
understand the true power of OPM (other people’s mortgages).
That’s what “subject to” financing really is—using other people’s
mortgages to make you wealthy.
This isn’t complicated; subject to financing is the seller being
your bank, at least functionally. And the seller is even more obvi-
ously your source of funding when he agrees to take a note for part
or all of the money you have agreed to from your purchase of the
property.
Source Two: Your Buyer
Depending on how you plan to sell the property, you can gen-
erate immediate cash to fund your deal from a few thousand dollars
to hundreds of thousands of dollars. You’ll find many more details
on how to make this part of the deal work in Chapters 7 and 8, but
for the moment, it’s important to understand that your buyer can
be a great source of funding for your deals.
If you sell the property on a rent-to-own basis, you can typi-
cally collect 3 percent to 5 percent of the purchase price as a non-
refundable option payment. If you are selling with owner financing
( e.g., land contract, wraparound mortgage, A ll-Inclusive Trust
Deed [AITD]—all explained in Chapter 8), you can typically collect
10 percent to 15 percent down. And if you structure the deal in
which your buyer brings in a new first mortgage, then you can gen-
erally get all the money you need to fund a cash purchase of the
property from your motivated seller who was in foreclosure.
Let’s look closely at this final way to structure a deal in which
you’ll be using your buyer’s money to fund your way into the deal.
Let’s start with an example.
Imagine you meet a motivated seller who is in foreclosure and
about four weeks from losing her house at auction. She owns a four-
bedroom, two-and-a-half-bath house in a nice part of town. The
seller admits she has been living in denial for the past five months
and now finally realizes something has to happen fast.
The house, worth $300,000, is in great shape; all you have to
do to get it in showing condition is to have it professionally cleaned.
It has an existing first mortgage of $180,000. You meet with the
seller and, using the simple five-step system in Chapter 5, negotiate
an all-cash price of $220,000, with you paying all closing costs. You
feel great about negotiating a price that’s $80,000 below market
value, but you’re scared about where you’ll get the $220,000.
Here’s one way to make this deal happen. You resell the prop-
erty before you close on it with the seller. That is, you put it on
the market for $280,000 and offer to help your buyer finance the
purchase. Have your buyer get a 90-5-5 loan, which means that
person brings in a new loan for 90 percent of the purchase price
($252,000) and puts 5 percent down ($14,000). You carry back a
5 percent second mortgage ($14,000).
It’s a win-win-win solution. Your buyer, who probably has less-

than-perfect credit, wins by both saving $20,000 on the price and
having your help on the financing. Your seller both saves her credit
and salvages $40,000 of equity. Best of all, she will never have to
look back again. And here’s what you’d make on this deal:
Purchase price $220,000

Selling price $280,000
Gross profit $ 60,000
Look at what you net and when you get that money:
Gross profit $60,000

Closing costs ($63,000)
Cleanup ($66,500)
Advertising ($66,500)
Net profit $56,000
All totaled, you’d net $56,000 on the deal. You’d get $42,000
cash at the closing in the form of a check you’ll get from the title or
escrow company. And you’d have a second mortgage for the other
$14,000.
In this example, your buyer is making you 12 percent interest-
only payments on that note with a balloon note due for the $14,000
in three years. That means each month you collect a check for $140
and in three years your buyer will give you a lump-sum payment of
$14,000—cash your buyer will most likely get by refinancing the
house.
You’ll learn more about how to quickly sell houses like this in
Chapter 7, but for now, understand that you can handle this deal—
an all-cash deal—without any cash or credit of your own. In real
estate, you get paid for the specialized knowledge you bring to a
deal. That knowledge lets you do things most sellers don’t have the
expertise to do and most Realtors don’t have the experience or
comfort level to do.
Isn’t it reasonable that once you get good at this game, you’ll
be able to find someone who wants to buy a nice house for $20,000
below value, especially when you are willing to participate in the
financing to make the deal work?
You can also use your buyer’s money to fund your way into a
deal in which you need to get the seller a small down payment.
Because you can sell the house with owner financing and typically
collect 10 percent down, you can often get the seller a chunk of
money for his equity and buy the property just subject to the exist-
ing financing. The seller gets all the cash he expected from the deal
up front; the buyer gets a house with no bank hassles; you make a
healthy profit for being the matchmaker between the two parties.
‘‘
■ Peter’s Story
I was talking with Marcia, one of our Mentorship students from
five years ago. Marcia told me about a deal she made with a
motivated seller who called her after seeing a small classified
ad she ran. The seller was $1,500 behind on his $35,000 mortgage.
Marcia bought his house subject to the existing financing and
used the $5,000 option payment she collected from her tenant-
buyer to pay for the back payments and for the other $1,500
the deal cost her. Marcia still owns that house, which generates a
$200 positive cash f low each month. It’s an example of
funding the deal with her buyer’s money. ■
Source Three: Your Money or Lines of Credit
If the amount of money you need is small enough that you can
comfortably fund the deal, and if the deal is good enough to warrant
putting your own money into the deal, then seize the opportunity.
Here are two considerations to take into account before fund-

ing deals yourself:
1. Is the amount of money you’re putting into the deal small

enough that you feel comfortable taking the risk of losing it?
If the answer is no, look for a different source of funding.
2. Are you experienced enough investing that you feel com-
fortable putting more of your money or credit on the line to
fund the deal? If you’ve paid your dues, invested in your real
estate education, and completed some deals, then you’re
qualified to put your own money or credit on the line.
Remember, sometimes having money or available access
through your lines of credit to money is a detriment to your
creation of wealth. Easy access to money can often make
early deals too easy to obtain. If they were harder to fund,
you might decide to pass on the deals altogether. You can-
not make up for a lack of knowledge and experience with
money and not expect to pay a healthy price for learning
that lesson.
‘‘
■ Peter’s Story
While reading through postings on our Mentorship student Web
site, I came across one from Byron, one of our coaches. In his
posting, he gave his formula for how much to discount the
money you pay to a seller when you have to make up back
payments on a house you’re buying subject to the existing
financing. His formula was to lower the money paid for the house
by $3 to $4 for each $1 you have to put into the deal up front to
catch up the back payments. Therefore, if you put $5,000 into the
deal to catch up the back payments, Byron recommends you
get at least a $15,000 to $20,000 discount off the purchase
price of the house. I looked back over the deals I had bought
subject to and recognized that I followed his formula most
of the time. And the times I didn’t, I regretted it. ■
With that cautionary point made, we think that many times it

does make sense for you to fund your own deals, especially when
you’re talking about making up some back payments and taking
over subject to the existing financing. Here are three sources of
cash open to many investors:
1. Credit cards. Cash advances are a fast source of cash.

2. Home equity loans. Smart investors set up these lines of
tax-deductible credit before they need them.
3. Pension plans. Many 401(k) plans allow you to borrow
money from the plan and repay it later, paying interest into
your tax-deferred plan. Self-directed IR As are also great
vehicles for investing in real estate, especially Roth IR As.
Source Four: Private Lenders
By private lenders, we don’t mean banks or hard moneylend-

ers. Rather, we recommend starting to cultivate relationships with
people who can fund deals for you in exchange for your paying
them a fair interest rate on their money.
Here is a list of people you can approach about funding deals
for you:
• Family
• Friends
• People on fixed incomes who need greater returns than CDs
and money-market accounts can give them
• Other investors who deal in real estate and are willing to get
a fair return on a first or second mortgage (Note: The people
you want for good rates will almost always want a first mort-
gage with good equity protecting them.)
Imagine you are talking with a family friend about your invest-
ing. You know this person has retired and is living fairly comfort-
ably on his investments. He could be a potential private lender for

your real estate business. Here’s a script of what to say to a potential
private lender:
Potential private lender: So you have been investing in

foreclosures for how long now?
Investor: Well, it’s been about seven months now since I
got started. Funny enough, it all started from a book I picked
up while browsing in the bookstore.
Potential private lender: How’s it been going so far?
Investor: I’m really pleased with the way things have been
going. I’ve done four deals so far. The first deal I found was a
foreclosure that I f lipped to another investor. The deal was
good, but I was a bit scared to fully commit to the deal. I got
$12,000 for assigning this other investor my contract to pur-
chase the property. He closed on the house and rehabbed it and
resold it two months later and made $43,000. The next two
houses I still have. And the last deal I picked up three weeks
ago. I’m in the final stages of fixing it up and then will sell it to
a retail buyer. I expect to make around $30,000 on that one.
Potential private lender: Wow! That’s great. I’m really
happy for you.
Investor: Yeah, in fact the more deals I do, the more I real-
ize that the only thing slowing me down is needing to culti-
vate private lenders who want to fund a deal where there’s
plenty of security in it for them and a fair rate of return on
their money. Hey, maybe you know someone who has some
money in a CD or in a money-market account who would like
to earn a healthy rate of return secured by a first mortgage on
a house with at least 25 percent to 30 percent equity protect-
ing the loan?
Potential private lender: Actually, I might be interested
in funding a deal if it really was secure enough for me. What
interest rate would you give me?
Investor: May I ask you a question first? [Softer tone and

voice now] Why would you even want to fund a deal?
Potential private lender: With interest rates where they’re
at, I’m only getting 5¹⁄₂ percent on my 12-month CDs. If you
can give me a higher interest rate and it’s really a safe invest-
ment, then I’d like to get a better rate of return.
Investor: That makes sense. What type of interest rate did
you hope to make?
Potential private lender: I don’t know—8 percent to 10
percent would be great.
Investor: OK, actually that’s about what I thought would
be fair to pay a private lender for using their money to fund a
deal . . .
See how easy that was? Don’t try to sell private lenders on
some high rate of return. Let them tell you what interest rate they
think would be fair. You’ll be shocked at how many will mention a
number that’s well below what you might have volunteered before
reading this book.
Here are the top four concerns of private lenders:
1. Security
2. Security
3. Security
4. Reasonable interest rate and security (they tied for fourth
place!)
We hope this drives the point home. Many investors make the
mistake of approaching individuals they know about funding a
deal, then trying to sell this potential private lender on a high rate
of return on their money, or on the ease of the transaction. Neither
of these is important to private lenders. They want to make sure
their investment is safe. That’s why high rates of interest actually
scare private lenders away. After all, they say, if the investor is will-
ing to pay 15 percent interest, this deal must be risky.
So speak to the private lender’s fear of losing money first, sec-

ond, third, and fourth! This means conveying three things:
1. Assurance that you’ve done this before. It’s difficult to get

money from a private lender (other than “love money” from
family members) unless you have successfully done a few
deals. The better your track record, the safer your private
lender feels.
2. An understanding of what’s protecting him in the deal.
Make sure you show the prospective private lender the
appraisal on the property or comparable homes that sold to
substantiate the equity that will protect his loan. Let him
know he’ll be protected—just as a bank is with a recorded
mortgage or deed of trust. Encourage him to take all the
paperwork to his attorney for review to make sure it’s all on
the up-and-up. Show him actual photos of the house, or bet-
ter yet, take him to the house and talk him through your
plans while walking through it.
3. Show private lenders your exit strategy on paper, including
your detailed financial analysis of how you plan to make
enough from the deal to pay back their money. (This docu-
ment is called a pro forma analysis.)
You might be saying, “This sounds like a lot of work,” and

you’d be correct. It is a lot of work. The advantage is that once you
help these private lenders make money once, they’ll start to trust
you and your next deal will be much easier. In fact, if you treat your
private investors right, and this means never, ever letting them lose
money, they will tell their friends and associates about you. This
could mean you’ll never struggle to fund a deal again. It may take
you 12 to 18 months to get to this point, but it’s worth it.
‘‘
■ David’s Story
I received an e-mail from Paul, a student who had bought a home-
study course we offer on buying homes subject to the existing
financing. Paul bumped into a motivated seller in a 7-Eleven
store. This seller had a rental property he needed to sell fast.
The house was worth $170,000 and the seller owed $73,000 on a
first mortgage plus $24,000 of back payments. Paul signed up the
deal subject to the existing financing using the forms from our
course. He borrowed $40,000 from a private lender to pay the
back payments on the house and fund the fix-up work it
needed. (His private lender was his mother-in-law who got tired
of losing money in the stock market!) Paul still has the house
as a rental property, which generates $800 a month of positive
cash f low. He currently has $42,000 of equity in the house.
One year ago, Paul took the leap and left his job with the
federal government to go into investing full-time. He’s never
looked back. ■
Source Five: Money Partners
In addition to finding people to lend money in exchange for a

guaranteed interest rate, you can find other investors who would
like to partner on a deal. They provide the funding for the deal—
either by putting in their own money or by borrowing the money
based on their credit and income—and you put in the work. You
then “split” the deal.
You can split deals in many ways. You could joint-venture on
the house on a 50-50 basis. You can split money with any proceeds
from the sale of the house first going to repay the cash investment
of the money partner, then with 25 percent of the net profit going
to your money partner and 75 percent going to you. You can struc-
ture the deal any way that wins for both of you.
Four Things to Be Careful Of When You Bring

In a Money Partner
1. Put all the details in writing. A clear written agreement is

essential to creating a smooth business relationship. Your
agreement should spell out the details of who is responsible
for what parts of the deal, how you’ll handle funding for the
deal, how you’ll split profits, and how to end the relation-
ship if it doesn’t work out.
2. Be careful of a general partnership. A general partnership,
the default business relationship unless you set up another
one, means each party is 100 percent responsible for all the
liability, yet each party only gets a portion of the profit.
Consider using a limited liability company or a limited part-
nership to lower your risk.
3. Check references. Always know whom you are doing busi-
ness with. Have these partners lived up to their word in the
past? How did they react to conf lict and stressful times in
the past?
4. Make sure you have control or at least a recorded interest.
If the deal is for real, your partner should always be willing
to have you record a memorandum of agreement to pro-
tect your interest (or if you are the one in control, then you
should be willing to record something to protect your part-
ner’s interest).
Source Six: Hard Moneylenders
Imagine you find a great buy on a foreclosure house. The house

in our example needs $40,000 of rehab work and has an after-repair
value of $400,000. You negotiated well with the owner and locked
up a price of $230,000. That’s more than $100,000 of potential
profit, even after you factor in holding costs, closing costs, and all
the rest. (Heck, it’s almost enough to make us want to take on the
rehab project! Almost . . . We’d still probably sell the deal to another
investor for a cash assignment fee, but that’s just us.)
But you wonder, How can I get the $230,000 to buy the prop-
erty, plus the money for closing costs, plus the $40,000 to rehab the
property? Consider a source of financing called a hard money-
lender. We know this term conjures up images of a loan shark with
a muscle-bound companion ready to make you pay up or else, but
that’s not true at all. Hard moneylenders have a large pool of cash
they’re willing to lend to investors who are buying real estate in sit-
uations with enough equity in the properties that they consider the
loans safe.
When you are borrowing from hard moneylenders, they won’t
care what your credit is like, or how much money you earn, or the
size of your bank account. They only care about one thing—is there
enough equity in the property to secure the loan? In fact, one bene-
fit to hard money loans (beyond the obvious part of not having loan
applications to fill out or credit reports pulled) is that often you
won’t have to personally guarantee the loan. The property itself will
be the sole source of collateral of the loan, not your good credit. Of
course, you’ll have to pay some hefty costs to get this money.
Here are three things you pay a hard moneylender for the loan:
1. Higher than market interest rates. Most hard moneylend-

ers will charge you 12 percent to 15 percent interest on the
money you borrow.
2. Points. Points represent a fee you get charged up front for
the loan. One point is equal to 1 percent of the loan amount.
Typically, you’ll have to pay a hard moneylender at least five
to ten points up front for the loan. The only good news
about points is that you can usually roll them into your loan
so you can “pay” them with borrowed money.
3. Prepayment penalty. Hard moneylenders know that when
they charge such high interest rates on the money they
lend, investors who borrow from them are highly motivated

to either resell the property or refinance the property to
pay off the high interest rate loan as quickly as possible.
Hard moneylenders don’t get all that available cash by being
dumb; many put a prepayment penalty into the loan that
says, “If you pay off the loan before a certain date, you have
to pay up to six months’ interest.”
Let’s look at what these costs mean in our current example.

First, your hard moneylender will charge you five points on your
$270,000 loan, which comes to $13,500. Plus you’ll have $2,000 of
closing costs, which your friendly neighborhood hard moneylender
will let you add into the loan amount. Finally, you’ll have to pay
15 percent interest on the property, which you got the hard money-
lender to agree to let “accrue.” This means you don’t have to pay
each month while you’re rehabbing and reselling the property; the
interest charges will simply be added to the principal balance you
owe. Thankfully, you got away without having to pay a prepayment
penalty.
Now you close on the house using $230,000 of the lender’s
money, plus a little more for closing costs, and get to work on the
rehab. A hard moneylender isn’t going to give you the whole
$40,000 up front for the rehab work; that would put the lender in
a bad position if you just took that money and didn’t do any work.
Instead, that money will be paid out to you (either through an es-
crow fund set up or directly from the hard moneylender) as you
need it to pay for completed work or for materials needed to get a
chunk of the work done.
Two months later, your rehab is complete. Congratulations!
You put the house on the market. Because you want a fast sale, you
list the house with a quality Realtor in your area for $399,980. Sixty-
eight days later, you close with your buyer for $392,000. A fter you
pay all your costs, you net more than $75,000. It took a lot of work
on your part to coordinate all the contractors and keep your Realtor
working fast to get the house sold, but in the end it was worth it.
In fact, for years to come, every time you drive past that house,
you’ll get that warm fuzzy $75,000 feeling!
With all these costs, why wouldn’t you just go to your lo-
cal bank and get the decision makers to lend you the $270,000?
Good question. The answer is that a conventional lender won’t
lend you money based on the after-repair value. In fact, a conven-
tional lender won’t lend you money based on the market value. A
conventional lender will lend you money based on the current
value or your purchase price—whichever is lower. This means even
if you lock up a $100,000 price on a house that has a current “as is”
value of $170,000, the lender will only lend you money based on
the $100,000 purchase price. You lose the benefit of counting that
$70,000 worth of equity as part of the consideration of whether
the lender will lend to you or not.
We know this seems crazy but that’s just the way it works. We
didn’t make the rules, which is one of the reasons we avoid work-
ing with conventional lenders when we can.
Hard moneylenders will make loans based on the “as is” value
or based off the after-repair value, depending on what you arrange
with them. Because they’ll maintain a low enough “loan-to-value”
ratio to protect themselves in case you default, they won’t require
a credit check or proof of income. You can actually get a hard
money loan even if you went bankrupt four months ago and have
been out of work for the past seven years!
What amount of equity will hard moneylenders require to pro-
tect themselves in this loan? Generally, they’ll lend up to 70 percent
or 75 percent loan-to-value. This means there will need to be at
least 25 percent to 30 percent equity protecting the lender’s loan.
Also, when borrowing from a hard moneylender, it will take
48 to 72 hours to cut you a cashier’s check. Compare that to bor-
rowing from your local bank, which can take up to 30 to 60 days to
“rush” your loan through. When you’re buying foreclosure prop-
erty this far below market value, fast access to cash is everything.
‘‘
■ David’s Story
I got a call from my student Cheryl who said her Realtor located an
REO property that Cheryl had a contract on to buy for $48,000.
Because the ARV of the house was $95,000 and the house only
needed $7,000 of repairs, I got excited for her. She asked if I wanted
to fund the deal as a hard moneylender. Because I had made other
loans to her in the past (not to mention having bought a dozen
houses with her over the years), I agreed. The point is that
sometimes successful investors make a great source of hard
money loans. ■
Source Seven: VA and HUD Foreclosures
One niche area of foreclosures is buying VA (Department of

Veterans A ffairs) and HUD (Department of Housing and Urban
Development) foreclosures. These government agencies help peo-
ple buy homes by guaranteeing loans to the lenders. In some cases,
the borrowers default on the loan payments and the lenders fore-
close. After the foreclosure process winds its way to completion,
these agencies (VA and HUD) end up with the properties. They
want to sell these properties as easily and quickly as possible, so
many times they give investors with good credit and income great
deals on price and terms.
Many of these properties end up with these agencies because
the agencies offer programs that help buyers get into homes with
low down payments and fairly loose credit standards. Both of these
factors help increase the default rate of borrowers with these types
of loans. It also means there isn’t enough equity in the properties
to entice investors to buy them at the foreclosure auction.
It’s an established fact that the lower the amount of equity
homeowners have, the higher the rate of default on their loans. It
makes sense. The lower the equity a homeowner has, the less the
person has at stake in the house and the higher the monthly pay-
ments will be (compared with a homeowner who has a lower loan

balance and more equity).
Herein lies your opportunity. These agencies want to entice
people to bid on their foreclosed houses. One way they do this
(besides selling the house for a discount on what it is worth) is by
agreeing to provide the financing needed to purchase one of these
properties. Many times, they’ll even let investors buy with as little
as 5 percent down to cover all the closing costs. Considering that
most investors need to put 20 percent to 25 percent down plus
have cash to cover closing costs to secure traditional financing, this
proposition can be appealing.
‘‘
■ Peter’s Story
I saw a duplex that was a HUD foreclosure advertised on the
weekly HUD listing in my local paper. The vacant property was in
an area I knew would be good for a rental. HUD provided 5 percent
down financing for investors so I decided to bid on the property.
My bid of $80,000 was accepted. Over the next ten years, I kept the
property as a rental with a positive cash f low. Then I sold it for
$245,000. I kick myself when I realize I could have bought five
more just like that one. Learn from this mistake. Don’t sit back
and think about investing; get out there and do it. ■
Be aware of the following downsides to these types of deals:
1. They require getting traditional bank loans. You’ll need to

have the credit and income to qualify for the financing (not
to mention the hassle of dealing with the application pro-
cess).
2. You have to purchase these properties as is. This means you
need to clearly know the condition of the property you’re
buying. With most homes you buy, the sellers have certain
disclosure obligations; these agencies don’t have to live up

to the same standards.
3. You’ll be limited on the number of these types of houses
you can qualify for, using their financing. For some reason
(possibly the statistically higher default ratio), these agen-
cies will cut off your ability to buy using their financing
after three to five houses. If you have the financial resources
to take advantage of these programs, make sure you pick
only the very best deals. You’d hate to look back and see a
marginal house you bought keep you from buying a home
run of a house because you couldn’t find another source to
fund the deal.
4. Sometimes the ease with which you can purchase these
houses encourages investors to get lazy conducting their
due diligence to make sure the deal is worthwhile.
Buying VA foreclosures can be a great entry point into invest-

ing or an added tool in your investing toolbox. But sometimes the
easy ways of buying aren’t the smartest. With the easy financing the
VA provides (at least it’s easy on the first three to five of the houses
you buy; then it typically becomes much harder to get), you buy at
a price that’s higher than one you’d pay all cash for.
But wait. You say you didn’t pay all cash, that you used the
bank’s money with 5 percent down to cover closing costs (e.g.,
Realtor commission, escrow fees, etc.). This is one of the biggest
mistakes investors make when buying using traditional financing.
They forget that when they personally sign on a loan, they are really
cash buyers. And cash buyers should get a big discount for paying
cash.
Again, wait. How can we say you’re paying cash when you only
have 5 percent down and most of that covers closing costs? Any
time you’re borrowing the money so the seller gets all of his cash at
the closing (whether it’s from your bank account or your lender’s
bank account), you’re buying with cash. Don’t think the money has
to be all yours; the important point of view here is the seller’s.
When the VA provides the financing, you’ll have to personally
sign on the loan. The VA is not going to let you sign on behalf of
your corporation or limited liability company. Therefore, we
believe you should consider VA purchases as all-cash sales. Remem-
bering this will help keep you sharp and hungry when you’re nego-
tiating to get the right price up front.
‘‘
■ David’s Story
I will be the first to admit I’ve made mistakes when buying VA
foreclosures. In fact, I remember one property I bought with a
partner and ended up paying $25,000 too much for. After owning
it for about a year, I sold it for an amount at breakeven to my costs.
No matter what your Realtor thinks you should offer or how easy
the financing is to obtain, make sure you’re really buying low
enough to make the deal a conservative moneymaker for you.
That said, investors all have a few dogs in their buying past.
The key is to lose little when you lose, to win big when
you win, and to make sure you win a lot more than you lose. ■
The best way to tap into these deals is to hook up with a Real-
tor in your area who specializes in these types of programs. If you
ask around, you’ll have no problem finding a Realtor to work with.
It’s up to you to train this agent about the criteria you have for the
properties you want to buy. If you neglect to do this, your agent will
show you every house on the Multiple Listing Service (MLS)—the
proprietary database of properties for sale in an area. You don’t
have time to sort through all these properties. That’s one of the rea-
sons your agent makes a commission—by helping you narrow the
search for properties.
A lso be sure to make your own decisions on what price to
offer. Many agents will say you can’t offer such a low price and that
you’re crazy to try it. That’s easy for them to say; not only do they
have nothing to lose in the deal but they also make more money on
the higher price you offer. (Do you recognize a conf lict of interest?)
Instead, use your agent to help you find the houses you want to
make offers on, to help write up and present your offers, and to
help you do the paperwork once your offer is accepted. Be certain
to do your own negotiating, and never tell your agent how much
you’re actually willing to pay. Even agents with the best of inten-
tions can inadvertently cost you thousands of dollars.
One Final Strategy to Structure the Deal
If you have decent credit and income to buy a foreclosure

property at a good cash price, rather than take over the house sub-
ject to the existing financing, you could formally assume the financ-
ing that underlies the deal. We don’t recommend it because you’re
much better off buying subject to. Still, it’s an option you should
keep in your toolbox. If you decide to formally assume the loan,
take into account the downsides (compared to buying subject to).
To summarize, the disadvantages are:
• Increased risk. The lender will make you sign personally on

the loan.
• Need for good credit and verifiable income. The lender will
make you fill out all the normal loan application documents
you prefer to avoid.
• Higher costs. The lender will charge assumption costs rang-
ing from $500 to a few thousand dollars.
You just learned 12 powerful strategies to structure your fore-

closure deals no matter what the size of your bank account or the
quality of your credit. (See Figure 3.5 for a review list.) Remember
to consider all seven sources of funding the next time you negotiate
FIGURE 3.5 Review List of All 12 Buying Strategies
1. “Subject to” financing

2. Short-Term subject to rehabbing
3. Wholesaling or flipping
4. Short sales
5. Subject to financing with discounting of debt
6. Funding source: seller
7. Funding source: your buyer
8. Funding source: your money or lines of credit
9. Funding source: private lenders
10. Funding source: money partners
11. Funding source: hard moneylenders
12. Funding source: VA and HUD financing
a deal. Develop the confidence to know that if the deal is good

enough, you’ll always be able to fund the deal in some way.
You’re better off to work only with sellers who are motivated
to sell fast. In the next chapter, you’ll learn almost two dozen tech-
niques to find these types of motivated sellers.
22 Ways to Find
Motivated Sellers
4C H A P T E R
It’s time to shift your focus onto exactly how to find foreclo-
sure deals. You’re about to learn some of the most powerful ways
to create multiple streams of foreclosure deals into your investing
business.
Before we get into the details of finding foreclosure deals, let’s
get clear on the outcome you’re working toward. If you’re investing
part-time (between 10 and 20 hours a week), then your goal is to set
up three independent lead sources, each yielding an average of one
high-quality appointment with a motivated seller every week. If you
are investing full-time (between 30 and 40 hours a week), then your
goal is to create five independent lead sources, each yielding an av-
erage of one high-quality appointment with a motivated seller every
week.
Many beginning investors—and some seasoned veterans for that
matter—make the costly mistake of looking for “foreclosure deals.”
Don’t look for foreclosure deals; look for motivated sellers. (Or bet-
ter yet, use the ideas in this chapter to get them to look for you! )
When you focus on finding deals, you waste your time and en-
ergy on low-priority items. Instead, focus on the single highest-paid
activity you have as an investor—connecting with motivated sellers
91
who have compelling reasons to sell. These are people whose situ-
ations cause them to be f lexible on either price or terms (ideally
both!).
‘‘
■ David’s Story
At a recent workshop we were teaching on Purchase Option
investing, one of my students talked about how he’d been
looking for Purchase Option deals but couldn’t find any. As he
explained what actions he’d taken, it became clear he was looking
for the wrong thing. He was seeking “lease-option deals” and
“‘subject to’ deals” and “foreclosure deals.” I urged him to
let go of his search for “deals” and instead focus his efforts on
consistently looking for and connecting with motivated sellers. ■
When you meet with enough motivated sellers, you’ll find great
foreclosure deals, and great lease option deals, and great deals to f lip
to other investors. The deals—and the profits they bring you—are by-
products of looking for and connecting with motivated sellers.
Never lose sight of this critical distinction.
Let’s dig into 22 different ways to find motivated sellers. Some
of these techniques focus exclusively on the foreclosure market.
Others will be more general in nature and yield motivated sellers
who are not in foreclosure or preforeclosure. We didn’t think you’d
mind making money helping a tired landlord or an out-of-town
owner even if he wasn’t in financial distress. (For more information
on how to work with sellers who aren’t in foreclosure, read our pre-
vious book, Making Big Money Investing in Real Estate.)
‘‘
■ Peter’s Story
I sometimes hear from starting investors that there aren’t any
motivated sellers in the area where they want to buy; that market
is just too hot. In my experience, motivated sellers exist in any
4 / 22 Ways to Find Motivated Sellers 93
market. For example, take the San Francisco Bay Area, unarguably
one of the hottest housing markets in the country for the past three
years. I received an e-mail from Jim, a beginning investor, who read
a favorable review of our last book by syndicated real estate
columnist Robert Bruss and then bought it. Jim found a seller in
foreclosure who lived two houses down from his girlfriend
Candace’s house in the Bay Area. Two weeks after Jim tried to
contact the owner, the owner called Jim at Candace’s home. It
turns out that the seller’s daughter and Candace’s daughter both
went to school together.
A fter negotiating back and forth, Jim and the seller agreed on
a purchase price of $337,000 payable as follows: $27,000 cash to
make up the seller’s back payments, $70,000 to the seller with
$20,000 of it up front, and the balance as an owner-carry note due
down the road, and subject to the $240,000 existing financing. Jim
and Candace scrambled to borrow the money from friends and
family and were able to close on the house. After $20,000 of
cosmetic work, the house was worth $550,000. Jim and Candace
made more than $150,000 from their first foreclosure deal in a
market others said was “too hot” for finding motivated sellers.
The bottom line is that you can either stay with your story that
you can’t find motivated sellers where you live, or you can get to
work and start making the profits by finding the motivated
sellers who do live in your area. ■
Making a Deal Work—Finding a Motivated Seller
All great deals start by finding a motivated seller. Motivated

sellers have both an “M” and an “S.”
“M” = motivation
“Motivation” is a compelling reason to sell the property and in-
volves a limited time to find a solution, ideally within two months
or less.
“S” = situation
“Situation” means either the seller has enough equity that she
can significantly discount the price of the property, or the underly-
ing financing is good enough that you might want to take over sub-
ject to the existing loan(s).
To find qualified sellers over the phone, be careful not to
squander time with nonmotivated ones. Find out quickly if the seller
has a situation that would lead to a sale. Only after you know that
will you invest time to visit the property and discuss the owner’s
emotional and situational reasons for selling (which you’ll learn in
Chapter 5).
Script for Qualif ying Sellers over the Phone

To be effective as an investor, learn how to qualify sellers who
call you about one of your advertisements or mailing pieces. Look
at the markers in the following sample script so you can understand
why savvy investors ask certain questions when they do. The ques-
tions include cues about voice volume and inf lections to use when
following this script for calling back homeowners:
Ring, ring . . .
Seller: Hello?
Investor: Hi, this is David. May I speak with Sophia?
Seller: This is Sophia.
Investor: Hi Sophia, you had given me a call a few hours
ago about a property you had that you wanted to sell. It sounds
like I caught you in the middle of something? [Scrunching
up your face and getting softer at the end to produce right
tonality]
Seller: No, I was just helping my son with his homework.
Investor: Oh, how old is your son? [Building rapport]
Seller: He’s nine.
Investor: That’s a fun age. Well, Sophia, can you tell me
about your property?
Seller: It’s a five-bedroom, three-bath house, on a half-acre

lot up in the Prescott Hills subdivision——
Investor: [Breaking in to get to your first real qualifying
question fairly quickly] Wow, this sounds like a wonderful
property [getting much softer now and scrunching up your
face]—why would you ever consider selling it?
Seller: My husband and I are getting a divorce and the pay-
ments are too much for me to afford by myself.
Investor: Oh, that’s tough. [She’s motivated so now you
are willing to invest the time to connect and really probe for
more information to see if her situation will allow you to
craft a win-win deal here] What do you think the house is con-
servatively worth? [When you say the word “conservatively,”
your tone should go down—just like you want the price to go
down]
Seller: Well, the one right down the street sold for
$449,000 two months ago and it’s roughly the same size as
ours.
Investor: OK . . . and what is it that you owe against the
property?
Seller: $380,000.
Investor: And is that all on one mortgage or is that spread
out on two or more loans?
Seller: That’s all on a first mortgage.
Investor: And the payments on that are . . . roughly . . .
Seller: About $2,700 a month.
Investor: Does that include your property taxes and insur-
ance? Or do you pay that separately?
Seller: No, that’s PITI, which is principal-interest-taxes-
insurance.
Investor: Oh, OK . . . and is the house current or is it a bit
behind in the payments? [Notice you said “the house,” not
“the seller.”]
Seller: Actually, we’re four months behind.
Investor: All right, and did you get any fancy letters from
your lender saying it is going to start the foreclosure process?
Seller: It actually filed the Notice of Default three weeks
ago.
Investor: How much did the lender say it was going to
take to bring the property current?
Seller: $12,300.
Investor: OK. By the way, what school subject were you
helping your son with? [Once you get the tough numbers part
done, it’s a good idea to break the seller’s sense of embarrass-
ment or negativity and build a bit more rapport. ]
Seller: [Laughs] It was American history. He’s got a test
tomorrow and I was helping him get ready for it.
Investor: [Laughing too] Oh boy, I never did like history
in school although I find it fascinating as an adult. Your son’s
really lucky to have a mom like you who is willing to make the
time to work through his homework with him.
Seller: Well, I’ve always done my best to encourage him in
school.
Investor: That’s really important. Sophia, where were you
planning to live once you’ve sold this place?
Seller: I’m moving in with my sister for a few months to
figure things out. She’s got a big house with two open rooms,
one for me and one for Kevin.
Investor: That’s great that she can be there to support
you. A question for you, Sophia [voice gets much softer and
scrunch up your face], If this house doesn’t sell, what were
you going to do then?
Seller: It’s got to sell. I’ll lower the price if I have to but
it’s got to sell. I know it will sell, even if I have to list it with a
Realtor.
Investor: OK . . . and bottom line, if you could paint a per-
fect picture of what you wanted to happen, what would that
be?
Seller: I just want this all to be over and to be able to walk

away with at least $20,000.
Investor: Oh, OK. You just want this all to be over and for
you to be able to walk away with $10,000 to $20,000 after all
was said and done. Well, it sounds like something I may be in-
terested in. Do you have your calendar handy so we can set a
time to meet and for you to show me through the inside of the
house?
Seller: Sure . . . .
For you to consistently find motivated sellers, you have to invest

either time or money. You can invest your time by using techniques
you are about to learn like co-op advertising or networking. Or you
can pay other people we call bird dogs to find deals that you like. Or
you can buy direct-response advertising that will get deals to come
to you through direct mail or classified advertising.
Following are 22 techniques to find motivated sellers. Test out
enough of these so you can settle on three to five that you can con-
sistently apply. They will keep your “deal funnel” full each month.
Technique #1: “I Buy Houses” Classified Ads
One of the best ways to get motivated sellers to come to you is

through classified advertising. A small ad in your local paper can
generate several hot foreclosure leads each month (see Figure 4.1).
Even more important than what your ad says is where you
place it. There are three places you should test your classified ad.
First, try your local daily paper. Place your ad in the Real Estate
Wanted section. Caution! Some papers will try to move your ad off
into the Real Estate Services section. This is bad news and will cost
you big so make sure this doesn’t happen to you.
FIGURE 4.1 Sample Classified Ad to Find Motivated Sellers
I Buy Houses— Cash!

Stop Foreclosure/Double Payments
No Commission/Fees
888-234-2233 x 63 Recorded Msg.
‘‘
■ Peter’s Story
I was on a coaching call with several of my Mentorship students
and we were discussing classified advertising to reach motivated
sellers. One of my students in Denver, Colorado, complained that
his classified ad in the Denver Post was too expensive. I asked a few
questions to help him determine if the ad was a worthwhile
investment for him. First, I asked him how much the ad cost him
each week and how many leads it generated over the course of an
entire month (the minimum amount of time you need to test your
ad). It turned out that he and his wife were paying over $125 a
week for the ad to run each Sunday in the Real Estate Wanted
section. On average, the ad generated six to eight calls a month;
only half of those were quality leads. Now this sounds like an
expensive way to generate leads, but note his answer to my next
question, which was, “How many deals did you close out of
those six to eight calls a month?” He said, “We’ve been running
the ad for eight weeks and so far we’ve gotten one deal from
the ad. We made about $25,000 from that deal.” Not surprising,
he still runs that classified ad. ■
Also run your classified ad in your local Pennysaver or Thrifty

Nickel–type paper. These free weekly publications are sent out
each week directly to each home in the area. These publications
vary in price and are the publications in which the average area res-
ident will advertise a garage or moving sale. In these types of pub-
lications, you want to run your ad in the For Sale section. Also, see
if you can spend an extra $20 to $40 to put a box around your ad.
While this costs more, a box around your ad will almost always
increase your response rate for it magnetically draws more eyes to
your ad.
‘‘
■ David’s Story
I’ve been advertising in my local Pennysaver for the past five years.
I spend an average of $2,500 a year on my ad. Now this might
sound expensive; after all, it adds up to more than $12,000 paid
over the past five years. But considering I’ve made over $250,000
from the property that ad has brought me, I know it’s been
one of the best advertising buys I’ve ever made. ■
Third, place your “I Buy Houses” ad in specialty papers in your

area. For example, if you have a military base nearby, test placing
your ad in the papers that cater to the military personnel. You can
also experiment with some of the smaller weekly papers in your
area to see if they draw enough responses to be profitable for you.
The bottom line is that you need to test these advertising opportu-
nities and see what your results are.
Technique #2: “I Buy Houses” Signs

Dollar for dollar, your best lead source might be those corru-
gated plastic “I Buy Houses” signs that you place around your tar-
geted area or neighborhood. These inexpensive signs are usually
either 18 inches by 24 inches or 24 inches by 24 inches (see Figure
4.2). Over the past three years this technique has been one of the
top three sources of deals for our Mentorship students across the
country.
FIGURE 4.2 Sample “I Buy Houses” Signs
I Buy Houses—Cash!
888-234-1234 x 55
Or
I’ll Buy Your House

7 Days or Less!
888-234-1234 x 56
Place these signs anywhere in your marketing area where cars

are likely to be stopped long enough for the drivers to jot down
your phone number. Effective locations include freeway on-ramps
and off-ramps, stop signs, traffic lights, and across the street from
busy parking lots. A word of caution: Local ordinances probably
control sign use in your area so you’ll have to investigate before you
decide whether it’s the right thing to do.
‘‘
■ David’s Story
First, I divide my local farm area into eight parts. Each week, I hire
someone to put up signs in one of these eight parts, usually on
wooden stakes I buy at Home Depot. I take care to make sure the
person I hire doesn’t get carried away putting up too many signs in
any one area. I use a different sign made up in a different color
(although it has the same phone number) the second time I put
signs throughout my farm area. I’ve found this lowers the number
of complaints I get and keeps me out of trouble with local sign
authorities. ■
One of our students in New Jersey, Marc, put out 30 of these

signs as a test. He got a call from a motivated seller who was helping
her mom, who had recently moved into a nursing home and wanted
to sell her house. The house needed about $35,000 in repairs and
Marc agreed with the seller on a price of $95,000. After the fix-up
work was completed, the house was appraised at $235,000. Cur-
rently, Marc has a tenant-buyer living there, which is generating a
$270 monthly cash f low.
Technique #3: Magnetic Car Signs
Considering that the average A merican drives more than

12,000 miles a year, not having magnetic “I Buy Houses” signs for
both sides of your car means you’re missing out on an easy way of
generating leads. Depending on the type of car you drive, you
might also want to get a third sign for the back of your car. In many
cases, these are the most visible signs of all.
For example, a Mentorship student of ours had her Suburban
painted with “I Buy Houses” signs. She got a call from a seller who
was three payments behind on his mortgage. So far, she’s made
more than $20,000 on the deal and the numbers are still climbing.
We urge you to get these signs for your car, not just for the
leads they can generate, but for the statement they make about you.
We’ve had the chance to mentor thousands of investors getting
started making money investing in real estate, and we’ve noticed
that beginning investors have trouble seeing themselves as inves-
tors. Nothing works better to help new investors change their self-
images than to publicize their businesses by having those “I Buy
Houses” signs on their cars. The first few weeks or months can be
awkward, but soon your self-image will expand to include this new
part of yourself.
‘‘
■ David’s Story
I’ve had those tacky signs on the sides of my car for a few years
now, long enough that they seem like part of the car. I’ve been
amazed at the number of people who ask me questions about my
investing business because they’ve seen the signs on my car.
For example, I was at a gas station when a guy filling up his car
asked me about how I buy houses. It turned out he had a
house he was selling and asked if I’d take a look at it. ■
Technique #4: Larger “I Buy Houses” Signs
If small signs work well, look for chances to graduate to larger

advertising solutions. Possibilities include:
• Billboards
• Large signs on tax sale lots
• Bus bench ads
• Mobile signs (trucks and trailers)
‘‘
■ Peter’s Story
One of the coaches in our Mentoring program, Byron, told me
how he and four other investors pooled resources and placed
“We Buy Houses” ads in 20 well-positioned bus benches around
Denver. Byron said each investor pays $125 a month and gets
one-fifth of the leads the bench ads generate. Over three
months, Byron has closed one deal from this cooperative
advertising campaign—a quick f lip that netted him $8,000. ■
FIGURE 4.3 Sample Postcard to Find Motivated Sellers
Stop Foreclosure!
Get Money Now!
Save Your Credit!
We buy houses in any area or condition.
Here’s your quick and easy solution:
✔ FAST Closing
✔ INSTANT Debt Relief
✔ FREEDOM From Aggressive Lenders
✔ GUARANTEED Written Offer Within 48 Hours
✔ HARD-TO-SELL HOME? No Problem!
✔ NO EQUITY? No Problem!
✔ NO Commissions
Call 1-888-555-1212 x 12
toll-free 24-hr. Rec. Msg.
Technique #5: Postcard Campaign
The simplest direct-mail campaign to find motivated sellers is

to send “I Buy Houses” postcards to property owners in the begin-
ning stages of foreclosure. (See Figure 4.3.) In most states, this will
mean either a Notice of Default has been recorded against the prop-
erty or that a foreclosure lawsuit has been filed and a lis pendens
recorded against the property. (Chapter 2 explained the first steps
of the official foreclosure process.)
How often should you mail your postcard? We recommend you
experiment by sending this postcard once a week for three or four
weeks to your list of Notice of Default or lis pendens properties.
We’ve received our best results printing this as an oversize
postcard (8¹⁄₂ inches by 5¹⁄₂ inches). We use a bright canary-yellow
or goldenrod card stock. We’ve found two benefits of using post-

cards versus letters:
1. You save money. With postcards, there are no envelopes to

purchase. You can even use a standard size postcard (3 × 5)
and save significant postage.
2. You save time. There are no letters to fold and stuff, no
envelopes to close. A lso, with postcards, you won’t hurt
your response rate by using printed mailing labels (some-
thing we warn you about in a section that follows ).
Why would anyone ever use a letter instead of a postcard?

Because if you use a compelling letter sequence (examples follow),
you’ll get a higher response rate. It’s more complicated to conduct
a letter campaign, but it can be worth the effort. The only real way
to know if it’s worth the extra effort is to test both postcards and
letters and see which is most effective for you.
How to Get a Default List for Free
You can get the Notice of Default list for free. Many investors
subscribe to a local, regional, or national information source-pro-
vider company to get updated Notice of Default or lis pendens lists
each week. This service is valuable, but given the choice between
paying money and free, we’re biased toward free!
To request these lists, call a local title company (you can find
several in your yellow pages under “title company” or “title insur-
ance company”) and use the following script. Remember, a title
company stands to make a hefty profit over the years by selling you
title insurance or even performing an escrow function for your real
estate closings.
Here’s a script for talking with your title company:
Ring, ring . . .
Title company rep: Hello?
Investor: Hi, this is David. I’m a new investor in the area.
I’m interviewing a few title companies in the area to see who
I want to start working with. Does your company work with
investors who do more than one closing a year? [Do you think
you have the title company’s interest yet?]
Title company rep: Yes, we do work with investors.
Investor: Are you the person I should be speaking with or
should I talk with someone else in your office?
Title company rep: No, I’m the person you should be talk-
ing with. I’m one of the title company’s sales reps.
Investor: Oh, great. My name is David, what’s your name?
Title company rep: Alice.
Investor: Hi, Alice. Like I mentioned earlier, I’m new to
investing in the area and I’m just interviewing a few title com-
panies to see which ones provide the services I’m looking for.
Now, you can sell me title insurance, right?
Title company rep: Yes, we work with a lot of investors in
the area.
Investor: Great. What other services do you provide to
investors like myself? Are you able to get me out-of-town own-
ers’ lists and landlord lists?
Title company rep: Absolutely. We can even print up mail-
ing labels for them.
Investor: Actually, I’d prefer to get them e-mailed to me in
a spreadsheet. That way I can do my mailings on the computer.
How often do you guys send out your foreclosure lists? [Noth-
ing like assuming the sale to get the answer you want to
hear.]
Title company rep: We send them out weekly.
See how easy that is? Many title companies provide these
mailing lists, which are easy for them to create on their in-house
computer database as a value-added service to their best clients—
investors like you.
‘‘
■ Peter’s Story
Robert, a student in Nevada, found a motivated seller from a
foreclosure list he obtained from his local title company. The seller
had lost her job and then lost the financial help of her boyfriend
and was headed straight toward foreclosure. Robert agreed to make
the payments current on the $126,000 loan, which cost him
$8,000, and take over making the payments. The house was worth
$160,000 from day one. Currently, Robert has a tenant-buyer in
the house, which makes him $500 a month. He will have a
back-end profit of $25,000 when his tenant-buyer cashes him
out of the property down the road. ■
Technique #6: Sequenced Letter Campaign
A well-written letter sequence is one of your greatest tools for

finding foreclosure deals. It works best to use a sequence of three
to four letters, each of which builds on and refers back to the earlier
letter. We use a three-letter sequence for mailings to properties on
the Notice of Default and lis pendens lists. Figure 4.4 shows the first
letter of that sequence.
We use four techniques to increase our success with this mail-
ing campaign and we highly encourage you to use them as models.
First, we send the letter out in a simple envelope with the
homeowner’s name and address imprinted on the envelope and not
on a mailing label. Because most people sort their mail over a trash
bin, it’s important that our letter look like a piece of personal mail
and not junk mail.
FIGURE 4.4 First Letter of a Three-Letter Sequence to Homeowners in Default
Stop Foreclosure!
Get Money Now!
Save Your Credit!
Thursday, 10:15 AM
Dear Friend,
I remember one seller I talked with several months ago who was
in the beginning stages of foreclosure.
He had called me up because a close friend of his told him about

how I buy houses in the area.
He was scared. He was angry. He was embarrassed that his friends

and family might find out about how he was about to lose his house
to the bank. And he was uncertain of what to do next.
We spent about two hours together going over his situation and
what all his options were. In the end he chose to sell me the
house for a fair price.
I can’t promise I’ll be able to buy your house. As an investor I

need to make a profit when I buy. But I CAN GUARANTEE that I will
do my very best to lay out exactly what your options are and help
you plan out what to do next.
I understand that when things get stressful, as they probably are

for you right now, that the easiest thing to do is to try to put
all the painful thoughts out of your mind. But ignoring the sit-
uation won’t make it go away.
I know. Over the past several years I’ve worked with dozens of
homeowners just like you who got caught in a trap not of their
choosing.
Just like you they were good, hardworking folks. It’s just that
for one reason or another they got a step behind and from there
they just never were able to catch a break. Has it ever seemed
to you like when it rains it pours?
FIGURE 4.4 First Letter of a Three-Letter Sequence to Homeowners in Default (Continued)
I know that in my life when tough times came, they seemed to bring
along as many other troubles as possible! I remember one time
when things were so hard for me financially that I feared losing
my house. I dreaded waking up in the morning and facing my sense
of humiliation and thinking about how I let my family down.
Does this sound familiar?
The foreclosure clock is ticking. In just a short time, your home

will be sold at public auction. Now is the time to figure out
what to do about it.
Call my office to set up a free seven-minute phone consultation.

It’s free and confidential and comes with absolutely NO OBLIGA-
TIONS of any kind.
We’ll spend the time going through your situation and see if
there is anything I can do to help. Again, while I can’t promise
I’ll buy your house, I do GUARANTEE that I will listen and do my
best to lay out all your other options so you can choose what’s
best for you.
Of course you’re skeptical. That just proves you are a responsi-

ble person.
But what have you got to lose? The phone call is confidential and
FREE.
Call my office right now while you’re thinking about it. Just
call 888-555-1212 x32 right now.
Sincerely,
John Investor
P.S. If you’d like, I can share with you several little-known

ways to stall or even stop the foreclosure process when we talk
on the phone. Just call 888-555-1212 x32 right now to set up your
free and confidential phone consultation.
P.P.S. If you’re in a big hurry to find a solution right away,

call me on my cell phone at 777-555-3434.
Second, we use a live first-class stamp and not a metered frank.

This helps the mailing piece look like an actual letter from a friend
rather than a piece of junk mail.
Third, we use only our return address and not our company
name. We do not want to give the homeowner any clue about
whom the letter is from. This really creates an urge for homeowners
to satisfy their curiosity about who sent them the letter. And the
only way they can satisfy this urge is to open it up and read it.
Fourth, we mail these letters in a concentrated three-week
period. We want this repetition so we can break through any feel-
ings of denial the homeowner may be feeling. We mail our first let-
ter of the sequence as soon as we get the address. Then we mail the
second letter one week later, and the third letter one week after the
second one. Again, each letter refers back to the earlier letter and
builds in emotional power.
‘‘
■ David’s Story
One of our Mentorship students used exactly this letter sequence
to put together a great deal. She got a call from a landlord-seller who
lived two hours away from the foreclosed house. The house was
about to be auctioned off two days later! The mortgage was for a
total balance of $43,000 but our student got the lender to agree
to accept the back payments of $4,000 to reinstate the loan. She
then bought the house subject to the $43,000 mortgage. She also
agreed to give the seller another $6,000 as a lump-sum payment
due in full within 24 months of closing. The house is worth more
than $75,000. And all this came from a letter mailed to a seller
who was in default. ■
Technique #7: Door Hangers and Door-to-Door Flyers

A variation on the direct-mail theme is to hire someone to put
“I Buy Houses” door hangers or f lyers at the houses in your farm
area. The upside is the lower cost (from 8 to 18 cents a f lyer) com-
pared with the higher cost of sending letters. The downside is that
you can’t target your recipients like you can with your Notice of
Default and lis pendens mailing campaigns. Still, this is a powerful
tool to add to your marketing toolbox.
‘‘
■ Peter’s Story
One of our Mentorship students used this distributing-f lyers
technique and picked up a new house in a nice neighborhood. The
owner, who had just moved to New Zealand, didn’t care about the
house anymore. He was in the preforeclosure stage and simply
deeded the house to our student subject to the existing financing.
Only $1 changed hands. All this came from simple f lyers put out
house by house for a third of the cost of mailing letters. ■
Technique #8: Co-op Mailing Campaigns
You can use this technique to mail thousands of letters each

month for free. It will take time for you to set up the necessary rela-
tionships, but co-op mailings are a way to tap into the power of
direct mail, no matter what your financial situation.
Your goal is to find four other “partners” to go in on your mail-
ing with you. They each pay one-fourth of the cost and get to
include a one-page f lyer or letter advertising their business. Make
sure you choose four noncompetitive businesses that are comple-
mentary to your own investing business. For example, if you are
mailing from a geographical list, which is a fancy way of saying a
list of homes in a specific area or zip code, you have many prospec-
tive business owners to co-op with: restaurants, dry cleaners, real
estate agents, etc., who want to be getting their marketing message
into the hands of these people on a regular basis.
14 More Mailing Lists You Can Use to Find

Motivated Sellers
In addition to geographic lists, you can mail to targeted lists

such as:
1. Landlords
2. Out-of-town owners
3. Owners with delinquent taxes
4. Owners with mechanics’ liens recorded against their
properties
5. Homeowners with large private mortgages recorded
against the house
6. Homeowners who bought on wraparound mortgages or
All-Inclusive Trust Deeds (A ITDs) or recorded land con-
tracts
7. Military personnel who own houses and who are about to
ship out
8. Notice of Default/lis pendens
9. People who just filed for divorce
10. Probate property lists
11. People who just filed for bankruptcy
12. Vacant-house owners
13. Building code–violation owners
14. Condemned-property owners
Insider Secret: Subscribe to your local legal notice

newspaper. In it, you’ll find the addresses of people in
both the starting and advanced stages of foreclosure (see
Figure 4.5). You’ll also obtain valuable information on
mechanics’ liens filed, probate proceedings, or lawsuits
that may give you the inside track to finding a profitable
deal.
FIGURE 4.5 Sample Sections of the Legal Notices
Section 101: Notices of Default

1233122 Trustor: John and Susan Bond, Trustee: Fidelity Title, Beneficiary: U.S. Finance,
Reinstate Amount: $2,410.00, Original Note: $24,500, T.S.FID-03-03345, Loan Yr-FileNo: 1998-
203442
1298722 Trustor: Craig and Linda Jones, Trustee: CRC, Beneficiary: Countrywide Home
Loans, Reinstate Amount: $7,960.00, Original Note: $305,000, T.S.02-17745, Loan Yr-FileNo:
2000-827762
Section 201: Notices of Trustee Sales

10:00 a.m. at the front steps of City Courthouse, 220 W. Broadway, San Diego. Property at
987 Windy Sea LN, Carlsbad, CA 92333. Sold by Cal Western 858/555-1200 Orig Loan:
350,740.00, Total Outstanding Dept ~ $295,600, FileNo#: 8374629, TS File#: 02-94773882
Trustee#: 02-i46oo4/9495822, Deed # 24/1993-488340
Section 404: Mechanics’ Liens

Mira Mesa—Mark and Madge Webberson, reputed owner; Acme Roofing, Inc., claimant.
Labor and material furnished at request of Mr. and Mrs. Mark Webberson at 5686 Winter
Green Way
Amount Owing $7,696.00 (8405778)
Section 501: Notice of Petition

NOTICE OF PETITION TO ADMINISTER ESTATE OF Margaret I. Clark
CASE NUMBER P
To all heirs, beneficiaries, creditors, contingent creditors, and persons who may otherwise
be interested in the will or estate of Margret I. Clark
A PETITION FOR PROBATE requests that Sonny A. Clark be appointed as personal repre-
sentative to administer the estate of the decedent.
Technique #9: Visiting Sellers in Default in Person

Does this mean just show up on their doorsteps and knock on
their doors? Yes! Let’s face it. Out of the 50 other investors who
could have the Notice of Default or lis pendens information about a
seller in the early stages of foreclosure, 25 of them will mail a post-
card or letter once in the mail to the sellers. Five will track down the
owner’s phone number and make a phone call. And only one or two
will actually face their fears and knock on the sellers’ doors.
This technique takes time and finesse to make it pay off for
you. We’ll walk you through what to say (and how to say it) when
you arrive on the doorstep. But first, make sure it’s worth your time
for a personal visit. It’s worthwhile when you reasonably expect
there to be either a lot of equity in the house or the property is in
an area where you want to acquire more long-term “keepers.” If one
or the other (ideally both) of these criteria is not met, then call or
include the sellers in your mailing sequence, but don’t waste your
precious time visiting them.
You might be thinking that the homeowners wouldn’t want
you to come to their door. In many cases, they really are in desper-
ate need of help. For example, Mike, a student in Columbus, Ohio,
knocked on the door of a couple in the end stages of foreclosure.
Mike agreed to make up the back payments and stop the foreclo-
sure. His plan was to fix up the house, take over the payments, and
resell it. There was a large chunk of equity in the house so Mike
agreed to give 10 percent of his net profit back to the sellers to
make it even more of a win-win.
What to Say When You Knock on the Seller’s

Door Cold
Here are two scripted variations of what to say when you’re

knocking on their doors and they don’t expect you.
Script One: Works well if the seller is still in preforeclo-

sure or if you’re not quite ready to use gutsier Script Two.
Knock, knock . . . [Step back off the porch, turn sideways,
assume a passive, harmless posture to put them at ease]
Owner: Yes?
Investor: Hi [looking as harmless and Bambi-like as you
can manage] my name is Jim and I’m an investor who is look-
ing to buy another house in this neighborhood and I was won-
dering if you knew of anyone in the area who might be at all

open to selling their house if they got a fair offer on it.
Owner: Well, actually, I might want to sell my house.
Investor: Oh, OK, but I’ve probably caught you right in
the middle of something, huh?
Owner: No, I was just making dinner. Now’s as good a
time as any.
And away you go—with the seller showing you the house and
you following the Instant Offer System you’ll learn in Chapter 5.
Script Two:
Knock, knock . . .
Owner: Yes, can I help you?
Investor: Hi, my name is Jim [looking passive and harm-
less like a small puppy dog] and I’m an investor who helps
out folks who have a house that’s in trouble. Is your house in
trouble?
Owner: No, I don’t know what you’re talking about.
Investor: Oh . . . [looking down at his clipboard and
scratching his head] I’m a little confused. It says here that the
city thinks this house is behind in its payments. Heck, they
even have it listed in the legal notice newspaper. But they prob-
ably got all that wrong, huh?
Owner: Can I see that paper?
Investor: Sure . . . [Showing the owner the clipboard that
has a listing of the owner’s house with the date that the
Notice of Default was filed or even a copy of the legal notice
publication with the seller’s property highlighted]
Owner: [A bit softer now] Well, I guess I must be a bit
behind. I thought the bank would work with me longer before
they did this.
Investor: Yeah, I know . . . banks sure can play real tough
with little fish like us. You know, though, a lot of times banks
make mistakes when they send you all that paperwork, mis-
takes that can make them start all over again, from the begin-
ning. I was visiting with another homeowner like yourself the
other day when we spotted how the bank misspelled her name
on the official notice. I helped her get another 60 days’ delay
in the process to give her more time to find her best solution.
If you’d like, I’d be happy to take a quick look over the paper-
work your bank sent you to see if I can spot any mistakes it
made. Would you like me to sit down for a second and see if I
can spot anything in the paperwork?
Owner: Would you!
And now you’re in the house and connecting with the owner.
‘‘
■ David’s Story
I received an e-mail from a 34-year-old investor who found a
great foreclosure deal by doing some research at the courthouse to
find sellers in default. With the information he gleaned, he
found the house and knocked on the door. The wife of the owner
answered, welcomed him in, and, with her husband, visited for
an hour and a half, and then worked out a sale arrangement. Our
student funded the deal by taking on a money partner, splitting
the $50,000 profit 50-50. The best part was that he helped the
sellers avoid foreclosure. ■
Technique #10: Real Estate Agents
Watch out for the trap of viewing real estate agents as your
competition; nothing could be further from the truth. For the savvy
investor, a good real estate agent is one of the best contacts to help
find great foreclosure deals. Not only do agents have the ability and
access to search the Multiple Listing Service (MLS, the proprietary
database of homes listed for sale in a specific area), but they often
have great networks of their own. This means many potential deals
come across their radar screen first—so make sure you’re the first in-
vestor they call!
How to Avoid the Five Biggest Mistakes When

Working with a Realtor
Many investors searching for profitable deals waste a great

amount of time by not knowing how to effectively work with real
estate agents. We’ve boiled the common mistakes made down to
five main ones and given you hints on how to sidestep them.
Mistake 1: Not clearly defining your buying criteria.

Ask most real estate agents to find you a great deal and they’ll ask
you what you’re looking for, what type of house, what price range,
etc. What they usually won’t ask you is what you consider a great
deal! You don’t want your real estate agent to simply give you a
printout of all the listings in a specific area—that’s a waste of time.
Instead, narrow the field by giving your real estate agent specific
criteria of what you expect from the properties she brings to you.
‘‘
■ David’s Story
When I work with agents where I buy properties, I give them my
specific buying criteria. For example, I’ll say I’m looking for
condos, town houses, or single-family houses in the lower midprice
range for the area. I also explain that I expect them to be able
to tell me in two sentences or less why the seller is selling.
Finally, I say the property must be priced at 80 percent or less of
the “as is” value, or the seller must be f lexible on the terms of the
sale (such as open to a lease option, or subject to the existing
financing, or a large owner-carry deal). I emphasize my need to
make a profit by buying cheap, or to hold on to the property for
a while, so the property needs to provide cash f low (i.e., produce

enough rental income to cover all the holding costs). Using my
criteria, they’ll sift through the possible properties and bring me
only ones that have a high likelihood of turning into a deal. ■
Mistake 2: Relying on your agent to negotiate for you.

Negotiations are too important for you to turn this responsibility
over to another party. We feel even stronger—negotiations are not
just your responsibilities, they are your opportunities. Besides, there
is something inherently strange about a real estate agent negotiating
for you. After all, the higher price you pay, the more money they
make! (And this doesn’t even take into consideration deals where
your agent is representing both you AND the seller.) We strongly en-
courage you to master and keep control of the negotiations yourself.
Mistake 3: Accepting an agent’s protests over the terms

or price of your offer. We’ve heard it said that if you’re negoti-
ating a cash price and you’re not embarrassed with how low your
offer is, you’re overpaying for the property. We take this one step
further. If your agent is comfortable with your offer, that’s the best
indication you’re not getting a good enough deal. Whatever you do,
don’t let your agent make your decisions about what to offer. You
are the one who has to live with the deal you make, so be sure it’s
a great one. While an agent can be a great asset in helping you craft
your offer, he will almost always want you to offer too much money
or terms that are not quite good enough for you. So smile and reas-
sure him that you value his input, and then go ahead and talk with
the seller (with your agent) and put your offer in anyway. The worst
the seller can say is no.
‘‘
■ David’s Story
Derek, a student from Tennessee, had been watching a house that
had been sitting vacant for eight months. He looked up who
owned the house, which ended up being a lender. After chasing
down the right person to talk with, Derek discovered that the house
had actually been listed on the MLS for months. When he asked
the bank representative why the Realtor hadn’t put up any
signs or advertised the property, the bank rep didn’t know.
So Derek called the listing agent, who told him the house was
listed for $49,900. When Derek offered $23,800, the listing
agent didn’t look happy. A week later, he still hadn’t heard back
from the agent about his offer. When he called to follow up, the
agent said Derek may have offended the bank. Derek was polite but
firm and asked the agent to find out the status of his offer. Later
that afternoon the agent called back. Both Derek and the agent
were stunned—the bank had accepted his low cash offer. A fter he
did $11,000 in repairs, the house was appraised for $74,000.
Three months later, Derek sold it for $68,000 to a cash buyer.
All totaled, Derek made $33,000 from an offer the agent
thought had no chance of being accepted. ■
Mistake 4: Discussing any critical information with the

Realtor. It’s been our experience that anything you tell your agent
will get told to the other side, one way or another. Whether it is a
stray comment he lets slip at the wrong time, or a tone of voice
when he presents the offer, or a concession he wants to make when
it really isn’t in your best interest, somehow everything you tell
your agent passes on to the other side. The only way to keep some-
thing that would weaken your negotiating position from the seller
is to not tell your real estate agent.
‘‘
■ Peter’s Story
One of the biggest mistakes I see investors make is telling their

Realtors the top amount they’re willing to pay. Even if they
go in with a lower price, invariably they come back saying the best
they could do was right about the figure you gave them for your top
price. It’s just human nature. Of course, your Realtor wants
the deal to work even more than you do. But this is a recipe for
disaster. If I have an agent present an offer for me (which is rare
because it’s too important to rely on an agent to negotiate for
me), I say that while I may be willing to go a tiny bit higher, my
partner is really stuck on this number. I tell them to do the best they
can and bring me the lowest number the seller will take just to
make this deal work. I let them know that I’ll approach my partner
with this number and see if I can get him to go along with it,
which is tough because my partner is really a hard case about this
type of thing. You probably recognize the “good cop/bad cop”
approach here, combined with an appeal to a higher authority.
These tactics might be as old as time, but they still work
magic and will make you a lot of money. ■
Mistake 5: Working with agents who are struggling.

You simply don’t have the time to waste working with struggling
agents. The top 10 percent of agents do more than 90 percent of
the deals in most areas. So work with the best agents. This is espe-
cially important if you’re buying lender-owned real estate or VA or
HUD foreclosures. In these cases, ask around and find out who are
the top three agents specializing in this niche. Interview all three
and choose the best match for your needs and personality.
‘‘
■ Peter’s Story
I live in an area outside Denver called Genesee, a fairly pricey
subdivision of 400 homes in the foothills of the Rockies. I
have an excellent real estate agent whom I’ve developed a
relationship with over the years. She knows that if she ever comes
across a house in Genesee that’s in foreclosure, I want to see about
buying it. A while back, she called me up with information on a
house that fit my criteria. Not only was the seller being foreclosed,
but she was also in the final stages of a divorce. The house was
listed at $372,000 and I put my offer in at $320,000. My offer was
accepted. Today, three years later, that house is still rented
to a tenant-buyer and is valued at more than $600,000. ■
Technique #11: Networking with Attorneys
The “place of last resort” for many homeowners is in an office

talking with an attorney. In fact, attorneys may know more sellers
who own unwanted or problem properties than members of any
other profession. While they can’t pass out confidential client infor-
mation, they can refer clients who need a fast sale or solution to call
you. The best part of this is that you have an implied endorsement
for these types of leads.
Following is a list of five different types of attorneys you can
network with, along with the reason you might be a good fit for
their clients:
1. Probate. Find people who just inherited a house they really

don’t want.
2. Bankruptcy. Find people who are in serious financial trou-
ble and want to minimize the damage to their credit.
3. Divorce. Find people who need to liquidate assets quickly,
or who were pushed into financial trouble because of the
loss of their spouse’s income or mounting legal fees.
4. Real Estate. Find people who are facing foreclosure and
looking for a way out.
5. Foreclosure specialist. Specialize in processing foreclosures
for lenders.
What can you do for these attorneys? Not only can you provide
a valuable service to the attorneys’ clients, but you can also refer
more business to them. For example, during your time investing in
foreclosures, you’ll probably run into dozens of homeowners who
will need legal advice about declaring bankruptcy and possibly
about filing for that bankruptcy. Simply pass these referrals on to
the bankruptcy attorney you’re networking with. (We think you get
the picture here.)
Technique #12: Send Out Your Bird Dogs

Bird dogs are people who spend a lot of their day outside,
around houses, and are in places to spot bargain opportunities. The
key is to tell them exactly what kinds of leads you are looking for.
Tell them you are looking for:
• Vacant properties
• Ugly houses that need lots of work
• Sellers in financial trouble
• Houses where the utility company just turned off service
because of nonpayment (notice posted on door)
• Homeowners who get lots of certified mail from lenders
Here is a list of potential bird dogs you can network with:
• Landscapers
• Utility repair people
• Meter readers (or other utility company employees)
• Postal delivery people
• FedEx drivers
• UPS drivers
• Airborne Express drivers
• Contractors
• Movers
• Newspaper delivery people
How much should you pay your bird dog as a finder’s fee for a
deal? While you’ll have to decide for yourself, we’ve found that pay-
ing a bird dog a finder’s fee between $250 and $1,000 cash for any
deal he passes to you that you close on works well. The right num-
ber will depend on the value of properties in your area and the aver-
age profit per deal you realistically plan to make. For example, if
you live in an area with $60,000 homes where you expect to net
$15,000 to $30,000 per deal, you probably should pay $250 to $500
per deal a bird dog refers to you. If you live in an area with $500,000
homes where you expect to net $50,000 or more on your typical
deal, then consider using $1,000 as your finder’s fee. (Any more
than $1,000 and it actually turns them off to finding more deals
because it seems too good to be true.)
A student of ours in Arlington, Texas, had one of his bird dogs
find him a couple in their mid-20s with a major gambling problem.
The husband had lost the last two months’ house payments, and it
looked like they would lose the house, too. Tired of struggling to
keep the house payments going, the sellers agreed to take $300 cash
to walk away from it. Our student made up about $3,000 in back
payments and bought the house subject to the sellers’ financing.
This was a cookie-cutter foreclosure deal that came from a neighbor-
hood bird dog who received a finder’s fee for his help.
Here’s a script of exactly how to ask someone to help you find
great deals. In this example, you open your front door and take
delivery of a UPS package. As long as you’re talking to the driver,
why not ask him to help you find deals?
Investor: Hi, thanks for bringing by that box.

UPS driver: No problem, can I get your signature here.
Investor: I’m Jason. What’s your name?
UPS driver: Scott.
Investor: Scott, I’m an investor who buys houses in this
area. You wouldn’t by any chance know of any other drivers
who ever come across a homeowner who needs to sell fast, or
who has a house that is run-down or vacant. The reason I ask

is that sometimes I can buy these types of houses and pay the
driver who passed the lead my way a healthy finder’s fee—cash,
of course.
UPS driver: Actually, I may be interested in that. What do
I have to do?
Investor: You just call me, e-mail me, or leave me a note
with the property address and, if you have it, the owner’s name
or phone number or any other contact information. I’ll get to
work on the deal and if I can put something together where I
can profitably buy the house, I’ll give you $500 cash the day I
close on the house.
The biggest fear of a potential bird dog is that he’ll pass you
a lead, you’ll follow up on it and buy the property, but won’t pay
him the finder’s fee. When you know this up front, you understand
that every bird dog will “test” you. They’ll pass you a few leads to
see what you’ll do with them. If you want to pass this test with an
A plus, make sure you not only follow up on the leads right away,
but also follow up with your bird dogs to let them know what hap-
pened with their leads. Either e-mail them or leave them a phone
message like the following:
David: Hi Scott, this is David. I just wanted to thank you

for the two leads you passed my way three days ago. I also
wanted to let you know what happened. The house on Briar
Lane turned out not to be a fit; the seller owed way too much
money on it. But the second lead for the Sunny Dale Road
house looks promising. I talked with Jonathan, the owner, for
about ten minutes yesterday and he is motivated to sell fast. I
am meeting with him tomorrow to see the house and talk
things over with him. I’ll keep you posted on what happens
with that one. Again, thanks for the referrals, and please keep
them coming. I don’t know if I’ll be able to buy them all or any
of them, but I do promise to keep you posted and any house I

close on I’ll pay you that $500 cash finder’s fee on the day I
close on the house. Bye . . .
Technique #13: Empower Your Friends and Family

to Pass Leads Your Way
We’ve discovered that most investors can find at least one deal
through the people they know in their personal network within six
months of starting their investing. We tell Mentorship students that
some acquaintance of theirs knows someone who has a house in
trouble and needs to sell fast.
The biggest reason new investors don’t ask people they know
to help them find deals is fear—the fear that their friends and family
will laugh at them or tear down their dreams. “After all,” the new in-
vestor says, “my friends and family know I’m broke and was recently
laid off. They’ll never believe that I’m an investor.” So here’s a simple
script to help you ask them for their assistance in finding deals, es-
pecially if you’re afraid to tell them you are an investor.
Sample Script to Get Friends and Family to

Find You Deals
Ring, ring . . .
Friend: Hello?
Investor: Mark, hi, it’s David [say hello and catch up with
each other for a bit . . .]
Investor: Mark, I wanted to ask a favor from you. I’m just
getting started investing in real estate. I’m doing my best to do
it the right way—I’m reading the books, listening to the home-
study courses, taking the workshops, meeting with sellers,
and putting offers out there. It’s been a bit of a struggle to get
started. What I’m finding is that a lot of people are really neg-
ative about me getting started doing this and I wanted to ask if
you’d be willing to give me a kind word from time to time
when you see that I need it.
Friend: Of course, I’m willing to support you.
Investor: Thanks, Mark. Your encouragement really
means a lot to me. Also, if you ever come across sellers who
need to sell fast—maybe they’re behind in their payments or
they have a vacant property—would you be willing to let me
know about it?
Friend: Sure, I would do that.
Investor: I knew I could count on your support, Mark.
Look, I know that you would tell me about the house just to
help me, but if I was in fact able to find a fit and buy the prop-
erty, I’d like to send you and Sarah out to dinner on me. You
pick the restaurant and I’ll pick up the check. I’ll even pop for
a sitter for the kids too.
Friend: That sounds great!
See how easy it would be to approach your friends and family

that way. You admit you’re just getting started, that it’s really hard
going, and that you’re simply asking for their support. It’s almost an
afterthought, albeit an important one, that you’re asking them to
help you find deals. Also, we’ve found that, with friends and family,
offering to send them out to dinner is a great incentive and reward.
Technique #14: Buy Deals at Wholesale from

Other Investors
You learned in Chapter 3 how you can sell your deals whole-
sale to other investors. But it works both ways. If you have the cash
resources to close quickly—especially if you’re willing to take on a
rehab project—buying a deal from another investor is potentially a
valuable lead source. Join your local real estate investor association
and network with wholesalers in the group. Ask them to add you to
their “buyers’ list” so they’ll contact you when they lock up a hot
deal. For a cash fee, they will assign their contract with a seller over
to you.
‘‘
■ David’s Story
Cheryl, one of our Mentorship program coaches, shared with me a
deal she got for 60 cents on the dollar and paid a wholesaler $3,000
for his contract. She laughed when she told me he really wanted the
names of her private lenders instead of the $3,000. Cheryl coyly
smiled and gave him his money when she closed on the house. ■
Technique #15: Network with Other Professionals
Think about all the people homeowners go to when they’re in

trouble. Then ask yourself how you can connect with these people
and let them know you are an investor looking to buy more proper-
ties. Following is a list of professionals to consider:
• Doctors
• Chiropractors
• CPAs
• Insurance agents
• Paralegals
• Credit counselors
• Police officers
• Paramedics
• Religious leaders
With techniques 10 through 15, you’ve just learned about some
giant sources to find profitable deals. If you read carefully through
them, you’ll notice 27 different referral sources.
Finding Foreclosure Deals Before Anyone

Else Does
One problem with waiting for properties to show up on the ra-

dar screen of the Notice of Default or lis pendens lists or from other
information source providers is that you’re one of many investors
getting the same lists at the same time. This can create competition.
Wouldn’t it be powerful if you could get your hands on that
list, or even the precursor to that list, ahead of possible competi-
tors? Have we got your full attention now?
The following seven techniques do just that—find foreclosure
deals before they appear on other investors’ radar screens. It takes
a good bit of legwork to tap into these seven techniques, but the
payoffs can be huge. (Several of these ideas came from a brilliant
investor named Joe Kaiser who developed a series of ideas to find
underground sources to find foreclosure deals. You’ll find more
information about Joe and his ideas in “Your Bonus Web Pack” at
the end of the book.)
Technique #16: “Trigger” Documents
What documents get recorded before a foreclosure is initiated?

Here is a list of documents to tap into at your local courthouse or
county recorder’s office:
Notice of Appointment of Successor Trustee. If you live

in a deed of trust state (you learned about this in Chapter 2), here’s
a powerful tip for you. Many lenders do not process their own fore-
closures; they hire an outside firm to handle the entire foreclosure
for them. To pass the legal power to this outside firm, the lender ap-
points this firm as the new Trustee under the deed of trust. This suc-
cessor trustee will record the signed document from the lender
called Notice of Appointment of Successor Trustee. Guess what?
You can look up any new appointments of successor trustees at your

local recorder’s office. Because lenders also appoint a new succes-
sor trustee if they sell the loan to another company—which com-
monly occurs—or for other reasons, you’ll need to look for one more
thing. Typically, there are a few companies in an area specializing
in handling foreclosures for lenders. Search for these specific com-
panies’ names on the Notice of Appointment of Successor Trustee.
Filings for divorce. Foreclosures are often triggered by the

ending of a marriage. The divorce process, like any other court pro-
cess, begins with a specific filing at the local courthouse. In some
areas, you can get access to this information; in other areas, you
have to wait for these filed documents to age for 60 to 90 days; in
still other areas, you won’t ever be able to access them. However,
it’s worth trying to see what you can get at your local courthouse
(or better yet, online through your local and county governments’
Web sites).
Filings for bankruptc y. This legal process begins with a

specific filing at your local courthouse. Investigate if you can get
access to this information.
Probate filings. One of the most drawn-out legal processes

is the probate process—the legal means by which a deceased per-
son’s will is “proven” and his or her property is disbursed. Because
it’s a public process, all of the deceased person’s estate will be filed
on record at the courthouse.
Technique #17: Research the Notice of Default

List at the Courthouse
Because most other investors will wait to get the prepared list
from their title company or local information source provider, you
will get a two- to ten-day advantage over those waiting for their
lists! Often this is the difference between being the only caller at
the homeowner’s door and being one of several investors compet-
ing for the same deal. Remember, only invest your time following
up the juicy leads that have lots of equity.
Technique #18: Start a Foreclosure Ser vice Business
While this one isn’t appropriate for the beginning investor, if

you’re a seasoned investor, consider starting up a business helping
lenders dealing with taking back distressed properties. Not only
can you make a bit of profit from the ser vice, but you can get
insider access to leads on potential deals. The business would be
involved in the following activities:
Process the foreclosure. For a f lat fee, you can process the
whole foreclosure yourself or work part-time for a company that
processes foreclosures for lenders.
Recording foreclosure documents. You can run a service

where you courier documents from lenders’ offices or the local title
company to the recorder’s office where you record them for the
lenders or local title company.
Weather-secure the house. If you live in a cold climate,

consider working with lenders who have REO properties that need
to be prepared for the winter cold.
Consult with sellers. You can create a service helping sell-

ers in default work out forbearance agreements with their lenders.
Those sellers who can’t afford their properties can turn to you as
an alternative to solve their problems. One student in Los Angeles
uses only this single idea to find an average of four deals a month.
Technique #19: Go Through the Back Door
One strategy is to see if you can buy a bad debt that is secured
by a piece of real estate. Not only can you buy this debt for pennies
on the dollar, but you can start the foreclosure yourself to get the
property. Once you’ve acquired the debt (or even better, the option
to buy the debt at a huge discount), you can call up the homeowner
and negotiate a great buy on the property.
Here’s a list of the types of debt to look for:
• Distressed notes (i.e., promissory notes secured by a prop-

erty)
• Mechanics’ liens (e.g., a contractor who replaced a roof but
was never paid for the work)
• Judgments that have attached to the property (e.g., a judg-
ment from a car accident where the winner of the judgment
was never paid)
Technique #20: Establish Relationships with Lenders

in the REO or Loss Mitigation Department
Remember, the REO department is the place where the “real

estate owned” by the lender is handled. Banks don’t want property;
they want to get rid of the properties and get the money recircu-
lated into new loans. You can get the inside edge in some sweet
deals if you have a solid relationship with the people who handle
this for the bank. Also, the loss mitigation department—the part of
the bank where bad loans end up—can be a great referral source if
you carefully build relationships there.
Technique #21: Establish Relationships with

Realtors Who Specialize in REO Properties
In many areas, a few real estate agents specialize in selling all

the REO properties for local lenders. These agents have taken the
time to build the relationships with lenders and the track records
to gain their trust. You can tap into this network by working with
these Realtors to buy REO properties.
Technique #22: Create Your Own Ugly- or

Vacant-House List
As you can imagine, one of the first signs of a pending foreclo-

sure is that homeowners stop spending time and energy taking care
of the yard. So drive through the areas you want to buy properties
in and write down the addresses of any houses you see that look va-
cant or where the yard has been let go. After all, some homeowners
facing foreclosure figure they no longer have a vested interest, so
why should they pay to water the lawn? Additionally, get your bird
dogs or others in your network to refer these types of leads to you.
Here are five ways to find owners of vacant houses:
1. Knock on the door. You never know—they might just be

home. If they’re not home, leave a letter or note on their
door telling them you’re a local investor who might want to
buy their house and to please call you.
2. Visit the neighbors and let them know you’re an investor
who’s interested in buying that eyesore on their street and
fixing it up to be a positive addition to their neighborhood.
3. Mail a letter first-class, clearly marked, “Do not forward—
address correction service requested.” If there’s a forward-
ing address, the U.S. Post Office will send you notice of what
the updated address is.
4. Look up who owns the house and their mailing address in

the tax mailing address records (online or at the recorder’s
office or through a local title company). From this, try to get
a phone number from the telephone information service in
the city where the owners live. Or mail a handwritten note
to the owners and include them in your mailing sequence
(described earlier in this chapter).
5. Search on the Web. (Note: As part of Your Web Bonus Pack
at the back of the book, you’ll find links to specific Web
sites you can use to track down owners of abandoned prop-
erties.)
The real key is to get out and mix with people who can lead to
deals. Try out a variety of the different ideas you’ve learned here
and find three to five that work well in your area. Keep doing these
successful things over and over. Don’t look for your marketing to
be exciting; look for it to make you money. Sadly, we’ve watched
too many investors change a successful marketing campaign be-
cause the investor got bored with the “same old same old.”
Tracking Your Marketing Efforts
So how will you know what works? By tracking your market-

ing efforts in these three ways:
1. Measure the cost of the campaign. This means measur-

ing and recording the time, energy, and money you invested in a
particular marketing campaign. Remember, it’s not just the mone-
tary cost of the ads or letters; it’s also the time it took from you and
the effort it took to get the work done. Look at the real cost.
2. Measure the response of the campaign. This is best

done by having all calls from a specific lead source go to a separate
voice-mail or extension for your voice-mail system. For information

on the system we’ve been using for several years, visit the American
Real Estate Investors Association Web site at <www.americanreia
.com>. This association offers an inexpensive preprogrammed sys-
tem for all its members. Also make sure you double-check this type
of tracking by systematically asking all sellers who responded to a
specific marketing campaign how they first heard about you. If the
two answers conf lict, usually your voice-mail tracking is more reli-
able than the seller’s memory. Still, it’s useful to have the backup
information from asking the sellers where they heard about you.
Also take a moment to ask these sellers what part of your marketing
campaign or message motivated them to respond.
3. Match up the real costs and the responses with your

bottom-line successes. How many deals did you sign up? How
many of these deals were keepers that made you money? You’re not
measuring your marketing activities by the number of leads but,
rather, by the number of dollars those leads help you earn and the
effort required to earn those dollars.
You can find great foreclosure deals. They are out in your mar-
ketplace. And the homeowners of these properties are in dire need
of your help. You win by making a profit and they win by solving a
pressing problem.
So what are you waiting for? Put down this book and put these
ideas to work at making you money!
The Instant Offer
System—Five Simple
Steps to “Yes”
5C H A P T E R
Imagine you’ve worked hard to find sellers in default who

sound motivated over the phone. You’ve passed through your initial
phone qualification and the financial details all look good.
You’ve spent a total of four hours finding this one seller and
setting up an appointment to meet at the house to talk about buying
it. You feel a bit nervous, but you put that aside and focus on the
excitement of potentially signing up your first, or next, deal.
Fast-forward to your arrival at the seller’s house. You pull up
and park on the street in front of the house. You get your first real
look at the house from the street and think it looks just like a normal
house. No one would ever be able to tell by looking at the house
from the curb that the seller is five payments behind and on the
verge of losing it.
You step out of your car and walk up to the front door. At this
point, all the “cool” you felt anticipating this meeting disappears.
Your heart is racing like a runaway stallion. It’s all you can do to
keep yourself from turning around, getting back in your car, and
driving away.
135
“What am I going to say to the seller? What are my first words

exactly? What questions should I ask? In what order? How should I
say them? How will I know what to offer the seller?”
Have we got your attention now?
We’re about to give you the road map—your step-by-step guide—
to the answers to all these questions and more. You’ll learn exactly
how to handle a meeting with a seller in default—every time.
Those who have read our books or purchased one of our
advanced home-study courses have already learned about the nego-
tiating strategies and techniques we teach. At the heart of these
negotiating techniques is the five-step process we’ve developed and
refined over the past eight years. We call it the “Instant Offer Sys-
tem” or “IOS” for short.
The Big Picture of the Instant Offer System

What comes next is a distillation of our best negotiating secrets
as they directly apply to buying foreclosures. When you finish work-
ing with this section, you’ll know what to say and in what order so
you have the best chance to close the deal.
The IOS is made up of five distinct steps that must happen in
the correct order to get the seller emotionally and intellectually
ready to sign the deal on the spot. The words on the spot tell it all.
You’ll always have the best chances to put a deal together if you get
it signed up at your first meeting with the seller. To do this, spend
the time talking with the seller and helping him or her emotionally
and intellectually process what you’re offering.
Here are the five steps:
1. Connect with the seller.

2. Set up an “up-front agreement.”
3. Build the seller’s motivation.
4. Talk about the money.
5. Take the “what if” step.
5 / The Instant Offer System—Five Simple Steps to “Yes” 137
Five Steps to Get Sellers in Foreclosure to Say “Yes”
Let’s go through each of these steps in detail so that when

you’re finished reading (and rereading) this section, you’ll have all
the tools you need to go out and negotiate a moneymaking deal on
your own.
Step One: Connect with the Seller
Start by building rapport with the seller. Imagine you were a

seller and you were in a financially vulnerable position. How would
you feel about some “investor” coming over to talk about buying
your house?
Can you imagine how cautious and guarded you’d be? How
closed emotionally you might be? Your job is to take the first five to
ten minutes to establish a connection and affinity with the sellers.
How do you do that? You gently ask the sellers questions about
themselves and their lives, building bridges wherever you genu-
inely can. The fact is, people like people who are just like them. So
as you go through Step One, you’ll draw sellers out of their shells
and get them to talk candidly. Wherever possible, you’ll highlight
when you’re just like they are.
Here’s an example of how this conversation might go. Imagine
you, the investor, are walking through the house with the seller
showing you around.
Investor: Are these your kids? [You point to the photo on

the end table]
Samantha: Yes, they are. That’s Mark, my oldest, Sylvia,
and Jonathon.
Investor: How old are they now?
Samantha: Mark’s 26, Sylvia’s 16, and Jonathon is 12.
Investor: My kids are 12 and 14 [building a bridge]. So

does it get any easier when they hit their 20s? [smiling]
Samantha: It sure does. You know, I always thought it
was real important to remember that we were all teenagers
once and we survived it. Although looking back, I’m not sure
how my parents survived my teen years. [Notice how the seller
is loosening up a bit.]
Investor: I know exactly what you mean. I think I was
probably the toughest of the bunch for my parents to raise.
[Building a bridge] What’s your oldest doing now?
Samantha: He’s married with a child on the way. He lives
in Seattle and works for a financial company out there.
Investor: Wow, you’re going to have a grandchild! That
must be so exciting for you. How much longer until the due
date . . .
You get the idea; the first step of the IOS is to make a friend.
We know some people will complain that they can’t build rap-
port with the seller because they feel awkward and don’t know
what to ask. So here’s a list of surefire questions to ask sellers. They
will jump-start the conversation if you ever feel stuck.
• Where did you grow up?

• Do you have any kids?
• How old are they?
• What do you do for a living?
• How did you get started in that career?
• What do you like to do for fun?
How to Avoid the Two Biggest Mistakes When

Building Rapport
Mistake 1: Spending too much time on rapport (and not

moving to Step Two fast enough). At some point, a beginning in-
vestor finds himself wasting hours of his time making friends with
a seller who just isn’t in a position to sell the investor her house.
The investor spends so much time building rapport that by the time
he determines that the property obviously isn’t a fit, the investor
has wasted several hours of his precious time.
What do you really think causes an investor to remain in Step
One of the IOS and not move on? If you said fear, you’re right. The
ideal amount of time to spend building rapport during Step One is
five to ten minutes.
Mistake 2: Thinking that Step One of the IOS is done just

once, ticked off, and forgotten. Building rapport with the seller
is something you’ll have to do throughout your meeting with the
seller. While you should spend only five to ten minutes before mov-
ing on to Step Two (setting an up-front agreement), that doesn’t
mean you’re finished building rapport.
Throughout your negotiation, you will have to gauge your con-
nection with the seller and look for opportunities to broaden and
deepen this connection. But you have to balance this need to main-
tain the connection with your equally important need to move the
conversation forward.
Step Two: Set an Up-front Agreement
What is your most precious resource as an investor? Some peo-

ple will say money. Others will say good credit. We say it’s time. Yet
we watch so many beginning investors work for free! By this, we
mean they invest all kinds of time and energy before they have a
definite commitment from the seller that they have reached an

agreement.
We’re not willing to work for free and we don’t think you
should either. Instead, make it understood up front that you’ll spend
the time it takes to work through the situation and the details, pro-
vided the seller agrees early in the conversation that when it’s over,
both of you will let each other know exactly where you stand—
either you have a fit or you don’t. Period. That simple.
In its plainest terms, an up-front agreement is simply a com-
mitment from you and the seller to say yes or no at the end of your
conversation about the property.
Here’s how it sounds:
Investor: Samantha, I’m willing to sit and invest the time

to listen to all the details of your situation and to talk through
all the possible options we can come up with. All I ask is that
when we’re done talking this through, if what we talk through
obviously isn’t a fit for you, that you be willing to let me know.
If it just isn’t a fit, are you willing to tell me that?
Samantha: Sure.
Investor: I appreciate that. I’m letting you know that
you’re not going to hurt my feelings. On the other hand, if
what we talk through is a fit for you, are you willing to let me
know that when we’re done here today?
Samantha: Yes, if it’s a fit, I can tell you that.
Investor: Now I’ll be doing the same thing in reverse. If I
can’t see a way where I can meet your needs and make a profit
for myself, then I’m not going to want to buy your house. Are
you OK if I have to tell you no, I don’t want to buy it? I mean,
it wouldn’t be anything personal about you; it would just be
me saying it’s not a fit.
Samantha: I understand this has to work for both of us.
Investor: Exactly, and if I feel it’s a fit, then I’ll let you
know that too. I’ll say, “Samantha, this is a fit for me too.” So
what we’re agreeing to do up front is to let each other know

when we’re done exactly where we stand. Either no, it’s abso-
lutely not a fit. Or yes, it is a fit. Is that what we just agreed to
do? [This is called “reinforcing” the up-front agreement.]
Samantha: Yes it is . . . [and on to the next step].
Do you see how powerful that language and strategy is? It’s
your way of telling sellers that you’ll put your time in to see if it’s a
fit, if and only if they’ll promise to give you a decision right at the
end.
‘‘
■ Peter’s Story
There is going to come a time when you’re scared to firmly set an
up-front agreement. When that moment comes, remember that
I coached you to do it anyway. Oh, you’ll think the language
will sound stilted and strange, but do it anyway. Then, in the
closing moves of your negotiation, if you need to, gently but firmly
remind the seller of your mutual commitment up front to make a
decision. You’ll find this clear stance helps liberate you from
wondering what’s going to happen next. Honor this agreement
and hold the seller to it too. ■
Step Three: Build the Seller’s Motivation
At this point you’ve set the stage to really begin your negotia-
tion. You’ve connected with the seller, built rapport, and set your
up-front agreement (by which the seller has agreed to give you a
decision at the end of your negotiation).
Now it’s time to move to the next step, which is negotiating
with the seller on an emotional level. In this step, you help the seller
connect with all the pressing reasons why she needs to sell and
why you are her best option. We call this “building the seller’s moti-
vation.”
‘‘
■ David’s Story
When you want to build a seller’s motivation, think about how
great athletes perform. They first carefully warm up and stretch
before they go out and compete. They know that if they start
without this preparation, they might pull a muscle or otherwise
injure themselves. It’s the same with sellers. You need to help them
warm up to the idea of selling to you at a price and terms that allow
you to make a conservative profit. In the motivation step, you’re
helping them stretch and warm up to find a fit for both of you. ■
A key outcome to be reached in Step Three of the IOS is to

help sellers break out of the denial they may be living in. So many
sellers who are in foreclosure have deluded themselves into be-
lieving that it’s not really happening. They rationalize away their
situation or, even worse, block it out completely. Unless you are
able to help them work through any barriers and be emotionally
present with the consequences they might face from their situa-
tion, you’ll be hard-pressed to both help the seller and get a great
buy on the property.
One of the things we covered in Making Big Money Investing
in Real Estate was something called “negative phrasing.” This one
idea will turn upside down many of the traditional notions of
negotiating with a seller.
When sellers are in foreclosure, they are scared some investor
will come in and steal their house. And when people are motivated
by fear, they look for what is wrong, because they feel that if they
can spot what’s wrong, they can protect themselves. A seller who
is motivated by fear will “mismatch,” meaning he’ll look for what’s
wrong. This is a term from Neuro-Linguistic Programming (NLP)
that refers to a person’s tendency to see and say the opposite of
what he’s told. For example, if you say to the seller that he’ll never
get the price he wants, he’ll be even more convinced that he will.
If you say that the condition of the house isn’t good, he’ll argue that
it is good.
This is a leverage point for you in negotiations. Whenever you

can accurately predict how the other person in a negotiation will
behave, you can use this information to be more effective.
Here are a few simple examples of how to use negative phras-
ing to build the seller’s motivation:
Example one:
Investor: You mentioned that you thought about just refi-
nancing as a way out. The mortgage brokers you talked with
probably have already got that process going, right?
Seller: Well, actually, the guy I talked with said with my
credit, I wouldn’t be able to refinance the house.
Example two:
Investor: How else have you tried to sell the house?
Seller: We’ve been selling it “for sale by owner” for the last
few weeks.
Investor: And that’s been working really well for you?
Seller: Actually, it hasn’t been working at all.
Example three:
Investor: You told me on the phone that you met yester-
day with another investor. How did that go? I mean you prob-
ably really connected with him, huh?
Seller: Not really, he was a bit rude and pushy and I ended
up asking him to leave.
Do you get the idea? Rather than coming out and saying what
you mean directly, you simply say the opposite and let the seller step
into the powerful role of the one getting to correct you. This is one
important reason that negative phrasing works so well when nego-
tiating with sellers in default. Considering how powerless many sell-
ers in their situations feel, you can probably see how by giving them
the emotional currency of feeling powerful you can really draw
them out of their shell and connect emotionally with them. Also no-
tice how you are getting the seller to be the one who argues for your
case, that she really is in trouble and does need your help. After all,
who is the seller more likely to believe, herself or you?
Remember, sellers who are in foreclosure are embarrassed to
admit, even to themselves, what their situation is, so they live in
denial. That is why it’s so important to spend the time with them
to build their motivation. We mentioned that Step One (connecting
with the seller) of the IOS should take five to ten minutes, Step
Three (building motivation) should take you closer to 30 minutes—
the longer the better.
‘‘
■ David’s Story
Every time I watch Peter negotiate on a property, I am still awed.
Over the years, I’ve modeled his incredible ability to help sellers get
in touch with the real reasons they need to sell fast. He’s just so
good at it. That’s one of the reasons why our IOS of today is vastly
better than it was eight years ago—because I’ve modeled all the
powerful improvements Peter has come up with over the years.
Imagine for a moment what it would be like to go out on
appointment after appointment with him as your coach and
mentor. When people ask me how I got to be so good at negotiating
and investing, I explain how Peter made me his first Mentorship
student and helped me make my first million by age 31, starting
out with no knowledge of real estate at all. ■
Here’s a sample of a transcript of an actual negotiation:
Investor: So, Samantha, you were telling me on the phone

a few days ago that you had just received a letter from your
lender saying it was about to start the official foreclosure. A lot
of people would be scared by that kind of letter, but you prob-
ably just took that in stride, right? [Negative phrasing]
Samantha: Not really; it freaked me out. I mean it was

really scary to get that letter.
Investor: Oh, really . . . tell me more about what you felt
when you got that letter . . . [Voice dropping lower in tone
and softer in volume]
Samantha: I remember thinking to myself, What am I
going to tell my family about this if I lost the house?
Investor: I imagine that must have been hard for you to
think about. I know a lot of people would just run away and
hide from the truth. Heck, you were probably tempted to just
run away from what that letter meant. [Negative phrasing]
Samantha: No, I knew I couldn’t run away. I mean, sure
I thought about it for a moment, I still do at times, but I know
that isn’t going to help any.
Investor: Well, if worst came to worst and you lost the
house to the bank, I’m sure your family would be supportive
and wouldn’t judge you in any way. [Negative phrasing said
with big eyes]
Samantha: They’d be there for me, but they sure would
let me know how I had messed up.
Investor: How do you mean? [Scrunchy face, voice get-
ting softer]
Samantha: They’d make comments and whatnot. It
wouldn’t be too obvious, but they would take little shots and
stuff like that. I don’t want to have to deal with that when I’m
back visiting for the next 10 or 20 years . . .
And the conversation would continue on along those lines. Go

back and read through the sample transcript one more time. This
time, look for other techniques used in this negotiation to help the
seller emotionally associate closely with her situation instead of
holding it at a distance. (Hint: We did this when we asked questions
like, “Tell me, what did you feel when you got that letter?” and,
“How do you mean?”)
You’re giving the seller prompts so she goes into more detail
about how she feels. This scares a lot of investors. They say, “I
wanted to buy foreclosures because I like houses, or because I like
running numbers, not to have some kind of touchy-feely conversa-
tion with a seller.” The truth is that “houses and numbers” are not
the business you’re in. Connecting emotionally with sellers who
need your help is your core business. Never forget this.
One of the greatest skills you can develop is your capacity to
be comfortable guiding other people through tough emotional
experiences.
Step Four: Talk about the Money

Now you are ready to talk through the numbers with the seller.
Notice that you needed to save this part of the negotiation for near
the end. One of the biggest mistakes we see investors make is to
negotiate the numbers—the money—without building the seller’s
motivation first. This can cost you tens of thousands of dollars on
every deal.
‘‘
■ Peter’s Story
Class after class, our Mentorship students find that the Purchase
Option Money Game they play at our three-day Intensive Training
is the most powerful part of the training. Not only do they get to
role-play the whole IOS, but they have defined criteria to help them
make sure they stay on track. One of the most important ways they
keep from getting penalty points (and are more likely to be able to
“keep” their deals) is to always cover motivation before money.
Remember this the next time you negotiate on a house. No matter
how temptingly the seller brings up the subject of money early in
the negotiation, keep firm and fully cover the seller’s motivation
before you move on to discuss money. You’ll always get a much
better deal this way. ■
There are two goals for the Money Step. First, to get all the
seller’s financial details on the table. Second, to gather all this infor-
mation and at the same time, lower the seller’s expectations about
the amount of money she’ll receive and when she’ll receive it.
You might be thinking that you could never do both of these
things. But we believe that anyone, with a little coaching, can be-
come a great negotiator. Great negotiators are made, not born.
Are you open to our coaching? We are about to give you the
word-for-word language patterns that can lead to a slam dunk when
negotiating with sellers in default. Still, it’s up to you to put them
into practice.
Insider Secret: Learning to negotiate well is like learn-

ing a foreign language. The best way is to have plenty of
repetition and immerse yourself in the sounds of native
speakers. (That’s why we recommend to students who
get our home-study course to listen to the negotiating sec-
tions over and over again.) At a certain point, you’ll find
yourself able to use just the right language, at the right
moment, in the right way. It’s similar to how you take in
and learn lyrics to songs. After hearing the song over and
over, one day you just know the words. It’s effortless.
The best way to learn how to negotiate money is to listen in to

an actual negotiation like this one:
Investor: So what do you think the house is conserva-

tively worth, Samantha?
Samantha: About $350,000.
Investor: Oh, it’s worth conser vatively $330,000 to
$350,000, OK . . . [Range technique—see our book Making Big
Money Investing in Real Estate for this and 22 other power-
house negotiating techniques]
Samantha: Actually, I think it’s worth $350,000.
Investor: Oh, pardon me . . . $340,000 to $350,000.

Samantha: Yeah, I guess it’s around there.
Investor: Let me ask you, What did you realistically think
you would get, considering the house’s situation?
Samantha: I thought I’d get at least $335,000 or more.
Investor: Oh, OK . . . you thought you’d get $320,000 to
$335,000 . . . [ If the range technique works once, use it
again!] Let’s see . . . a thought just occurred to me, if a real
estate agent came to you and said he could get the house sold
in the next 30 days, and you were convinced he could get it
sold for you in the next 30 days for, let’s say, the full $320,000
or maybe even a little bit more, you’d probably turn that offer
down, huh? [Negative phrasing] Or maybe you wouldn’t? You
tell me . . .
Samantha: At this point, I’d probably just take it to be
done with all this mess.
Investor: That makes sense. Let’s see, 6 percent of
$320,000 is . . . 6 percent of 100,000 is $6,000, so we times that
by three to get . . . $18,000, plus 6 percent of the $20,000 is
about . . . what, $1,200. So I’m getting the full commission as
roughly $20,000; is that what you’re getting?
Samantha: Yes, I’d get about $300,000 after all is said and
done.
Investor: I think you’re right. You’d walk away with the
$300,000, less your share of the closing costs [notice how you
just slipped that one back into the conversation]. What do
you think the closing costs would be, Samantha? I had a real
estate agent friend who told me that the costs usually are about
1 percent, so in this case that would be what, around $3,000 or
so. Does that sound like about what you thought they would be?
Samantha: I hadn’t really thought to add them in. But I
guess you’re right. Gosh, it doesn’t really seem like I’d get
much of anything.
(Note: You haven’t written any number down until you get
to this bottom number of $297,000, which you write down and
label as “full price amount to seller.” Remember, in any negoti-
ation, the person who is the one to label different pieces of in-
formation has a tremendous advantage in that negotiation.)
Investor: What was it you owe against the property?
Samantha: $280,000.
Investor: Is that all on one first mortgage or spread be-
tween two or more loans?
Samantha: No, that’s all on one first mortgage.
Investor: And the payment on that is . . .
Samantha: $2,350, and that includes the taxes and insur-
ance.
Investor: And how many months is the house behind right
now? [Notice you said “the house,” not “the seller.”]
Samantha: I’m four payments behind, going on five in
two more weeks when the next payment is due.
Investor: Oh, so the house is about $10,000 behind as of
the next payment, plus late fees and any other fees your lender
tacks on . . .
STOP! You are done with Step Four of the IOS. You’ve gotten
all the financial details down on paper in a way that has lowered the
seller’s expectation of what she will get.
Now it’s time to move on to Step Five—the “what if” step.
Step Five: Take the “What If” Step
What if there was a powerful two-word phrase that would

guarantee you’d never be rejected by a seller ever again? We’re not
saying it’s possible, but again, what if it were possible that these
two words would mean a seller would never reject any formal offer
you made? If you could have these two words, what would it mean
to you? How valuable would these words be to you in your invest-

ing? Would you be willing to donate $1,000 to your favorite charity
just to get an e-mail from us telling you what these two words were
and exactly how to use them? You would? OK, we’re a little con-
fused here. Why would these words even be so important to you?
All kidding aside, we hope you just noticed the language pat-
tern of the preceding paragraph because it parallels exactly the tack
you will take with the seller in this final step of the IOS.
The two words that guarantee you’ll never have a seller reject
any formal offer you make are what if. These are the two most pow-
erful words in any negotiation because they commit you to noth-
ing, but commit the other person to everything.
You can use these words effectively by qualifying any offer you
choose to make to the seller with these two words. Then, before
you “make” the offer, that person tells you that she would accept it.
It’s so simple yet powerful that many would-be investors forget to
use them when negotiating with a seller in foreclosure.
Here’s a transcript of how those words might sound in action.
We’ll be building on our negotiation with Samantha. At its comple-
tion, we’ll highlight several of the powerful techniques used in this
transcript that you can immediately put to work to make your nego-
tiations with any seller in foreclosure more profitable.
Investor: Samantha, here’s an idea, you’ll probably hate it

[negative phrasing], but what if I were to make up the back
payments and buy the property, and just take over the pay-
ments from here on out? I’m not sure if I’d be willing to do this
or not just yet [reluctant buyer], but what if I were able to talk
my partner [higher authority] into doing this? Is that some-
thing we should even talk about, or probably not? [Negative
phrasing]
Samantha: No, I don’t hate it. We should definitely talk
about it.
Investor: Oh, OK . . . I’m a little confused here, I guess it’s

been a long day or something. What about me making up your
back payments and buying the property, and then taking over
your payments each month from here on out—would that even
work for you? [Scrunchy face]
Samantha: Well, you’d stop the foreclosure so I wouldn’t
have that on my credit record for the next seven years.
Investor: Why’s that even important to you?
Samantha: Because my credit is important to me. I mean,
it affects my buying another house someday. It affects my car
insurance costs. Besides, I just don’t want to be the type of
person who doesn’t honor her obligations.
Investor: Oh, so if I’m hearing you right, you want me to
make up your back payments, buy the property, and take over
making the monthly payments from here on out [giving the
seller full credit for the idea]. Did I get that right?
Samantha: Yes, that’s what I want you to do.
By the way, if you liked the negotiating techniques you’ve

learned about so far, make sure you get a copy of Making Big Money
Investing in Real Estate right away. We went to great lengths to
build on the 23 negotiating techniques taught in that book. We
know, you’re thinking that you just spent $20 on this book; now
these authors tell me to get their other book. Yes, that’s exactly what
we’re saying. When you get it and read it cover to cover within 30
days of buying it, if you don’t feel it’s worth ten times the price,
we’ll refund every penny you spent on it. This isn’t the publisher
talking; it’s Peter and David’s guarantee.
It’s that good. If you don’t agree, send a quick note with your
store receipt and the book. Tell us you want a refund and we’ll send
it, no questions asked. (See our contact information at the end of
this book.) Do we have a deal? Heck, you probably hate that idea.
[Negative phrasing]
How to Avoid the Seven Biggest Negotiating Mistakes

Most Investors Make
#1. Chasing the Deal
The best negotiators know that they can’t appear to be too

anxious to make a deal. In the negotiating game, to be as effective
as you want, you need to be a bit coy. Remember, reluctant buyers
never chase after the deal; they seem hesitant, almost as if they are
ready to walk away from the deal at any moment. This reluctance
fuels the seller’s desire to want the deal even more.
Here are two quick examples of how reluctant buyers sound
and the specific language patterns they use:
Example one:
Seller: What do you think you are willing to pay me for the
house?
Investor: Well, Mr. Seller, to be frank, I’m still not sure I
even want the house. What with all the craziness that is going
on in the world today, I’m just not sure now is the time to pick
up another investment property. May I ask you a few more
questions to see if I even want to buy the house? [Imagine you
were the seller and heard such reluctant language. Can’t you
just feel your stomach sink?]
Example two:
Investor: I’m not sure if I could even do this, but what if
I was able to negotiate with your lender to have it accept a lot
less money as full payment on what you owe? If I could do that,
and I’m not sure I could, but if I could, would that be a fit for
you, or probably not?
Seller: Yes, that would be a fit. Can you really do that?
Investor: Well, I’m not really sure I can, but I’ll give it my
best go. If I could, that would mean you could just walk away
and start fresh somewhere else . . .
Do you see the patterns of qualifying everything added into

the negative phrasing? They work powerfully when combined like
this.
#2. Selling the Seller on the Deal
Remember, when you are negotiating with a seller you need to

play the role of the reluctant buyer. So often we see other investors
forget what they are doing and try to sell the seller on the deal.
Here’s what this sounds like:
Average investor: Mr. Seller, what if I were able to buy

your house for all cash at closing? This would give you imme-
diate debt relief [benefit one], which would mean no more
angry bank letters in the mail or bank bill collectors calling you
up on the phone [more benefits]. Can you imagine how good
that would feel to be free of this property?
You might be asking what’s wrong with this example. After

all, “benefits sell” so why shouldn’t you stack benefit on top of ben-
efit to make your solution to the seller’s problem even more appeal-
ing. All we can say is that it just isn’t effective to sell the seller on
the deal. And this is especially true when the seller is feeling vul-
nerable like he surely must feel if he is in foreclosure. Here’s what
we anticipate would happen (the seller’s response) in this example:
Seller: Well, I don’t know. It all sounds good but somehow

it just sounds too easy. Besides, you’d never pay me enough to
be something I’d accept. [See how the seller is getting a bit
nervous here.]
Average investor: I understand how you feel, Mr. Seller,

but consider what it would really mean to you if we could get
you the cash you need to just cut your ties to the house and get
on with your life. We’re talking all cash at closing. You do like
the sound of all cash at closing, don’t you?
Seller: Of course, I like the sound of all cash, but it’s just
not going to work for me the way you describe it. I appreciate
your time, but I just don’t think we’ll find a fit here.
And the more the average investor pushes the seller, the firmer
the seller’s stance becomes that there just isn’t a fit. What the aver-
age investor didn’t realize is that in every negotiation there is always
an eager party who wants the deal to close, and a reluctant party
who cares significantly less if the deal closes. The average investor
mistakenly chose the wrong role!
Then the average investor compounded the error by trying to
“convince” the seller. We’ve found that you can’t convince moti-
vated sellers of anything, you can only help lead them to the con-
clusions you want them to reach.
If we were negotiating this deal, we would use the following
language to move the seller to the same conclusions that the aver-
age investor tried to jam down his throat.
Investor: Mr. Seller, if I did decide to buy this house,

which I’m not sure I want to yet, I probably would want to do
it with an all-cash offer. But you probably want an offer where
you don’t get all cash at closing but rather get paid payments
over time, huh?
Seller: Actually, I prefer getting all cash at closing.
Investor: Really? Why would you want all cash at closing
even though you know it will mean you get less for the house
because any investor would need to make a fair profit for even
wanting to buy the place?
Seller: Because it would get me out from under all this

debt and let me get a clean break.
Investor: What about getting out from under the debt and
getting a clean break is even important to you?
Seller: You don’t know what it’s been like for me and my
family, what with all the nasty letters from the bank, and the
stress of not knowing what to do. I just want to be done with
it, to cut my ties and get myself and my family a clean break
from this house.
Do you see how a little more subtle approach was so much

more effective because it harnessed the seller’s natural tendency to
be much more comfortable with the conclusions he makes com-
pared to the facts and “benefits” you spoon-fed him to force him to
agree to your conclusions?
Look for this big danger point when closing on the deal: Re-
member that during the “what if ”step, the investor asks the seller if
that solution was something he should even talk about? When sell-
ers say yes, most investors blow it. “How?” you ask. By getting all ex-
cited with the seller’s provisional yes and rushing into the opening
with as many benefits as the investor can fit in, as quickly as he can.
(“Oh great, Mr. Seller, this will really take the strain off you and your
family and give you back your peace of mind. I bet that peace of
mind is worth everything to you, huh?”)
Mistake! Instead of rushing in like that, which only makes the
seller put up his guard and start to look for what’s wrong (What’s
wrong with this picture? I wonder what I’m I missing that makes
this investor seem so eager here?), use a little negotiating leverage
to get the seller to close the deal himself!
Here’s exactly how to do this:
Investor: What if I were to make up your back payments

and buy the house? Then I’d take over your payments every
month. I’m not sure at this point I’m even willing to do this,
but what if I was willing to? Is that something we should even

talk about, or you probably hate the idea, huh?
Seller: No, I don’t hate the idea.
Investor: Oh, OK . . . What about me making up your back
payments and taking over your payments is even a fit for you?
Do you see how you are getting the seller to follow up with the
benefits he gets if he does business with you? The seller is literally
selling himself on the benefits. And, of course, this is a thousand
times more powerful than any benefits you could convince him of.
Tap into human nature in your negotiations to become even
better at closing deals. Let the seller sell himself and you on the
deal. Don’t ram benefits down the seller’s throat; instead, let him
tell you all the reasons he thinks make your offer the right fit.
#3: Being the Ultimate Decision Maker
One important rule is: Make sure the other side always has all
their decision makers with them while you always have a “higher
authority” to appeal to elsewhere. This higher authority could be a
partner or board of directors or spouse or attorney. While it might
seem effective to be the one in charge—the decision maker—noth-
ing could be further from the truth. Every investor needs a higher
authority in all negotiations.
By using a higher authority you are creating an environment
where you can accept concessions from the seller but can’t make
certain concessions yourself. Or if you make these critical conces-
sions, you get to qualify them with your need to get them past your
partner, a higher authority. Also, this helps you maintain the posi-
tion of the reluctant buyer who needs to be sold on buying the
property.
Here is what this sounds like in a negotiation:
Investor: So if I’m hearing you right, you want us to get

you $8,000 cash, plus make up your back payments and take
over the monthly payments from here on out. Did I get that
right?
Seller: Yes.
Investor: Are you sure that would even work for you? I
mean, before I try to get my partner to go for this I want to
make certain that you are sure it is a total fit for you.
Seller: Yes, it’s a fit for me.
Investor: And why was it again that you felt that this was
a real fit?
Seller: Like I mentioned before, it gives me enough money
to start fresh and to keep my credit intact.
Did you see how the use of the partner (higher authority)
allowed you to get the seller to make a much firmer commitment
that the deal works for her?
#4. Taking Credit for the Solution
A pattern we’ve seen play out frequently is when one party

receives the financial payoff while the other party gets the emo-
tional payoff of being important and smart. We’ve also noticed that
rarely will one person receive both payoffs. So what will it be for
you? Are you willing to give the seller the emotional and psycholog-
ical payoff in order to make a healthy profit? Glad to hear it!
One of the most important ways to give sellers emotional cur-
rency is to give them 100 percent credit for the “solution” they
come up with. Don’t let your ego step in and claim ownership of
the fancy solution you dreamed up. Be generous, making sure you
compliment the sellers on their creative ideas.
Here is what this sounds like in a real negotiation:
Investor: Let’s see, when you added up all those estimated

repairs we went through, what was the final amount you came
up with?
Seller: $35,000.
Investor: OK, so let’s see . . . the price you said you would
take just to be done with the house, and which you felt the
house would get if it were fixed up, was $340,000. Did I get
that straight?
Seller: Yes, you have that right.
Investor: So let’s see, after we factor in the repairs of
$35,000 to get the house right to sell fast for the $340,000,
and after we factor in the $5,000 in back payments, and the
$270,000 that the bank is owed, you would get . . . $30,000.
And your idea was for us to just get you your equity of $30,000
and you would deed the house over to us, is that right?
Seller: Yeah, I just want what’s coming to me and then to
walk.
Investor: Boy, I can sure understand that. An idea comes
to mind, you’ll probably think it’s crazy, but what if we were
willing to buy the property and make up the back payments,
spend all the time and money to fix it up, and then sell it right
away? And when we resell the property a few months from
now, we’d get you a cashier’s check for $30,000. The reason I
even bring this up is that this way we can keep the cash in the
deal to around $40,000, which makes it much easier for me to
convince my partner that this is a good deal for us. [ We
couldn’t resist throwing a little higher authority in for good
measure. ] But you probably think this is crazy, that you’d
rather just keep on selling it yourself, huh?
Seller: No, I don’t think it’s crazy. I can understand that
you’re trying to make this a good deal for you too. How am I
going to make sure I get paid my $30,000?
Investor: That’s a really good point. I’m guessing that your

idea was to make sure you secure yourself with the paperwork
that requires us to pay you your money before we can sell the
house to our buyer. That is important for you and I’m glad you
brought that up. I would have if I were you. Yeah, so we’ll make
sure we get a deed of trust in place to protect you just like you
were the bank. Not to mention all the money that we’re going
to have to put in here to fix up the house before we resell it.
Seller: Good, I just wanted to make sure that I was cov-
ered.
Investor: Of course. Now I just want to make sure I have
it all clear. What you said you wanted us to do was to buy the
house and make up the back payments, signing that deed of
trust to require us to get you your $30,000 before we can sell
it to our buyer, then we’ll fix up the house and then sell it as
quickly as possible so we both get paid. Did I get what you had
said right?
When it comes to spending psychological currency, don’t be

stingy! Give the seller credit wherever you can. Did you notice five
specific places in the negotiating transcript where we gave the
seller credit for coming up with a good idea or ownership of an
answer in the negotiation that let the seller feel smart (one form of
psychological payoff)? Go back over this conversation until you can
spot all five instances of giving the seller psychological currency.
#5. Talking (and Thinking) Too Fast
Sometimes investors forget to play the “reluctant” role by talk-

ing too fast. This can really put the seller on guard and create a bar-
rier to emotionally connecting with the seller.
Here are three quick techniques to make sure you don’t fall vic-
tim to this pitfall:
1. Slow down—always make sure your pace of speech is just a

bit slower than the seller you are negotiating with. People
instinctively associate fast-talkers with wheeler-dealers and
sharpie investors.
2. Adopt a passive posture—round off your shoulders, let your
stomach relax, lower your head. Why? Because alert, angular
body posture and sharp, fast movements and gestures make
it difficult for a seller to relax and feel comfortable being
open with you. This also softens your voice and mutes the
energy you send off, which in turn relaxes the seller even
more.
3. Special warning for men: The two previous points are ten
times as critical for you than for women. If you’re negotiat-
ing with a woman, you have to put her at ease and not intim-
idate her. For example, this means being respectful by not
standing or sitting too close to her, and talking in a soft
voice and manner. With other men, you’ll have to be cau-
tious not to butt heads. Let the man you’re negotiating with
feel physically comfortable by using the other two tech-
niques. You’ll negotiate a much more profitable deal by neu-
tralizing the danger of getting into an ego battle.
#6. Not Letting the Seller Save Face by “Winning”

at Parts of the Negotiation
In your negotiation, look for places where you can help sellers
feel like they’ve won. Sellers have to be able to face their families
and neighbors, not to mention themselves. Help them be winners.
#7. Using Impressive Language That Intimidates

the Seller
The final mistake is using jargon and technical language with

the sellers. While it might feel good for you to use words such as
subject to and wholesaling and assigning, we caution you about
using them. Remember, in any negotiation there are two payoffs.
Talking in impressive language will give you the psychological pay-
off, but will oftentimes kill a deal. It makes sellers feel less intelli-
gent, more confused, and more intimidated. Instead, always talk in
descriptive language that immediately makes sense to the seller.
Here are two quick examples:
Example one:
Investor: What if we were to make up the back payments
and buy the house? Then we’d just take over making the pay-
ment each month. Is this something we should even talk about,
or you probably hate the idea, huh? [You just offered to buy the
house subject to the existing financing.]
Example two:
Investor: Well, I’m not sure if this is even going to be a fit
for me. I’m having a hard time imagining I could even get my
partner to go along with this. But what if I could get my part-
ner to agree to get you the $100,000 cash—would you be open
to talking about waiting 60 to 120 days, maybe 180 days at the
most, to get that $100,000? We’d need this time to complete
the renovation on the property and find a buyer to get us both
cashed out of the property. Should we even talk about this
option or probably not? [You just offered to do a short-term
“subject to” deal and cash out the seller by reselling the house
to a retail cash buyer as soon as possible.]
You now have a complete system for negotiating with sellers.

This Five-Step framework took us years to create. All these ideas
have been tested in the real world and have been proven to work,
making investors like you a lot of money. Give yourself some time
to integrate these negotiating ideas into your investing; return to
this chapter again and again to refine your technique. The payoff is
worth the investment you put in because negotiation is one of the
most important investing skills you can ever develop.
24 Foreclosure
Pitfalls That Can
Cost You Big!
6C H A P T E R
This chapter shows you how to avoid the major pitfalls of buy-
ing from sellers in foreclosure. It draws heavily from our own deals
(especially the ones that went bad) so you can shortcut your learn-
ing curve. We learned about all 24 of these pitfalls the hard way; we
share them here to help you profit from our painful experiences.
Pitfall #1: Letting the Seller Stay in the House

At some point in your foreclosure career, probably on your
first or second house, you are going to be tempted to let a seller stay
in the property after you have purchased his home. After all, he is
in such a bad place and he has such a nice family and they only
need a few weeks to find another place to move into . . .
When that time comes, we urge you to come back to this sec-
tion of the book and read the following words of advice. (As a mat-
ter of fact, put a note next to this section so that you can make it
easier to find when you need it most.) Here is that advice:
Never, ever let the sellers stay in the property once you
have purchased the property.
163
Can we be serious? Deadly serious. If you let the sellers stay in

the property, you are asking for trouble. Either they won’t find
another place or they will keep coming up with reason after rea-
son, excuse after excuse, story after story about why they need
more time. And when you ask them to leave they’ll get angry with
you, as if you were the one who caused them to stop making pay-
ments to their lender. All the while, if you’re not careful, this is eat-
ing into your profits, and potentially into your own checkbook.
This point is so important, and so often ignored, that we’ve incor-
porated some subtle variations on this theme in the next pitfall.
Pitfall #2: Renting the Property Back to the Seller
You will find many sellers who tell you they will sell you their
house if only they can rent the property back from you. While
they’ll promise to take great care of the house and the numbers will
look good on paper, don’t do it!
We understand that it seems like the deal won’t work unless
you give in on this point, but there is usually a better solution if you
really put your collective minds to it. Blame it on your partner so
you can still maintain your rapport with the seller, but be very firm
on this point—your partner won’t let you buy the property unless
the seller moves.
Just think for a moment. If the sellers can’t make their house
payments, how are they going to pay you rent? And if they don’t pay
you the rent and you move to evict them, just imagine the night-
mare of having to deal with them getting more and more upset and
rewriting the history of how you bought the property. The real his-
tory may have had you playing the role of hero, but we can guaran-
tee you’ll get cast in a more sinister role in this revised version.
When the emotions get charged, sometimes the rational mind gets
shut off.
6 / 24 Foreclosure Pitfalls That Can Cost You Big! 165
‘‘
■ David’s Story
I once bought a house from a couple who were a few weeks away
from the trustee’s sale date. They gave me a big discount on the
price in exchange for a fast sale. I clarified the amount they would
net after paying their share of the closing costs. They left me several
voice-mail messages expressing their gratitude for helping them,
and they reaffirmed the rough amount they would walk away
from the sale with. Because the sellers hadn’t found another
place to live in yet, they asked to rent back the property for
up to three months. We talked this over and they even agreed to
have the three months’ rent, plus a security deposit, escrowed
directly from their proceeds from the sale. Like a dummy I agreed,
thinking this time it would be different. (And I knew better!)
A few days after the closing, I started getting angry calls from
this couple. They accused me of cheating them even though they
netted the amount of money I’d told them they would. They
damaged the property, upset all the neighbors, and screamed to
everyone who was within earshot how terrible a person I was.
I found this upsetting, to say the least. Over time I came to realize
that some people who find themselves in rough times need
to lash out. Yes, it is amazing how fast people’s minds change,
but remember, they’re not bad people, they’re just in a bad
place. The best advice I can give you is to be straight with
every seller so you can maintain your own sense of integrity
and make vacating the property a condition of the sale. ■
One “technique” used by some investors is to buy a foreclo-

sure from a seller and rent it back to the seller with an option to buy
the property back at a significantly higher price. The investor stops
the foreclosure by making up the back payments. From the inves-
tor’s perspective, either the seller exercises his option to buy the
property back at a healthy profit to the investor, or the seller
doesn’t, in which case the investor keeps the house with its built-
in profit. In most cases, the seller can’t make the rent payments and
the investor has to evict the seller.
Not only do you have all the emotional hassles of this process,
but you also have a lot of legal liability from the way the deal is
structured. Technically, in many states a seller could claim that you
didn’t buy the property from him but merely lent him the money
he needed to stop the foreclosure. And because your “profit” (as
built in by the much higher option price you gave back to him)
could make your rate of return on the money you “lent” him by mak-
ing up back payments higher than the state-allowed maximum, you
could be guilty of usury. As crazy as this may seem to you, this is a
real possibility in many states. Our advice is to avoid structuring
your deal this way. If, however, you feel you want to do this, we
urge you to talk with an experienced real estate attorney about the
legal implications in your county and state.
Pitfall #3: Putting Serious Money in the Deal

before the Seller Vacates
We recommend that you never give sellers a large chunk of
money before they have moved out of the property. This is your
only real form of leverage to ensure that they do in fact live up to
their word and move out. Just what is “serious money”? This varies
from investor to investor. Our definition of serious money is any
amount of money that would cause you to pause before walking
away from the deal. For some investors this might by a few hundred
dollars, for others a few thousand.
We also recommend that you hold up making all the back pay-
ments or investing serious money in the fix-up work until the sell-
ers have moved out. If you do start investing heavily in the property,
then with each dollar you spend, you become more committed to
the deal and it becomes even harder for you to maintain the emo-
tional detachment to intelligently deal with any risks that come
when the seller refuses to move out. The bottom line is that you
only put serious money into properties that are keeper deals and
you only have a keeper deal if the seller has moved out.
Pitfall #4: Giving Sellers A ll Their Money before

the Final Walk-Through
Make sure you take the time to walk through the property
before you hand over that final check to the seller. Don’t worry
whether the property is clean or dirty; you are going to hire a pro-
fessional cleaning service anyway. Instead check for big things like
damage to the property. Did the sellers leave the appliances (if that
was part of the agreement)? You want to protect yourself from the
shock of any unpleasant surprises.
Pitfall #5: Putting Serious Money in the Deal before

Completing Your Due Diligence
The more money you have in a deal, the more you have to lose.
Remember that any foreclosure deal may unravel after you conduct
your due diligence. Make sure you haven’t committed to the deal by
putting in more money than you are comfortable walking away
from.
In Making Big Money Investing in Real Estate, we go into
great detail about the seven steps of your due diligence (pages 149–
164). We encourage you to read through that section for our Due
Diligence Checklist and our step-by-step comprehensive guide.
We’re going to share some insights that add to your due diligence
in the next several pitfalls—especially important when you’re buy-
ing foreclosures. Here are two of them:
1. Talk with neighbors to get the REAL story.

2. Carefully read all the seller’s loan paperwork on any “sub-
ject to” deal.
Talk With Neighbors to Get the REAL Story
Often, neighbors are motivated to help you buy the property—

they don’t like the fact that their house is worth less because of the
eyesore next door or they’re uncomfortable that the foreclosure sit-
uation will negatively impact their neighborhood.
They can often tell you the history of the house, any repair
problems it’s had, and much more. Some people hide information
because they really want you to buy and fix up the property. But
you’ll find enough honest ones that, if you’re a good listener, they’ll
tell you the inside story on the seller’s situation and the history of
the house. They can also give you valuable information on property
values and trends, neighborhood concerns, and what’s going on—
good and bad—in the local area.
Carefully Read All the Seller’s Loan Paperwork on

Any “Subject to” Deal
Always get copies of the actual loan documents from the seller.
Read through these documents very carefully, especially the actual
promissory note and deed of trust/mortgage. Sometimes sellers can
mislead you about the terms or conditions of the loan. While rarely
will they lie outright, many times they can be mistaken on the infor-
mation they give you. If they don’t have the paperwork anymore,
contact their lender and have them fax or mail you a duplicate copy.
‘‘
■ Peter’s Story
We bought a $125,000 house a few years back from a seller who just
couldn’t make the payments anymore. We made up five back
payments and took over the property subject to the existing
financing, which we thought was at a 7.9 percent fixed rate for 30
years. It turned out that the loan was an ARM—an adjustable rate
mortgage. We got lucky because interest rates had dropped, but it

could just have easily turned out the opposite with interest rates
climbing and the higher payment cutting into our positive cash
f low. I know it’s time-consuming, but if you are buying subject
to, take the time to look over the seller’s loan documents. ■
Pitfall #6: Not Accurately Determining the Real

Market Value of the Propert y
Make sure you take the time to conservatively calculate the mar-
ket value of the property. There are two market values to check—the
resale value and the market rental value.
Checking the “Comps”
It’s important to know the market rental value of a property if

you plan to sell it to an investor or if you plan to hang on to the
property over time. The way property values are determined for
single-family houses is by finding out what other similar (or compa-
rable) houses in the area have sold for in the recent past. What this
means is that a three-bedroom, two-bath, 1,850-square-foot house
is probably worth what other comparable houses have sold for in a
given area. Obviously, for two properties to be comparable, they
need to have:
• Similar square footage (ideally within 200 square feet or

less)
• Same number of bedrooms and bathrooms
• Similar construction type and condition, etc.
• Same school districts/county
This is a simplification of the process of determining value. It
takes time to learn how to value a home and it’s a skill you will
learn. In the beginning, if you sign up a deal, latch onto a good real
estate agent in the area who can help you determine its value. As a
backup, you can always hire a professional appraiser for the first
house or two you buy.
Checking Market Rents: Rent Su rvey
A rent survey is an analysis of what properties similar to the

one you have under contract are renting for. While you might not
be able to determine to the dollar just what this value is, you almost
always will be able to determine a range of rents. It’s important for
you to know the market rent value of a property if you plan to sell
it to an investor or if you plan to hold onto the property over time.
Pitfall #7: Not Checking the Title Carefully Enough
One of the biggest dangers in a foreclosure deal is that you

aren’t getting marketable title to the property you are buying. Mar-
ketable title means your ownership claim to the property is so
strong that you can easily sell the property to a buyer who will
bring in conventional financing, which requires a title insurance
policy. The title must be free of any consequential clouds, whether
they are actual or merely potential. That’s just a fancy way of saying
there can’t be any liens or claims against the title that would scare
a title company into listing these title glitches as “exemptions” to a
title insurance policy. Otherwise you would have significant trou-
ble selling the property to a cash buyer. You’ll learn more about
title insurance in the next pitfall. For the moment, you are going to
have to get a title company to give you a title report, also known as
an ownership and encumbrance report. This will show you all the
liens against the property.
Checking Title Items
Here are ten items to check the chain of title for:
1. County tax liens for nonpayment of property taxes

2. Homeowner association liens for fees owed or special
assessments that are unpaid
3. Other taxing authorities’ liens (city, state, or federal)
4. Mortgages (first, second, third . . .)
5. Local utility company liens (e.g., for unpaid water and
sewage bills)
6. Judgments from any creditors
7. Mechanics’ liens
8. Other people on title (e.g., son listed on title as joint ten-
ant)
9. Spouse or ex-spouse, including community property rights
(more on this in Pitfall #11)
10. Heirs of the previous owner who might have a claim to the
title
Pitfall #8: Not Buying Title Insurance If You Put

Serious Money in the Deal
Title insurance is a form of insurance that protects you from

any prior claim or cloud on the property title that happened before
you bought it. This just might be the only type of insurance that
insures against past events. Basically, when you buy title insurance,
you are paying the title company to thoroughly research the chain
of title. The title insurance company issues a report that lists any
“exclusions” to the policy. It’s critical to carefully check this part.
Make sure you’re either comfortable with each item or you clear up
any items in question before you close. If a claim arises that the title
insurance company didn’t list as an exclusion and it ends up cost-
ing you money later, the title insurance company will pay out
money on that claim. As with any insurance, limitations exist, so
have the title company explain them to you.
‘‘
■ David’s Story
When I put any real money into a property, I always buy title
insurance. This might cost me several hundred dollars, but my
peace of mind is more than worth it. I also recommend purchasing
insurance for all your foreclosure deals, unless you are an
experienced investor who’s willing and able to intelligently
take on the risk of not buying it. ■
Pitfall #9: Not Running a Credit Check on the Seller
Make sure you get sellers to sign a permission form to allow

you to run a credit check on them. You’ll need their Social Security
numbers to run this credit report. Taking this extra step of running
a credit check can save you a lot of heartache down the line.
What to Look for on the Seller’s Credit Report
• Credit history that indicates a current or pending bank-

ruptcy (see Pitfall #10)
• Marital status—important if you live in a community prop-
erty state (see Pitfall #11)
• Any other creditors who may have claims to the property
Pitfall #10: Seller Declaring a Bankruptcy
A seller can file two types of bankruptcy:
1. Chapter 13 bankruptcy (restructuring)—where the court

imposes a forced payment plan on all creditors seeking pay-
ment.
2. Chapter 7 Bankruptcy (absolving debts)—where most types
of debts are canceled.
You are probably asking, “What happens if the seller declares

bankruptcy? How does this affect the foreclosure process?” While
many sellers think this will stop a foreclosure, they are wrong. The
best sellers can hope for is a delay (typically a month or two) of the
foreclosure until the lender petitions the court to release the prop-
erty from the bankruptcy so that the lender can get on with the
foreclosure process. The cost to the sellers is that their credit will
be even worse with bankruptcy and foreclosure than with just fore-
closure.
If the sellers have already declared bankruptcy before the sale,
you will need the Bankruptcy Trustee’s permission to allow the
sale. This should not be a problem as long as the sellers aren’t mak-
ing a profit and you aren’t getting too good of a deal. If you are, the
Trustee may feel that you are getting equity that should in all fair-
ness go to creditors.
The biggest risk you have to protect yourself from if the seller
declares bankruptcy is something called fraudulent conveyance.
This is a legal term that means that the seller didn’t have the right
to transfer the property to you because he was defrauding his cred-
itors who rightfully should have gotten the equity in the property.
This probably won’t be an issue, as long as the seller didn’t have
much equity. The seller’s creditors would actually have to file suit
for fraudulent conveyance and prove that you knew of the seller’s
debts and received too good of a deal in a way that wasn’t fair to the
creditors. If a court agrees with the fraudulent conveyance claim,

the sale can be set aside for up to two years. Our best advice is to
make sure you talk with a highly skilled attorney if you are buying
a property from a seller who either has declared or is about to
declare a bankruptcy.
Pitfall #11: Only Buying Half a House
If you are investing in a community property state, then

regardless of who is technically on the recorded deed, current or
past spouses probably have an interest in that property. You’ll have
to protect yourself by getting both spouses to sign all important
documents, such as the purchase contract and deed. Make sure that
you get every signature notarized; sellers have been known to forge
their ex-spouses’ signatures. Check to make sure the notary lists
both sellers’ names on the acknowledgment, and thus notarized
both persons’ identities and signatures, and didn’t just notarize one
signature (with the other signature forged later).
Another way to protect yourself is by getting a signed and nota-
rized Quitclaim Deed from the other spouse or ex-spouse deeding
any interest he has in the property over to you. Or he can quitclaim
his interest over to his spouse or ex-spouse who then can sell you
the property.
Communit y Propert y States
Here’s a list of community property states:
• California
• Nevada
• Louisiana
• Texas
• Wisconsin
• Idaho
• Arizona
• New Mexico
• Washington
Also, ask a good attorney in your area about “palimony claims.”
Similar to community property claims, these arise when a couple
has lived together for so long that they may be seen as a common-
law married couple.
Pitfall #12: Not Getting the Propert y

Professionally Inspected
You need to know what you are getting yourself into. Hire a
professional inspector and make sure you take the time to go over
what the inspector has found so that you are making an intelligent
decision about moving forward on the deal.
We don’t recommend you act as your own inspector for two
reasons. First, your time can be better spent by staying in the inves-
tor role, which is a more highly paid role than that of property
inspector. Second, it’s too easy in your excitement over what a
great deal you are getting to overlook a problem that an objective
inspector would catch.
Pitfall #13: Messing Up Your Paperwork
While you will probably need legal help on your first few
deals, fairly soon you’ll be able to handle most of the closing paper-
work yourself. Not only will this save you time and money, but it
will also give you an extra degree of control in the closing process.
Even if you use an outside escrow or title company to perform your
real estate closings, by knowing how to prepare the documents

yourself you will be able to more intelligently use these closing
agents’ services.
Checking Your Paperwork
Three critical items to check on your paperwork include:
1. The owner’s exact name and spelling on the title. Make sure
that the name on the deed and other paperwork is the same
as the name on the deed through which the sellers gained
title when they bought the property. If the owner is a cor-
poration, limited liability company, or a trustee of a trust,
make sure you see the written documentation that autho-
rizes the seller to transfer title to you on behalf of this other
entity.
2. The correct legal description of the property. This is the
fancy “official” address used to accurately identify the prop-
erty. It usually looks like, “Lot 3, Block 5 of Sunny Side Acres
Subdivision as recorded on Map No. 2377, page 744 as
recorded . . .” You can copy this from the old deed or from
the title report. Take care to get it right, or you will have
problems later. We recommend you double-check it, then
check it backwards—letter by letter, space by space—one
time. Then get someone else to triple-check it, letter by let-
ter, space by space.
3. Use the right deed (or a deed normal for your area). Get a
copy of a deed from a local title company that your county’s
land records or Recorder’s Office is used to seeing. You
want the documents you plan on recording, like the deeds
and Memorandum of Agreements, to be formatted just like
the other documents that the recorder’s office is used to
seeing. This will help you avoid any title problems when
you resell the property. Remember, to have marketable title,

a title insurance company must be comfortable with the
chain of title. If the deed you used to acquire title to the
property is out of the ordinary, it will wave a red f lag at the
title insurance representative who is working on the title
policy. You can easily avoid this by taking a little extra time
to make sure your deeds and other recorded documents fit
the format that is primarily used in your area.
Pitfall #14: Not Following Your State’s

Foreclosure Laws
Some states have specific laws about how investors must inter-
act with sellers who are in foreclosure. Make sure you study the
laws in your area so you follow them at all times. (To save you many
hours of research, we’ve included links to many of the important
laws in a state-by-state listing included in “Your Bonus Web Pack”
at the end of the book.)
For example, California is probably the toughest state for laws
outlining what an investor can and cannot do. In California, any-
time an investor buys a property from a seller who is in foreclosure
(i.e., the Notice of Default has been filed), the investor must give
the seller a five-day right of rescission. During this time, the inves-
tor is not allowed to get the seller to sign any type of deed or pay
the seller any money. If the investor breaks these rules (or other
rules of the state), then the sale can be turned aside at any point in
the next two years! So make sure you carefully read the section in
“Your Web Bonus Pack” in the back of this book that deals with
these critical laws.
Pitfall #15: Falling into the Insurance Trap
The insurance trap comes in three varieties. First, many inves-

tors who buy a property, especially if they are buying the property
subject to the existing financing, forget to convert the existing
homeowners policy into a landlord or rental property policy. Not
that we’re cynical about insurance companies using any type of
technicality to get out of paying out a large claim, but we advise you
not to give them a chance. Make sure when the seller is endorsing
over the existing insurance policy that you have the policy changed
to ref lect that it’s no longer an owner-occupied property.
Second, don’t forget to remove the seller’s name from the pol-
icy. It would be a real shame if you filed a claim and simply because
you didn’t remove the seller’s name from the policy, his name
appeared on the claim check!
Third, when buying a property subject to the existing financ-
ing, it’s tempting to just take the seller’s name from the policy and
put in your name as the main insured party. The problem with this
is that the existing mortgagee (the lender who lent the seller money
to buy the property) is on the policy as the additionally insured
party. As such, when the policy is changed in any way, this mort-
gagee will be notified. It doesn’t take a rocket scientist at the bank
to make the connection between there being a new main insured
on the policy and the property being sold without the lender’s per-
mission. This could get you into trouble with a due-on-sale clause.
As we shared with the readers of our last book, there are two
ways to handle this. One is to simply leave the first insurance policy
in the name of the seller and go out and get a second policy naming
you as the main insured. Yes, this will mean paying twice for insur-
ance, but the cost isn’t that much for the benefit of getting the
property subject to the existing financing.
The second way to sidestep this insurance trap is by using a
land trust. A land trust is simply a trust that is created to hold title
of a property for the benefit of some beneficial party. Any seller
may put his property into a land trust without violating the due-on-
sale clause (this is federal law.) The seller merely deeds the prop-
erty you are buying subject to the existing financing to a land trust
naming himself as the beneficiar y and you, the investor, as the
trustee. Then in a separate document the seller assigns the benefi-
cial interest of his land trust from himself to you. Now you become
both the trustee (who controls the property) and the beneficiary
(who gets all the benefits of the property.) For all practical pur-
poses and for tax purposes you now own the property.
As for the due-on-sale clause when you do things this way, the
act of the seller deeding the property into the land trust with him-
self as the beneficiary does not violate the due-on-sale clause. This
deed from the seller to you as the trustee of the land trust gets
recorded. You help the seller write a quick letter to the lender noti-
fying it that the owner has put the property into trust for financial
planning purposes and, from here on out, all correspondence
about the loan should be with the trustee (who happens to be you,
the investor). You give the lender your address in this letter as the
trustee and from here on out you will be the lender’s contact per-
son on the loan. (Note: You still have zero liability for this loan!)
In a separate transaction (which can take place ten seconds
after the previous one), the seller assigns over his beneficial interest
in the land trust to you, the investor. While this could trigger the
due-on-sale clause because the property title really is being trans-
ferred to you, the bank never knows about this transaction because
this assignment is never recorded.
How does this help you with the insurance trap? You simply
switch the policy from the seller to you as the trustee of the XWZ
Property Trust. The lender expects and is used to this change.
Everyone is happy—the bank, the seller, the insurance company, and
you the investor. This is our preferred way of handling subject to
deals. Once you do one this way, you’ll find it really is fairly simple.
Pitfall #16: Seller Pushing the Loan to Get Called Due
While most sellers will respect their agreement to allow you to

buy the property subject to the existing financing and to not do
anything that would cause the lender to call the loan due, some sell-
ers forget about their earlier promises. Several years later, they are
no longer motivated sellers and they really want you to get that loan
out of their name, usually so they can more easily finance the pur-
chase of another property. A few of these sellers will even take the
next step—to force your hand by calling up their old lenders and
telling them that they have sold the house several years ago and that
the lenders should call the loan due.
While you have no legal or financial obligation to pay off the
loan if the lender does call it due, the lender could foreclose on the
house and you would then lose out on your equity. While this may
seem scary, we want to reassure you that it isn’t a very likely occur-
rence. First, if you deal openly and intelligently with your seller up
front, chances are very good that he will honor the agreement
(more on this in a moment). Next, even if the lender does call the
loan due, you can usually just assume the loan, sell the property to
a new buyer, or refinance the property. Typically, if you are polite
and open with the lender, you’ll have four to eight months or more
to do this.
Five Ways to Protect Yourself from the Seller

Spilling the Beans
1. Make sure the seller understands at the start of the deal that
if the lender finds out, which is unlikely unless the seller
tells the lender, it could be costly for both the seller and the
investor. Clearly state that the only reason this deal works for
you as an investor is that the seller allows you to bring the
old loan current and take over the payments each month. Ex-
plain that if you had to bring in your own financing, you

would need to get a much lower price to offset the added ex-
pense of getting the new loan and the fact that it would tie
up so much more of your investing capital.
2. Get a strong disclaimer from the seller that says she under-
stands you are taking title subject to the loan(s) and what
that means. The CYS, or cover yourself, addendum we use
states that the seller “will not commit any action or make
any statement orally or in writing that will cause the exist-
ing lender(s) to discover that title has been transferred.”
3. Make sure you live up to all your commitments to the seller.
One reason she might call up her lender is if an unscrupu-
lous investor didn’t do what he promised.
4. Make sure you coach the seller on what to do if the lender
writes or calls her. You don’t want a problem caused simply
out of ignorance. Ask her to forward all lender mail to you
(in fact, have her sign a change of address letter to the lender
asking the lender to send all correspondence about the loan
to your address). If the lender calls, train the seller to be
“busy” and not talk with the lender until you have talked
with her on the phone.
5. Owe the seller money. Nothing keeps a seller living up to her
promises like you having the leverage of owing her money.
This is not to say you should overpay for the property just to
owe the seller money, but if you have to pay her money, see
if you can make some of it payable down the road.
Pitfall #17: Seller Disappearing Once You’ve Bought

the Propert y and You Need a Signature
The best way to cover yourself on this risk is to get the seller
to sign a limited power of attorney that authorizes you to sign on
the seller’s behalf on all matters concerning this one specific prop-
erty. (For more details, including a sample copy of a limited power

of attorney form, see Making Big Money Investing in Real Estate,
pages 73–75.)
Pitfall #18: Having Liabilit y Even When You

Assign Your Contract
If you choose to f lip your deal to another investor for a fast

cash profit, make sure you get a signed release from both the buyer
and the seller. Also, if your contract with the seller allowed you to
buy the property subject to the existing financing, make sure you
require that your assignee (the investor you’re selling the deal to)
signs a wraparound mortgage or an All-Inclusive Trust Deed to pro-
tect the seller. (You’ll learn about these in Chapter 8.) Finally, be
willing to step back in if the assignee ever defaults (ask your seller
to save your contact information so he can call you if ever the
assignee is more than 30 days late in making payments). Not only is
this the right thing to do, but it’s also good business—you just might
profit from the house twice!
Pitfall #19: Seller Claiming Duress
Whenever you’re buying a property from a seller in foreclo-

sure, you’re buying from someone in a vulnerable position. While
you will operate with integrity, be careful that a bitter seller who’s
mad at the world doesn’t make claims stating you forced him into
the deal.
To protect yourself, always operate at arm’s length in the deal.
Don’t demand that the seller deed the property to you on your first
visit or refuse to allow the seller to have an advisor at the closing.
Make sure you encourage the seller to make his decision indepen-
dently and to invite a third-party advisor to any meetings you have

if the seller wants that advisor there.
Also, include a clause like the following in your purchase con-
tract and ask the seller to initial it:
Seller hereby acknowledges that all negotiations and

dealings with the Buyer have been and are at arm’s length
and that no duress or undue inf luence has been exerted by
Buyer on Seller or any member of Seller’s family in connec-
tion with this purchase and sale of this Property.
Pitfall #20: Seller Claiming Misrepresentation
Because the seller is under stress, you must protect yourself

from the seller coming back later, claiming you tricked him into
making the deal by misrepresenting certain things.
The simplest way to protect yourself is to put everything you
and the seller agree on in writing. Also, follow up every important
phone conversation with a letter explaining what both parties dis-
cussed and agreed to (see Pitfall #23 for more on this point). We rec-
ommend that you include in your final contract a “merger” clause
stating this agreement is the full and final expression of exactly
what you and the seller did and did not agree to.
Here’s the legalese version of a merger clause:
This agreement represents the full and final understand-

ing between the parties. No agreements or representations,
unless specifically incorporated into this agreement, shall be
binding upon any of the parties.
Here’s another clause that we encourage you to put in your

agreement with the seller:
Seller understands and is aware that the present fair

market value of the Property is probably much higher than
the purchase price set forth in this agreement. Seller hereby
expressly waives any and all claims to potential or actual
profit, income, or other sums in excess of the amount stated
above in this agreement that comes from the Buyer reselling
the property or Buyer’s rights under this agreement. Further-
more, Seller hereby acknowledges that the purchase price
stated herein is fair and equitable and is in the Seller’s best
interests, and that the Seller’s decision to sell was based on
the Seller and that the Seller has not relied on any represen-
tation(s) of Buyer that is (are) not expressly contained in this
agreement.
(For more information on how you can get all the contracts
and agreements we use in our investing on CD-ROM, see “Your
Bonus Web Pack” at the back of the book.)
Pitfall #21: Seller Backing Out of the Deal

If the sellers want out of the deal for valid reasons and within a
reasonable period of time (up to three days after signing the deal),
let them gracefully out of it. If, however, they want to back out of
the deal because, two weeks later, they got a better offer from an-
other investor, that’s not fair to you. In this case, we recommend you
hold them to the deal. In fact, we recommend that if the sellers ever
want to back out of the deal after a few days and if you’ve spent sig-
nificant money or time working on it, you make them pay you some-
thing to cancel the agreement. That’s being fair to both of you.
To protect yourself from sellers backing out, make sure you al-
ways record a Memorandum of Agreement (see Figure 6.1) against
FIGURE 6.1 Memorandum of Agreement
RECORDING REQUESTED BY:
WHEN RECORDED MAIL AND UNLESS OTHERWISE

SHOWN BELOW, MAIL TAX STATEMENTS TO:
SPACE ABOVE THIS LINE FOR RECORDER’S USE
Memorandum of Agreement
Be the world hereby apprised that I/we ___________________________________ (Obligor)
have entered into an agreement with ____________________________________________
(Obligee) wherein the Obligor has agreed to sell the below described property to the
Obligee:
<< PropertyLegal>>.
Anyone dealing in and with the subject property should contact Obligee at:
_____________________________________________________________________________
regarding the terms of this purchase agreement and the parties’ respective rights
thereunder. IN WITNESS WHEREOF, the parties have signed this agreement.
Dated ______________________
STATE OF __________)
COUNTY OF ________ ) S.S.
On ______________________________ before me, ____________________________________

_____________________________________ , Obligor Date
_________________________
personally appeared ____________________________________
_____________________________________ , Obligor Date
personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ______________________________________
MAIL TAX STATEMENTS AS DIRECTED ABOVE
MY COMMISSION EXPIRES:
the property if you don’t close within two days. A better way to
close on the property quickly is by having the seller deed you the
house subject to existing financing. Insist that you still have the op-
tion of backing out of the deal if, after your due diligence, you dis-
cover something you don’t like.
In the event you do back out of the deal, make sure you put
down in writing that you can simply quitclaim the property back
to the seller and cancel the agreement with no further liability.
‘‘
■ David’s Story
I was buying a house from a highly motivated seller with John, one
of our Mentorship program’s real estate coaches. I was so busy in
the office that I delayed the closing for two weeks to complete
another project. The night before the closing, I spent about two
hours drawing up all the documents and getting ready for the
closing to be held at my office at 9 AM the following day. The next
day, the seller showed up right on time, only to tell me he’d found
another solution to his problem. While I talked with the seller
about how much he was willing to pay me to let him out of the
agreement, all I kept thinking was that this was my fault. I never
should have waited 14 days to close. I should have closed a
few days after we signed the deal and just made it clear we
wouldn’t make payments on the house for 30 days or so.
The moral to the story is that when you have a motivated seller
ready to deed the property over to you—let him do it immediately.
And then, with your name on the title, conduct your due
diligence before you invest any serious money into the deal. ■
Pitfall #22: Investing in Your Own Name
In today’s litigious world, you’re taking your financial life in

your own hands if you invest without at least one layer of liability
protection in place. For the average investor, that means forming a
limited liability company (LLC) and always operating from behind

that protective screen. This is even more important if you are start-
ing your investing business with significant assets you’ve already
accumulated such as a pension, a business you own, a personal res-
idence with a lot of equity, or other rental properties you own.
Invest the time not only in forming a limited liability company or
corporation to protect yourself, but in learning how to operate it so
it’s properly maintained. Hold annual meetings, with members’ res-
olutions, and never commingle funds. (You’ll find more informa-
tion on the best ways to protect your assets in “Your Web Bonus
Pack” at the back of the book. )
Pitfall #23: Not Papering Your Trail

A fter a while, all deals look alike and the details, no matter
how clear they were in the beginning, start to blur. Make sure you
meticulously document each deal. This includes logging in every
conversation you hold with your seller and your buyer or renter.
Note the date and time you talked along with the important items
you discussed. While this seems like a lot of effort, and it is, you’ll
enjoy the peace of mind that comes from knowing, and being able
to prove, that you’ve lived up to all your agreements with others.
Start a business journal in which you keep notes from all your
conversations. Also, log in all phone messages along with what the
other parties said. Finally, consider using follow-up letters to clarify
the main points you discussed and to establish a clear paper trail of
what was agreed on.
Pitfall #24: Taking Personal Responsibilit y for

Seller’s Situation
All investors must find the right balance between caring about
the seller, yet not taking on responsibility for the seller’s situation.
You can’t help the seller by being a philanthropist. First and fore-
most, you’re running a business. While you’re committed to “win-

win or no deal,” this doesn’t mean you can “save” every seller. In
fact, you shouldn’t try to save the seller at all.
We’ve watched many investors struggle trying to help a seller
when the numbers just can’t be made to work. Be careful of win-
lose negotiating in which you sacrifice your need to make a profit
to help a seller. In the end, this type of negotiating only makes
things worse because you won’t be able to live up to your side of
the agreement.
‘‘
■ Peter’s Story
It was hard for me early on; I just wanted to “save” every seller I
met. I finally came to realize that while I could always empathize
with them and hear them out, I wasn’t willing to step over
the line and take their situation on my back. That wouldn’t be
fair to me or my family. Plus, it would mean I couldn’t help
other sellers because I’d soon be out of business.
The place I settled into was one of listening respectfully and
compassionately. I would clearly let the seller know where I
stood in the deal from the start. If I don’t see a way to make a profit
in the deal, I tell the seller up front that it won’t be a fit for
me, then I give her some helpful suggestions about what she can
do. Not only does this help me keep my investing business in
balance with my family and other commitments, but sellers
appreciate the up-front manner with which I work with them. ■
So there are all 24 foreclosure pitfalls and how you can safely
sidestep them. Use them as a guide to help you navigate the some-
times perilous world of foreclosure investing. Here’s a list of the 24
pitfalls:
• Pitfall #1: Letting the seller stay in the house

• Pitfall #2: Renting the property back to the seller
• Pitfall #3: Putting serious money in the deal before the seller
vacates
• Pitfall #4: Giving sellers all their money before the final walk-
through
• Pitfall #5: Putting serious money in the deal before complet-
ing due diligence
• Pitfall #6: Not accurately determining the real market value
of the property
• Pitfall #7: Not checking the title carefully enough
• Pitfall #8: Not buying title insurance if you put serious money
in the deal
• Pitfall #9: Not running a credit check on the seller
• Pitfall #10: Seller declaring a bankruptcy
• Pitfall #11: Only buying half a house
• Pitfall #12: Not getting the property professionally inspected
• Pitfall #13: Messing up your paperwork
• Pitfall #14: Not following your state’s foreclosure laws
• Pitfall #15: Falling into the insurance trap
• Pitfall #16: Seller pushing the loan to get called due
• Pitfall #17: Seller disappearing once you’ve bought the prop-
erty and you need a signature
• Pitfall #18: Having liability even when you assign your con-
tract
• Pitfall #19: Seller claiming duress
• Pitfall #20: Seller claiming misrepresentation
• Pitfall #21: Seller backing out of the deal
• Pitfall #22: Investing in your own name
• Pitfall #23: Not papering your trail
• Pitfall #24: Taking personal responsibility for seller’s situa-
tion
Use these 24 pitfalls to help you navigate the perilous world of

foreclosure investing. As part of “Your Bonus Web Pack” at the end
of the book, we’ve included a special report titled “Final Deal
Checklist—the 27 Questions You Must Ask Before You Move For-
ward on Any Deal.” This special report may be downloaded for free.
It will help you take one last look at any deal and help assure you it’s
a smart move to go forward with.
In the next chapter, you’ll learn how to turn your deals into
quick cash profits. This is especially important if you want to use
your foreclosure investing to generate immediate cash f low.
How to Flip Your
Deals for Quick
Cash Profits
7C H A P T E R
Before we discuss how to turn your deals for quick cash prof-
its, let’s recap all the ways you can make money with any real estate
deal.
Seven Profit Centers in Your Deal
1. Cash f low. This is simply the difference between the

income the property generates and the expenses it costs.
2. Amortization. This fancy word means the equity pay-down
of the underlying loan(s) on the property. Each time you
pay the lender on most loans, a portion goes toward princi-
pal and a chunk pays the interest. Over time, you pay the
loan down to zero and own the property free and clear. This
is called the amortization of the loan.
3. Tax benefits. One of the last remaining tax breaks for the
average person is real estate. You get to write off the inter-
est paid, insurance, real estate taxes, and, best of all, depre-
ciation.
191
4. Appreciation. Over time, most property goes up in value.

And while this is usually a cyclical phenomenon, in just
about ever y area of the countr y, this cycle keeps going
higher and higher. In fact, the average rate of appreciation
on a national average over the past 40 years was more than
6 percent. You can make a fortune when you combine this
increase of value with your leveraging into a property using
other people’s money or other people’s loans.
5. Buying below value. Because you’ll be buying many of your
foreclosures at bargain prices, another profit center will
come from skillfully negotiating price.
6. Discounting debt. As discussed in Chapter 3, sometimes
you can make extra money by getting lien holders or credi-
tors to take less than they’re owed as full payment, thus
building more profit into the deal for yourself.
7. Forfeited nonrefundable deposits and option payments.
When people you’ve sold a property to (or at least taken a
nonrefundable deposit from to hold the property) back out
of the deal, you may make several thousand dollars extra by
keeping their nonrefundable payment to you. (More on this
in Chapter 8.)
Depending on which exit strategy you use with your property,

you’ll be able to tap into some or even all of the profit centers you’ve
just learned about. In this chapter, you’ll learn how to turn your deal
for a fast cash profit. In the next chapter, you’ll learn how to struc-
ture your properties for maximum long-term wealth accumulation.
7 / How to Flip Your Deals for Quick Cash Profits 193
How to Flip or Wholesale Deals for

Instant Cash Flow
You’ve already learned from Chapter 3 that you can sell deals
you don’t want to keep. This means either selling the contract for a
cash assignment fee or selling the house quickly to a retail buyer.
Let’s get into the specific steps needed to make this happen.
Step One: Lock Up the Propert y Under Contract

Before you can ever f lip a deal, you need to sign an agreement
to buy that property from the seller. By applying all the marketing
and negotiating strategies you’ve already learned, you’ll find many
deals to put under contract. Some you’ll hang on to for the long
term; others you’ll sell for a quick profit.
You’ll be signing up and selling two types of deals to other in-
vestors—cash deals or terms deals. With cash deals, you’ll negotiate
a discounted cash price, typically 60 percent to 70 percent of the “as
is” value, in exchange for the seller getting all the cash at the clos-
ing. For example, imagine you met a seller who owned a $300,000
house that needed $20,000 of repairs. The seller can’t make her
monthly payment, let alone fix up her house. So you negotiate a sale
price with the seller of $190,000 cash. You’re thrilled since your
price is 68 percent of the “as is” value. (The “as is” value is the after-
repair value [ARV] of the property minus the cost of the work that
needs to be done on the house to make it salable at that ARV.)
But you don’t want to do the rehab or find the $190,000. In-
stead, you simply sell the deal to another investor who specializes
in rehabs in your area. This new investor pays you $15,000 cash for
you to assign your contract to him. Then he moves forward and
buys the house from the seller. Once you have assigned your con-
tract to the new investor and collected your $15,000 check, that’s
it. The investor you sold the deal to will do the rehab project and
net $50,000 or more when reselling the property to a retail buyer
(see Figure 7.1). Everyone wins.
FIGURE 7.1 Sample Numbers of Wholesaling Cash Deal
Step One: You Sign Up the Deal

After-repair value (ARV) $300,000
“As is” value (ARV less repair costs) $280,000
Your price $190,000
Step Two: You Assign Your Contract to Another Investor

Your contract price $190,000
Assignment fee you collect $ 15,000
New investor’s price $205,000
Your net profit $ 15,000
Step Three: You’re Done . . . New Investor Rehabs,

Then Resells the Property
ARV $300,000
New investor’s price ( $205,000)
Repair cost ( $ 20,000)
Closing costs ( $ 3,000)
Holding costs ( $ 4,000)
Commission when selling ( $ 18,000)
New investor’s net profit $ 50,000
A terms deal is a deal in which either the seller is agreeing to

wait for a period of time to get some or all of her equity, or in which
little money goes to the seller. For example, imagine that same seller
in the previous example owed $240,000 against the property. This
time, you negotiated to buy the property for $245,000 by paying the
seller $5,000 cash and taking title subject to the seller’s existing
$240,000 loan. And this time, you have a contract to purchase that
house for 88 percent of the “as is” value, but you have great financ-
ing in place because you are buying subject to the seller’s loan.
Again you decide that you don’t want to hang on to this deal but
want to turn it for a fast profit. So you find a local investor willing to
pay $10,000 to buy this deal from you. You make a fast $10,000 and
your investor gets a deal that only requires $15,000 down and has
long-term financing in place in the form of the seller’s existing loan.

Again, everyone wins.
Whether you sign up a cash deal or a terms deal, typically you
can f lip both types and turn a cash profit in 30 to 60 days. Here are
the formulas to guide you as you determine how much to sell your
deal for. With a cash deal, look to lock up the property for as low a
price as possible, but make sure you’re agreeing to pay no more
than 65 percent to 70 percent of the “as is” value. Typically, you’ll
be able to find an investor to buy the property for between 70 per-
cent and 80 percent of the “as is” value. This leaves you with a profit
of between 5 percent to 15 percent of that value. Not bad for some-
one who never has to swing a hammer or raise a paintbrush.
A student of ours from Dayton, Ohio, got a call from a moti-
vated seller who was responding to a f lyer she put out on all the
houses in her farm area. The seller was elderly and in poor health,
and just couldn’t take care of the property anymore. She was four
months behind on her payments. Our student put the property
under contract, then f lipped the deal to another local investor for
$4,500 profit.
When formulating how much to sell a terms deal to an inves-
tor, first calculate what you think the conservative net profit will be
for this new investor. Then charge 10 percent to 20 percent of that
long-term profit as your price to sell the deal.
Jerry, a retired General Motors employee in Michigan, did a
mailing to expired listings (people who had listed their homes with
a real estate agent but their property had not sold during the listing
period). He found an owner who had inherited a house from his
mother. Jerry agreed to buy the property for $20,000 with $2,000
cash to the seller, $1,900 of back payments, and subject to the
seller’s existing first mortgage. Then he sold the deal to another
buyer and made $10,000 from it.
Here’s another example of how easy this can be. We received
an e-mail from Doug, an investor who lives in California. Doug
found a motivated seller of a two-bedroom condo in Santa Barbara
FIGURE 7. 2 Excerpt from Purchase Agreement with “Or Assigns” Preprinted

into the Agreement
John and Sally Homeowners, as Seller, and Home Buyers, LLC or assigns as
Buyer, hereby agree that the Seller shall sell and the Buyer shall buy the follow-
ing described property UPON THE TERMS AND CONDITIONS HEREINAFTER SET
FORTH, which shall include the STANDARDS FOR REAL ESTATE TRANSACTIONS
set forth within this agreement.
who needed to quickly unload this property. Initially, the seller said
no to Doug’s offer to buy the unit subject to the existing financing.
But one month later, he came back to Doug to take the deal. So Doug
called up a friend of his who lived in Chicago and had told Doug he
wanted to move to that area. His friend sent him a $6,000 cashier’s
check the next day to buy out Doug’s contract.
The Secret Clause That A llows You to Flip Your Deal
While any contract that doesn’t specifically say it is “nonassign-

able” is legally assignable, you should make sure your purchase con-
tract specifically says it is assignable. Simply sign up the deal with
your name, or better yet your company or LLC’s name, “or assigns,”
as the Buyer. You can do this easily by preprinting the “or assigns”
into your purchase contract (see Figure 7.2) so you never forget to
include it.
If You’re Still Wondering How You Can Sell a House

You Don’t Own
If you like the idea of making a quick cash profit but you’re still
struggling with how you can sell a house you don’t own to another
investor, you are not alone. Many of our students struggled with
that idea when they first got started. The key distinction is that you
are not selling the house; you are selling your rights under a con-
tract to buy that house at a set price and terms.
This happens all the time in the real estate world. For example,
a bank often sells a loan it originated to another party. It gets paid
a fee to assign its rights under a promissory note and deed or trust/
mortgage to this other party. Or a tenant subleases a property to a
subtenant. These are examples of selling a contractual right—in one
case to receive payments from a loan and in the other to rent out
the use of a property to a third party for a fee. Again, as long as no
language in a contract exists that makes it nonassignable, all con-
tracts are assignable.
The best part of assigning your interests in a contract to an-
other party is that you don’t need to be a licensed agent to do this.
You are not representing a seller or helping people sell their house.
You are acting as a principal, locking up a contract, and selling your
interest in that contract for a profit. You don’t need any kind of
license to do this.
Take the case of Gary, a student who lives in San Diego. Gary
called an old friend one day and found out his friend was in real
trouble with a house he owned in Phoenix. Gary’s friend owed
$145,562 on a house only worth $130,000. So Gary got the second
mortgage holder to accept a short sale of less than three cents on
the dollar. He then turned and quickly sold the property to a retail
cash buyer for $123,000. All totaled, Gary split the $26,000 profit
he made 50-50 with his old friend. As you can imagine, both of
them were thrilled.
Step Two: Find a Buyer for Your Deal

There are three sources of potential buyers for your deal:
• Retail buyers
• Other investors
• In-house “buyers’ list”
A retail buyer is the average homebuyer who is looking to buy

a house. “Retail” buyers might buy the house if you give them a
good price. For example, you get a call from a seller responding to
one of your postcards. This seller is two months away from losing
his house to foreclosure. The house is worth about $250,000 in its
current condition and, with about $5,000 worth of cosmetic work,
it would sell for $275,000.
You meet with the seller and agree on a cash price of $180,000
with the closing date in 28 days. You find a buyer who’d like to own
the house and is willing to pay as much as $220,000 to take the
house in “as is” condition. Your buyer gets a house for $30,000
below its real market value and you make $40,000 (less your mar-
keting costs and any share of closing costs you agree to pay). (See
Figure 7.3.)
We’ll go into more detail about how to handle this closing
when we walk you through the final step of wholesaling a deal. For
the moment, it’s important to understand that selling the deal to a
retail buyer will always make you more money than selling it to
another investor. That makes sense because, in essence, you’re cut-
ting out the second middleman of the new investor. That’s why you
prefer to sell your deal to a retail buyer.
The second source of potential buyers is other investors. You
want to find someone interested in paying you a cash assignment
fee for the deal. In our current example, imagine you tried to find
a retail buyer but weren’t able to. But you did get an investor who
was willing to pay $10,000 for the deal. You decide that $10,000 for
the five hours’ work you have tied into the deal is a decent hourly
wage so you take it. (Later in this chapter, you’ll learn how to find
these investors—again, see Figure 7.3.)
The third source of buyers for your deal is the in-house “buyers’
list” you’ve been cultivating. As both retail buyers and other inves-
tors call you about deals you have for sale, doesn’t it make sense that
if you don’t have something they want at the moment, you add them
to your buyers’ list? Of course. Yet many investors forget to build
FIGURE 7. 3 Selling to a Retail Buyer versus Another Investor
ARV $275,000
“As is” value $250,000
Your price $180,000
Option One: Your Preferred Choice—Sell to a Retail Buyer

Pays you $220,000
Your price ($180,000)
Your costs
closing ($ 2,000)
marketing ($ 1,000)
Your net profit $ 37,000
Option Two: Your Second Choice—Sell to Another Investor

You collect $10,000 “assignment” fee
Your investor goes on to rehab and resell property
ARV $275,000
New investor’s price ($190,000)
Repairs ($ 5,000)
Closing costs (twice) ($ 4,000)
Holding costs ($ 5,000)
Real estate commission (selling) ($ 16,500)
New investor’s net profit $ 54,500
these two important lists as they meet new prospective buyers.

(Later in this chapter, we’ll discuss the best ways to cultivate and use
these two lists.)
The Biggest Secret to Flipping a Deal Fast
Most investors spend a few weeks looking for a retail buyer. If

that doesn’t work, then they contact their in-house investors list. If
they still can’t find a buyer, they get desperate and start advertising
for other investors to buy the deal. Usually, these investors run out
of time. Remember, the really good deals usually have a tight time
crunch to make them work.
In our opinion, the real secret to f lipping a deal fast is to look
for all three types of buyers at the same time. Then you take the first
decent offer to put cash in your hand. Simple as that.
Here’s how this works in the real world. First, put your For Sale
sign out in the front yard. Because it’s hard to raise the price once
your buyer sees it, this sign should advertise the property for sale
to retail buyers. Investors won’t mind that you’re giving them a
lower price. You can get this sign made for $30 to $60 at a local sign
shop.
Also, f lood the area with 30 to 40 handmade For Sale signs.
These signs should be written with a fat black marker on sheets of
poster board you’ve cut in half. After all, if you were looking for a
bargain, would you rather see a fancy professional sign or a desper-
ate handmade sign? Your buyers prefer the handmade signs too.
They can almost smell the bargain they’re going to get. (See Figure
7.4.) In fact, you’ll probably get more investors calling from your
signs than retail buyers.
You’ll notice that we sent all our callers to our “24-hour re-
corded message.” You’ll likely get f looded with calls. Let technol-
ogy help you screen them out by setting up voice mail to take these
calls. (See Making Big Money Investing in Real Estate, pages 192–
94, for detailed instructions on using a recorded message when
marketing your properties.)
Three Little-Known Power Ad Secrets
In addition to using signs to market your property, tap into the

power of classified ads to really get your phone ringing. Here are
three little-known secrets to pumping up the response from all
your classified advertising.
FIGURE 7. 4 Sample Neighborhood Signs to Market Your Deal
Foreclosure!
3 Bed / 2 Bath
888-555-4567
24-hr. Rec. Msg.
Secret number one: Use an attention-grabbing headline

on your ad. The first three to seven words need to be a headline
that grabs the attention of your prospective buyer and locks their
eyes onto your ad. Here are several possible attention grabbers to
start your ad with if you want to find a buyer fast:
• Desperate Seller!
• Foreclosure!
• Forced Sale!
• Stranded Seller Must Sell in 7 Days or Less!
• Personal Circumstances Force Fast Sale!
Secret number t wo: Use attractive terms to sell your
house fast. You’ll learn more about selling with owner financing
in the next chapter, but for the moment, read through the list of
words that will attract a buyer’s attention:
• Take over payments on my loan!

• Nonbank financing!
• No bank qualifying!
• 100% owner financing!
• Rent to own!
FIGURE 7. 5 Sample Power Ads to Flip a Deal Fast
Foreclosure Pending. Need quick sale! 3 Bed/2 Bath. Will

discount 10–15% below market if you can close fast.
619-555-4567 24-hr. msg.
Desperate, MUST SELL! 3 Bed/2 Bath House. Personal

Circumstances Force Fast Sale. 877-555-4567 x 34. 24-hr.
rec. msg.
Desperate Seller must sell in 14 days or lose house.

Worth $311,850, will seriously consider any offer over
$279,500 if you can close fast.
Secret number three: Use a low price to generate tons of

calls. Your goal is to create an atmosphere of competition to bid
up the price on the house. Be careful not to make an offer to pro-
spective buyers that will force you to sell too cheaply.
Figure 7.5 shows several sample ads you can use to advertise
your properties. Notice that some are directed at investors while
others are for retail buyers.
Building Your In-House Buyers’ List

As buyers respond to your marketing campaigns, make sure to
always capture and save their contact information on your in-house
buyers’ list. Your goal is to build two unique lists that will allow you
to turn your f lipper deals faster and for more money than you ever
could do by advertising for brand-new buyers each time you whole-
sale a deal.
The first list is your retail buyers’ list, which includes all those
people who have contacted you about buying one of your homes to
live in themselves.
‘‘
■ Peter’s Story
I don’t use any fancy software program to track my buyers’ list. I
simply keep all their contact information in a spreadsheet on my
computer. Besides their names, phone numbers, and e-mail
addresses, I also capture what type of home they are looking for
and in what area. In addition, I capture the amount of down
payment they have to work with, how much of a house they can
qualify for a loan on, and how high of a monthly payment they can
afford to pay. Then when I want to sell a house fast, I first go
through my buyers’ list, send out a quick e-mail to everyone, and
call up those qualified for this specific house. ■
The second list is your investors’ list, which includes all the
other investors you have met or who have called you about a prior
deal you f lipped. Again, keep track of their contact information,
especially e-mail addresses. We love using e-mail to market a prop-
erty to our investors’ list because it’s fast, effective, and free!
To build your list, go to your local real estate investors associa-
tion monthly meetings. For a state-by-state list of what groups are
active, contact the American Real Estate Investors Association Web
site at <www.americanreia.com>. At your local association meet-
ing, you’ll be able to network with dozens of other investors who
are looking for deals.
Second, get an e-mail address for every investor you can find
and send an e-mail message like the one in Figure 7.6. This is your
way of building your list of prospective investors. Beginning inves-
tors tend to forget to get the e-mail address of every investor who
calls up about a deal. Don’t lose out on the chance of building your
investors’ list; it’s the fastest way to turn a deal for a quick cash
profit.
FIGURE 7. 6 Sample E-mail to Send to Prospective Investors to Sur vey Them
Subject: Investor Special
Hi there,
Thanks for e-mailing me about the investor special. This one is not available but I have been
finding more properties lately than I am able to deal with due to my limited time.
I’ll do my best to e-mail the details of any deals that I come across so that you can be one of
the first to get a look at them. Because I negotiate my profits on the way into my deals, most
properties I’ll let you know about are 15 percent to 25 percent below market and some even
come with creative financing in place.
If you can take a moment to answer the questions below, this will help me to determine what
types of deal you are looking for. Occasionally, I’ll find an absolute steal that needs some
money to get the home quickly before anyone else gets it.
How much cash could you have at closing within 10 days (if you knew it was a great deal)?
$_______________________
Which of the following exit strategies have you used or are you comfortable with?
___ Fix and resell to retail buyer
___ Sell on rent-to-own to tenant-buyer
___ Hold as long-term rental
___ Sell with nonqualifying financing to nonconforming buyers
How many deals have you done? ______________
How do you calculate a “good deal”? (Please be specific, i.e., percent of after-repair value, or
you must make at least $10,000, etc.)
____________________________________________________________________________
FIGURE 7. 6 Sample E-mail to Send to Prospective Investors to Survey Them (Continued)
Lowest price homes you’d consider: $_________

Highest price homes you’d consider: $_________
Preferred AFTER-REPAIR price range: $_________
Areas you prefer to invest in: ___________________________________________________
Areas you will NOT invest in: ___________________________________________________
Which types of repair work are you comfortable with?_______________________________
____________________________________________________________________________
Your Name: _________________________________________________________________

Address: ____________________________________________________________________
Best Day Phone: _____________________________________________________________
Other Phone # to try: _________________________________________________________
Fax: ________________________________________________________________________
E-mail: _____________________________________________________________________
If you prefer, you can print this form and fax it to me at 619-555-1234 or just hit reply and put
your answers in the appropriate places.
Thanks,
Brenda Investor
619-555-1256
P.S. I know that I asked a lot of questions. It’s just that I want to know exactly what deals I
should send your way to save you time. By taking five minutes now to share your criteria for
a deal that makes you money, you will save hours in looking for new deals. You can leverage
your time by letting me be one of your bird dogs spotting potential deals for you. I make an
assignment fee and you go on to even bigger profits, and everyone wins!
P.P.S.
From time to time I’ll be sending you e-mails that list new potential deals for you to consider.
These e-mails will say, “Bargain Finder Report” in the subject line. Have a great day!
Step Three: Close with Your Buyer
Once you find a buyer who wants to buy your deal, you’ll need
to set up a closing with this person. A closing is a fancy name for a
time to sit down and sign all the final paperwork that assigns your
interest in the deal to this new buyer and for you to collect your
check from your new buyer.
If you’re f lipping the deal to another investor, this closing is
fast and easy. Simply get this investor to bring you a cashier’s check
for the amount of your assignment fee. Collect this check first, then
sign an Assignment of Real Estate Contract form (see Figure 7.7).
Give this buyer all your original contract paperwork with the seller
and you’ve completed the deal.
‘‘
■ Peter’s Story
I feel it’s important that I make sure the person I sell a deal to really
can perform on his end with the seller. While I’m technically done
with the deal once I assign it over to my buyer, I still stay in contact
with the seller to make sure he or she gets treated the right way
from this new buyer. I know I don’t have to do this; it’s just that I
feel it’s the right way to do business. ■
If you are selling your deal to a retail buyer, you sometimes

have to do more work to make the closing happen. If you are selling
a terms deal in which your new buyer wants to buy the property to
live in because of the easy financing the deal has in place, then this
closing with your buyer is easy. For example, take our $250,000
house that needs $5,000 in repairs to be worth $275,000. You
agreed with the seller to buy the property for $5,000 down and
take over subject to the seller’s $240,000 mortgage.
In this example, your retail buyer agrees to pay you $265,000
for the house in “as is” condition because you’re letting the buyer
get in with this existing financing in place. Your new buyer agrees
FIGURE 7. 7 Sample Assignment of Real Estate Contract Form
Assignment of Real Estate Contract
FOR VALUE RECEIVED, the undersigned wholesaler (Assignor) hereby assigns, transfers, and
sets over to _______________________ (Assignee) all rights, title, and interest held by the
Assignor in and to the following described contract:
The Assignee hereby assumes and agrees to perform all the remaining and executory
obligations of the Assignor under the Contract in good faith and within the time periods
established by said Contract. Assignee agrees to indemnify and hold the Assignor harmless
from any claim or demand resulting from nonperformance by the Assignee. The Assignee
hereby commits $_____________ in certified funds as a nonrefundable deposit and will pay
an additional compensation in the amount of $__________________ prior to closing on the
Contract. In the event that Assignee defaults on the Contract, then the nonrefundable
deposit mentioned herein shall be retained as complete liquidated damages by Assignor
and all rights to the above Contract will revert back to Assignor.
The Assignee agrees to defend, indemnify, and hold Assignor harmless for any deficiency
or defect in the legality or enforceability of the terms of said Contract.
The Assignee agrees and understands that the Assignor is not acting as a real estate agent
or broker, but rather the Assignor is a principal in the transaction who is selling their interest
in the above-referenced Contract to Assignee.
This assignment shall be binding upon and inure to the benefit of the parties, their succes-
sors and assigns.
This agreement is subject to the following conditions:

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Date of this agreement: _________________________
________________________________ ________________________________
Wholesaler / Assignor Assignee
to give you $25,000 cash, of which you give $5,000 to the seller and
keep the other $20,000 as your profit. Your new buyer now gets
title to the house and agrees to take over the monthly payments.
(You’ll learn more about this type of deal in the next chapter.)
You could also have had your new buyer give you $20,000 and
then assign him your contract with the seller. This would also work.
(We’ll go into the details of why we prefer the first way over assign-
ing the deal to the new buyer in the next chapter.)
Why is f lipping a cash deal to a retail buyer more work? Usually
the retail buyer will use a conventional loan to fund part or all of the
purchase of the property, and whenever a conventional lender is in-
volved, things become more complicated simply because this
lender has all its own rules and requirements for doing things. But
it’s worth the extra effort—you’ll make more money when you sell a
deal to a retail buyer rather than to an investor.
Besides just getting a cash fee to assign your contract to a buyer,
there are two more ways to accomplish your f lip to a retail buyer
when a conventional lender is involved. We aren’t complicating this
to impress you. It’s just that when we started f lipping deals in the
various states we buy properties in, we soon learned that the text-
book way of closing these deals didn’t always work when conven-
tional lenders were added to the equation. So you’re about to learn
the lessons of years of trial and error to find the winning formulas.
Imagine you have a house worth $325,000 in “as is” condition.
The seller is five weeks away from losing the sale to the foreclosure
auction. He owes $210,000 against the property and is $20,000
behind in payments. The house needs about $15,000 worth of cos-
metic repairs to show well and be able to sell for its A RV of
$375,000. Because you didn’t want to do the rehab work, you nego-
tiated the best cash price you could with the seller, knowing you
would f lip the deal to someone else. After using all the negotiating
ideas learned from this book (plus a few others you’ve picked up
over the years), you got the seller to agree on a price of $275,000.
You turn around and find a couple who want to buy the house
in its “as is” condition for $315,000. They figure they’re getting a
great deal and they’re actually looking forward to fixing it up the
way they want before they move in. And you’re thrilled because
you’ll make $40,000 on this deal.
Now let’s look at the two ways you can close this deal and get
paid your $40,000.
First, you can do a “simultaneous closing.” This means you
close on the deal with your buyer and seller at the same time, using
your buyer’s money to pay the seller his $275,000, of which
$230,000 goes to pay off the first mortgage and $45,000 goes to the
seller less his share of the closing costs. Your title or escrow com-
pany (whoever is doing the closing for you) sets up a double closing.
You and the seller meet in one conference room and sign all the doc-
uments needed to complete the transaction with the seller. Then
you walk down the hall into the separate closing room with your
buyers and collect their money and deed the house over to them.
Then the escrow agent takes the money the buyers’ lender paid to
pay off the existing lender, to pay the seller his money, and to give
you your $40,000 check. This is the easiest way to do the closing
whenever you can. The key is that the buyer’s lender will have to be
open to funding the deal that involves a double closing. This works
30 percent to 50 percent of the time, depending on where you live.
The second way to handle the closing is a fallback if the lender
won’t let you do a simultaneous closing. You can take this three-
party transaction—you, the seller, and your buyer—and turn it into a
two-party transaction. Because the buyer is the one with all the
money, you can’t get rid of him. But you can temporarily get rid of
the seller by having her deed you the property subject to the exist-
ing loan. Now that you are on title, the buyer’s lender will be satis-
fied and you can close directly with your new buyers. You simply
agree on paper with your seller that the escrow instructions will
order the escrow agent to use the new buyer’s funds to pay off the
existing loan, to then give the seller his share of the proceeds, and
finally to give what’s left to you, the investor.
Again, we know this looks like a hassle, and it is. But in the real
world of investing, sometimes the textbook moves like “simulta-
neous closings” don’t work and you need a street-smart backup.
That’s why we shared this fallback strategy with you to get the deal
to close.
‘‘
■ Peter’s Story
It can sometimes be a total hassle to deal with a buyer’s lender to
make a deal work. Just keep reminding yourself that, for your
effort, you’re going to collect a fat check in the end. Keep saying it
over and over to yourself—there’s a fat check at the end of this
for me . . . there’s a fat check at the end of this for me . . . ■
‘‘
■ David’s Story
Be careful that you don’t get caught on the treadmill of f lipping
deals. Yes, you can make some exciting money by f lipping
properties, but when you stop working, your income stops
f lowing. If you need quick cash, then f lip deals to create that cash
f low. But also develop the resources to be able to build a portfolio
of properties for your long-term financial freedom. I look at
f lipping deals as a way to make money from deals that I wouldn’t
want to have to do all the rehab work on or deal with over time.
You can ignore this advice if you want and f lip all the deals you sign
up. You’ll make lots of money. I just want you to have more than
money. I want you to have the freedom to be wealthy and the
security to enjoy your future without having to race around hunting
up your next deal. This means passive income, and this means
building a portfolio of investment properties to hold over time. ■
Investing for Long-
Term Wealth Buildup
8C H A P T E R
One of the decisions you are going to have to make in your

investing business is whether you are going to invest for short-term
cash f low or long-term wealth buildup or some hybrid of the two.
You have already learned how to turn your foreclosure deal
into fast cash, so it’s time to turn our attention to ways to structur-
ing your properties for long-term equity buildup. Both are impor-
tant. You need cash f low to have spendable income to support your
family, but you need long-term equity growth to build the lifestyle
and future you want for yourself.
‘‘
■ David’s Story
At our workshops, one of the most common questions is, “What do
I wish I would have known when I got started investing that would
have had the most dramatic positive impact on my success?” It’s a
great question that cuts straight past all the hype to the core of
what’s essential. Here is my answer: I wish I had held on to more of
the properties I bought. I look at the houses I turned in the early
days of my investing after only owning or controlling them for 12
months or less and I think, If only I still had those properties . . .
211
In my first year alone, if I still owned or controlled all the

houses I had under contract, I would be about $3,000,000
wealthier! And this is a very conservative estimate. ■
The exit strategies you choose must meet the needs of your
own situation. You may need to turn a quick cash profit like you
need your next breath of air. Fair enough. If that’s the case, use the
ideas in Chapter 7 to turn your properties for fast cash. Just make
sure to hold on to some of the properties you’re buying for your
future well-being. You don’t want to get trapped in the rat race,
always looking for the next deal to f lip, and the next, and the next.
You may already have solid income, whether from a business,
a job, or other investments. Great. In that case, you’ll want to rely
on the exit strategies described in this chapter to maximize your
long-term wealth buildup. The best part of purchase option invest-
ing is that you control how much you make and when you make it.
Strategy #1: Rent Out the Propert y
While this book isn’t about being a landlord, you should under-
stand that this traditional way of holding on to properties over time
has worked for thousands of investors. It’s not our preferred niche
of investing, but we still use it as an exit strategy for a portion of
our real estate portfolio. Just be aware that being a landlord can be
a drag at times.
‘‘
■ Peter’s Story
I still have about 30 traditional rentals going. They provide good
cash f low and allow me to hang on to the properties over the long
haul. The biggest downside is that traditional rentals are time-
intensive. In the past, I handled this by forming my own property
management company. But this still took so much energy away
8 / Investing for Long-Term Wealth Buildup 213
from my family and other investing activities. That’s what led me to

search out a better way to handle my growing portfolio. Today, the
majority of my portfolio is structured on a rent-to-own basis. ■
Strategy #2: Sell Properties on a Rent-to-Own Basis
One of our favorite exit strategies is to sell a property on a rent-

to-own basis. Because you’re putting someone with an owner’s
mentality (as opposed to a renter’s mind-set) into the home, your
property will likely be better cared for. And because you’ll collect
a hefty nonrefundable option fee up front that’s 3 percent to 5 per-
cent of the value of the property, you’re in a strong position to col-
lect your rent each month from your tenant-buyer.
‘‘
■ Peter’s Story
I’ve noticed that only one out of four or five tenant-buyers
actually takes the next step and exercises an option to buy. In my
opinion, this makes offering your property on a rent-to-own basis a
great holding strategy and turns your properties into hands-off
rentals. I recommend pushing most or all of the day-to-day
maintenance onto your tenant-buyer’s shoulders. This, more than
anything else, has helped me escape the landlord trap of tenants
and toilets. Today I spend less time managing my real estate
portfolio than I did when I had my own in-house property
management company, which I sold off several years ago. ■
For complete details on how to successfully price, advertise,

and sell properties on a rent-to-own basis, see Making Big Money
Investing in Real Estate, pages 181–229.
Strategy #3: Sell with “Owner Financing”
Considering that in many areas of the country, 75 percent or

more of renters cannot qualify to purchase the median-priced house
in that area with conventional financing, you probably don’t need
any convincing about the appeal nonbank financing has to the ap-
petites of a huge percentage of would-be homebuyers.
Many potential buyers have credit problems or not enough in-
come to qualify for traditional financing, so you’ll find that when
you offer one of your properties with owner financing, you’ll get
swamped with people who want to buy.
Owner financing simply means that you, the seller of a prop-
erty, act as the bank. You finance the sale so your buyer doesn’t have
to go to a conventional lender and qualify for a traditional loan.
Most beginning investors see owner financing as an option
only for properties they own free and clear. For example, suppose
you have a house you own free and clear worth $400,000. You sell
it to a buyer for a down payment of $40,000 (10 percent) and carry
back the other $360,000 as a mortgage to be paid to you over the
next five years. This is the best-known form of owner financing,
where a seller acts like the bank on a property he owns free and
clear. But as a savvy investor, you can tap into the power of owner
financing in many more powerful ways.
‘‘
■ David’s Story
Remember talking about buying properties subject to the existing
financing? You might not have realized it but that’s a form of owner
financing. For example, say you found a seller of a $275,000 house
who was four months behind in his payments. You agreed to buy
that house by making up the seller’s back payments and taking title
subject to the existing $245,000 loan. The seller solves his
problem, which is the looming foreclosure, and you get a house for
about $6,500 in back payments with about $20,000 to $25,000 of
equity. In essence, this was an owner-financed deal because you

used the seller’s existing loan as a way of leveraging yourself into
the property. ■
You can use this same concept when you sell a property by sell-
ing it subject to the existing financing. Continuing on with the pre-
vious example, you now have the house under contract but you
don’t have the $8,000 you need to catch up the back payments and
pay for closing costs. So you decide to sell the house with owner fi-
nancing and let your new buyer give you the funds needed to bring
the payments current. You advertise using techniques described
later in this chapter and find a buyer who agrees to purchase the
house for $290,000 with 10 percent down and you carry back the
balance. So now you collect $29,000 as a down payment, then use
$8,000 to make up the back payments and pay for closing costs.
You’ve just made $21,000 cash up front plus you’ll make another
$8,000 on the back end (see Figure 8.1). And there are two more
hidden profit centers we haven’t even shared with you yet.
‘‘
■ David’s Story
Look at your local Sunday paper. In many cities, more than 200
properties are offered for sale at any given time. Yet out of these
200, less than 20 will be offered with no bank financing. That
means that you are offering something that’s scarce. Combine this
with the fact that the average renter can’t qualify to buy the
median-priced home in most cities and you recognize that not only
is the supply limited but the demand is greater for an owner-
financed house than for a traditionally financed one. I may not
know much about economics, but even I know that when supply is
limited and demand increases, prices must go up.
When I sell with owner financing, I typically get 5 percent to
10 percent above market value for the property—and without any
real estate commission—simply because the financing has made the
FIGURE 8.1 Sample Owner-Carry Deal
Value $275,000
Your price $253,000
Existing first mortgage you took title subject to $245,000
Your CASH costs up front
Back payments $ 6,500
Closing costs $ 1,500
Your selling price $290,000

Your purchase price ($253,000)
Your profit $37,000
Form of your profits

Cash
Buyer’s down payment $229,000
Cash YOU put in deal ($ 8,000)
Net cash up front $221,000
Note you carry for your buyer $ 8,000
(Note: You’ll also earn interest from the note you carry back for your buyer.)
house more valuable! After all, your buyers are not really buying the
house; they’re buying the financing. Now, I don’t get all this money
up front, but I like creating a hands-off income stream that has a
future payoff. ■
Six Benefits to the Buyer for Using

Owner Financing
1. Fast closing. You can close in as little as 72 hours. Just try

that with a conventional lender!
2. Easy monthly payments. You’re in control of structuring
the payments. If you want, you can even charge them “inter-
est-only” payments, which lowers their monthly payment.
3. No banks to deal with. This means no bureaucracy and red
tape and loan committees to work through.
4. Almost no paperwork to fill out. Yes, you’ll get a loan appli-

cation from your buyers, but they’ll save hours not having to
fill out redundant bank forms and creating fancy loan appli-
cation packets.
5. Doesn’t matter what their credit or income is like. Depend-
ing on the amount of down payment buyers have to work
with and the amount they can afford to pay you each month,
you can work with buyers no matter what their credit is like.
6. Flexible terms on the financing. You can structure the
financing to meet your buyer’s needs. If your buyer needs
two years to clean up his credit and then refinance, you can
set up the financing to have a balloon note due for the out-
standing balance after two or three years. You are the one
in control of structuring the financing.
Selling with owner financing is not the right fit for every situ-
ation, but it’s a useful tool to have in your toolbox. Here are three
reasons that might make selling one of your properties with owner
financing the right exit strategy for you:
1. You need a large amount of money up front. Typically,

you’ll be able to collect 10 percent to 15 percent as a down
payment. This can often be your source of funding to get
into the deal. Or if you need money up front to live on,
owner financing allows you to satisfy your immediate cash
needs while still creating a passive income stream and back-
end profit.
‘‘
■ David’s Story
We bought a house in southern California with two of our
Mentorship students, Mark and Trish. We bought the house subject
to the existing financing. When we were planning our exit strategy,
Mark and Trish said they wanted to get as much money up front
from the sale as possible. We decided to sell the house with owner
financing and got $25,000 of our total $28,000 profit up front
within 60 days. ■
2. You need to get a higher-than-market rent payment. Be-

cause your buyer will get to write off the interest paid on the
property, you can charge a significantly higher-than-market
monthly rent payment and still save your buyer money over
conventional financing.
‘‘
■ Peter’s Story
I was helping one of our Mentorship students structure a deal in
Ohio. She had purchased a property from a seller who was in
preforeclosure but the monthly payment was $200 over the market
rent for the house. I explained to her that by selling with owner
financing, she could find a buyer willing to pay that much,
which in this case was $1,100 a month. She did, in fact, find a
buyer who paid her the $1,100 by selling the property on an
installment land contract—a form of owner financing. ■
3. You want to make sure you will have no more responsibil-

ity with the property. Even selling on a rent-to-own basis can
require some property management on your part. By selling
with owner financing, you truly do step into the hands-off
role of passive institutional investor. Your buyer is legally re-
sponsible for everything involving the property, including
making her payment to you each month. A lso, because
you’re getting three to four times the up-front money than if
you were selling on a rent-to-own basis, you can be much
more secure knowing your buyer will take care of the prop-
erty and live up to her side of the deal, including paying the
monthly payments on time.
Take care that when you choose to sell a property with owner
financing, you take steps to protect yourself. You’ll learn about
wraparound mortgages and land contracts soon, both of which are
used to protect yourself when you are selling with owner financ-
ing. One of the best protections you can have is to have definite cri-
teria when you should not sell with owner financing.
Here are the three criteria when you shouldn’t sell with owner
financing:
1. When your buyer doesn’t have at least 10 percent to pay

as a down payment. If he has less than this amount, don’t
sell him the property with owner financing. You can sell it
to him on a rent-to-own basis and agree that if he pays you
at least 10 percent down by a specific date, you will give
him the option of having you carry back the financing. You
should not give someone title to your property, be it legal
title or equitable title, who hasn’t paid you at least 10 per-
cent down.
2. When your buyer wants to buy with none of her own
money. While we love buying without any of our own
money, rarely will we allow anyone to buy a property from
us where we agree to help finance this new buyer but he has
no money of his own at stake. Why? We know, just like lend-
ers know, that when a buyer has her own money at risk she
is much more likely to live up to the terms and conditions of
the loan.
3. When you aren’t getting enough profit in the deal to make
it worthwhile. We like to realize enough profit out of the
deal up front so that if worst came to worst and our buyer
defaulted, even if we never saw another penny from that
deal, we would still feel we had a victory. Obviously, if your
buyer defaults, you will move to get your money, oftentimes
by foreclosing. Still, you can protect your peace of mind by
always knowing you made enough that you are comfortable

saying, “Next.”
Once you’ve decided to sell with owner financing, you need to

know how to protect yourself. To do this, you are going to use a few
simple tools. The first tool you’ll use is a wraparound mortgage or
A ll-Inclusive Trust Deed (A ITD). As you learned in Chapter 2, a
mortgage and a deed of trust are security instruments that ensure a
borrower lives up to all the terms and conditions of a loan. The bor-
rower signs a promissory note, which is evidence of the debt, and
either a mortgage or deed of trust to secure the debt depending on
which state the property is located in. A wraparound mortgage or
AITD is a specialized version of an ordinary mortgage or deed of
trust. We will go into more detail soon, but first remember when
you learned about buying property subject to the existing financing
how you can just take over making the payments on the loan. Just
like you can buy subject to the existing financing, you can also sell
subject to the existing financing. If you do this, you want to protect
yourself if your buyer does not live up to the terms and conditions
of the underlying loan and mortgage or deed of trust. You want to
make sure your buyer maintains the property, keeps the property in-
sured, pays the taxes, and makes the monthly payments on time.
If you just sold the property subject to the existing financing
without using the techniques in this section, you’d be powerless to
stop your buyer from defaulting on the terms of the loan. You would
no longer have any stake or say in the matter. To give yourself the
power to force your buyer to comply, use a document called a wrap-
around mortgage or AITD. This is an additional document by which
you can legally obligate your buyer to honor all the terms and condi-
tions of the existing financing. In essence, it says that the buyer
agrees to live up to all the terms and conditions of the existing fi-
nancing, plus the buyer will pay back to you any money you carried
back from the buyer’s purchase of the property from you.
For example, imagine you bought a house for $300,000 with

$10,000 down and subject to an existing $290,000 first mortgage.
You decide to sell that house on a wraparound mortgage. The house
is worth $330,000 to a cash buyer, but you know that if you offer
nonbank financing it’s worth more. You find a buyer who’s willing
to buy from you for $350,000 with $35,000 down. To protect your-
self, you get your buyer to sign a wraparound mortgage (if you live
in a deed of trust state, then you would have the buyer sign an AITD,
which acts just like a wraparound mortgage), securing that the
buyer will not only pay you the rest of the money owed, but will also
live up to the terms and conditions of the first mortgage.
Many investors will have the buyer pay them one payment
each month and they will pay a portion of that payment to cover the
existing first mortgage payment. In our previous example, if your
buyer agreed to pay you interest-only payments at 9 percent on the
$315,000 that you carried back, you would collect $2,362.50 each
month from your buyer. With this money, you’d be obligated to pay
the mortgage payment on the first mortgage of $2,000 a month.
The extra $362.50 is yours to keep as one of your profit centers.
You could have your buyer pay the $2,000 directly to the first
mortgage lender and then send you a second check for $362.50
each month, but we don’t recommend it. While it’s more work to
collect the larger check and send the $2,000 to the existing first
mortgage lender, you know your buyer is paying that mortgage on
time. We suggest you collect the full payment of $2,362.50 and use
that money to pay the first mortgage. If your buyer doesn’t pay one
month, then you won’t pay the first mortgage and you will immedi-
ately get a local attorney or foreclosure service to start the foreclo-
sure. You can be nice and work with the buyer on the phone to find
a solution. But any solution you work toward will have the deadline
of the ticking foreclosure clock. Explain that it’s not your decision
to do it this way; it’s your partner’s choice. You’re the “good cop”
trying to find a way out, but you can’t stop the “bad cop” (your part-
ner) from moving forward with the foreclosure unless you receive
payment of what is owed.
‘‘
■ Peter’s Story
I’ve found the best way to protect myself is to always start an
eviction or foreclosure as soon as my renter or buyer has defaulted.
While I’m empathetic and nice, I don’t stop until I either get the
property back or I get payment in full. I guarantee you’ll hear a
million stories if you allow excuses. I urge you to set this firm
policy, explain it to your renters and buyers up front, then hold
them accountable to this specific standard. Anytime I have
deviated from this in the past, I’ve regretted it. ■
Using Land Contracts
A land contract (also known as a “bond for deed” or “agree-

ment for deed,” or “contract for deed”) is another way to protect
yourself when you sell with owner financing. A land contract is an
installment sale by which you sell a property to a buyer who gets
equitable title and you keep legal title. What’s the difference? Not
much. Equitable title means the buyer owns the property and gets
to live in the house, write off all the deductions on tax forms, sell
the property, etc. The buyer just isn’t named on legal title (i.e., hav-
ing the property deeded to them.)
Think about it this way. When you buy a car from a dealer and
the dealer finances the sale, you get to drive the car off the lot (equi-
table title). But the dealer’s name is on the pink slip (legal title).
When you pay off the entire loan, the dealer signs over the pink slip
to you. If you default on the loan, the dealer takes back the car.
A land contract is essentially like a wraparound mortgage or
AITD except that, in several states, it’s easier to get the property
back in the event your buyer defaults than if you sold the property
on a wraparound mortgage or AITD. For example, in Ohio if your
buyer has less than 10 percent equity in a property and defaults on

the terms of the land contract, you can actually evict him from the
property. This process takes a few weeks. If you sold the property
on a wraparound mortgage, it could take you months to go through
Ohio’s judicial foreclosure process.
In some states, however, selling on a land contract is a bad idea
because of the difficulties posed to the seller trying to foreclose on
a defaulting buyer. In California, for example, if you sold on a land
contract, you would have to start a “quiet title action” lawsuit to
extinguish your buyer’s ownership interest before you could take
the next step and evict her from the property. You are much better
off in California selling on an AITD.
Ask a good real estate attorney how land contracts versus wrap-
around mortgages or AITDs measure up in your state. The real key
will be which way it’s easier for you to get the property back or
force the sale of the property if your buyer defaults. Ask your attor-
ney the legal process you would need to follow if your buyer de-
faults. Then compare this process to the one you would need to go
through if you sold the house on a wraparound mortgage or AITD.
The bottom line is: If you ever sell with owner financing sub-
ject to the existing financing, always use either a wraparound mort-
gage or AITD or a land contract to protect your interest.
‘‘
■ Peter’s Story
Recently an e-mail was forwarded to me about how one of our
students in Colorado, Larry, just sold a house on an installment land
contract. Larry’s wife found a seller who was three payments
behind on his mortgage. Larry bought the house for $226,000,
subject to the existing financing. He quickly refinanced the house
to drop his payment to $1,405 PITI. He then put an ad in the
paper and found a couple who wanted to buy the house from
him for $250,000. They gave him $10,000 down, plus will pay
him $2,066 each month. This gives Larry $661 a month of
hassle-free income. ■
Selling with Owner Financing—Step-by-Step
Step One: Marketing the Propert y
Let’s say you have decided to sell your investment property

with owner financing. Your first step is to market the property and
generate as many prospective buyers as possible.
‘‘
■ David’s Story
In my opinion, the single most important factor in selling a house
fast is to create intense competition for the property. Most
investors struggle with this. They are slow to market the
property. There is power behind the urgency you create when
selling a house. The first two weeks it’s on the market are critical.
I’m a big believer in group showings with as many people as I can
get to the property at the same time. This means I don’t try to
overqualify or sell the house over the phone. Instead, I push
everyone who’s remotely interested in the property to come to
see the house at the same time. I love the way buyers behave
so nicely and decide so quickly when they fear losing the
house to another family at the showing. ■
Besides placing signs, running ads in your local paper’s real

estate classified “For Sale” section is the best way to find a buyer for
your property. Building on the classified advertising techniques you
learned in the last chapter, Figure 8.2 offers three power ads you
can use as templates when you’re selling a property with owner
financing.
Notice that each of these ads almost ignores the property and
instead sells the financing. This is the same technique that car deal-
erships use when they advertise. They don’t focus on the price; in-
stead, they emphasize the payment and the amount of money
needed up front.
FIGURE 8.2 Power Ads When Selling a House with Owner Financing
EZ Qualifying! OWC. Must sell now! Price Reduced

for Quick Sale. 3br/2ba, dbl gar. 619-555-1234.
Or
Desperate, Must Sell! $25,000 down take over

pymts. on my loan. No banks to deal with. 4br./
3ba. 888-444-1212. 24-hr. rec. msg.
Or
Nonbank Financing! Bad Credit OK! Small down

payment with owner to carry entire balance! 3br./
2.5ba. house. Details call 888-444-1212 ext.
44. 24-hr. rec. msg.
You might be wondering where the price is in these ads. We

recommend you don’t include the price. Instead, use your ad to
drive as many prospective buyers as possible to your recorded voice-
mail message. (How to create an effective voice-mail message was
covered in Chapter 4.) Just as the purpose of your classified ad is to
generate the phone call, the purpose of your voice-mail message is
to get a caller to communicate his contact information and the
monthly payment range and down payment he has to work with.
Sample Voice-Mail Script for Selling with

Owner Financing
Hello and thanks for calling. This is your chance to

quickly and easily own your dream home. Right now we
have a beautiful 4-bedroom, 2¹⁄₂ -bath home in Briargate.
This home has a stunning view of the mountains, and a great
yard with a deck; it’s very close to shopping and is on a quiet
cul-de-sac.
We’re offering this home with long-term owner financ-
ing. There are no banks to deal with and no long forms to fill
out! This is the simplest and easiest way for you to own your
own home.
To help us help you, after the tone, leave your name
and telephone number, along with the range you want to
keep your monthly payments in, and the amount of down
payment you have to work with. Obviously, the larger the
monthly payments you can handle and the larger the down
payment you have to work with, the easier it will be for us to
choose you to buy this house.
Thanks for calling and remember to leave your name,
telephone number, monthly payment, and down payment
you have to work with, and if it’s a match, we’ll call you back
as soon as we’re back in the office.
Signs—Your Most Effective Source of Buyers

Whether you’re selling the house on a rent-to-own basis or
with owner financing, signs are one of the most important ways to
attract qualified buyers to the property. Again, as recommended in
the previous chapter, use a combination of two professional-look-
ing signs in the front yard and the corner lot along with plain hand-
written signs on simple poster board or corrugated plastic sheets.
(See Figure 8.3.)
FIGURE 8.3 Sample Neighborhood Sign to Sell with Owner Financing
No Bank Qualifying!
100% Owner Carry!
4bd./2ba. House
888-222-8488 ext. 45
24-hr. Rec. Msg.
‘‘
■ Student’s Story
I received a deposit and a promise of $8,000 in option money from
a couple who saw one of my bandit signs (the first sign that I
ever put out, as a matter of fact). The man said he was driving to
Lowe’s when he caught sight of a tired-looking little yellow
sign on a stake by the side of the road. The sign was curled up
and f lopped over so all he could read was “rent” and “3 bed.” He
said he got out of his car, went over to the sign, and held up the
corners so he could read the whole thing. He got out his cell phone
and punched in the toll-free number right there. So, I guess these
signs really do attract the attention of people in the market
for a new place!—Heidi, Alaska. ■
When you’re using signs in a city or area that doesn’t allow

signs, try putting your signs out Friday afternoon before everyone is
driving home from work or very early on Saturday morning. If you
remove them by Sunday night, you’ll usually be able to avoid those
people who don’t like your signs as much as you do. In some areas,
using your own wooden stakes or metal sign holders seems to relax
the officials. One added benefit of handmade signs on poster board
is that city authorities tend to see them as one-time events from
harmless homeowners, not products of huge real estate investment

firms (if only they knew, right!).
Your local city probably does have rules about the use, or even
against the use, of these signs. Because of that, we’re not telling you
to use signs; we’re merely sharing that other investors have used
signs to make a lot of money. You’ll have to make your own autono-
mous decision after talking with your attorney, CPA, insurance
agent, and psychologist. (How’s that for a disclaimer?)
Flyers—Your Ace in the Hole
One powerful guerrilla marketing technique to generate leads

on prospective buyers is using f lyers advertising the property for
sale. You can deliver these f lyers to homes in the surrounding neigh-
borhood. (See Figure 8.4.) Don’t forget to look for other places to
post f lyers such as grocery stores, major employers, community bul-
letin boards, your local coffeehouse, etc.
‘‘
■ Peter’s Story
I recommend you hire someone else to put out these f lyers for you.
If you really want to be successful as an investor, you need to
understand the real value of your time. It’s hard to earn $50 an
hour, let alone $500 or more an hour, if you’re doing activities
you could pay someone else $10 to $15 an hour to do. ■
FIGURE 8.4 Sample Flyer to Find Buyers
$500 Reward
Wanted: The Perfect Neighbor
We want you to have the perfect neighbor, so you can
help us to choose your neighbor!
That’s right . . . if you can help us to find a great person

or family to move into this:
3-bedroom, 2-bath home at 345 Vista View Way
We’ll pay you a “reward” of $500
It’s available as:

Rent to own
Owner Carry Financing
Nonqualifying Financing
Call 866-555-1234. 24-hr. rec. msg.

or office 303-555-1234
www.RentToOwnDenver.com
Setting Up a Realistic Marketing Timeline
‘‘
■ David’s Story
For those number crunchers who want the metrics, here’s a
snapshot of the numbers I see when I’m marketing my properties.
I get a huge number of signs (40 to 60) out the first two weeks. I
put them out immediately and replenish them early on Friday
afternoon. (Actually, I hire someone to post them.) This gets me
about 25 calls on average. Of these, six to eight potential buyers
will show up to see the property.
Signs are critical to find buyers even with the calls your
classified ads generate. Typically, I receive 30 to 40 calls from my
ads over two weeks, of which eight to ten people will come see the
property. This means I get 14 to 18 prospective buyers to see the
property within the first three weeks I have it on the market.
I place a big emphasis on showing a house to large groups
(even if only one or two of the people really are qualified).
Normally it takes me two to four showings to fill a property and I
collect nonrefundable deposits to hold from an average of .75
people who don’t end up buying in addition to the one deposit to
hold I get from the person who does buy.
The key is to push hard to generate traffic through the house
for the first two weeks. If I get busy and slow down, I lose
momentum, which I feel is critical to selling a house. Prospective
buyers do pick up on this. On these occasions, it takes me
about four to six weeks on average to sell to a tenant-buyer
(rent to own) or buyer (owner financing). ■
Two More Hidden Profit Centers in Your

Owner-Financing Deals
Because most of the buyers you’ll find for your owner-financing

properties have poor credit, they’ll be more than willing to pay an
above-market interest rate if you provide them with the financing.
Most of your financing will be at 6 percent to 8 percent, and you’ll
be able to charge your buyer 8.9 percent to 10.9 percent interest.
This will leave you with a healthy spread in the interest rates.
For example, let’s say you bought a house subject to its existing
$200,000 first mortgage at an interest rate of 7 percent. Then you
sell the house on a wraparound mortgage for $230,000 with a
$30,000 down payment and an interest rate of 8.9 percent. Not
only did you make your $30,000 from the down payment, but you
now have a spread in the interest rates that earns you 1.9 percent
on the entire $200,000 balance. That passive income f lows to you
each month.
Finally, depending on the underlying loan and the financing
you structure for your buyer, you may have one more profit center—
the spread in the amortization of the loans. Referring to the previous
example, let’s say the loan you took title subject to is paying down
$150 each month (and the amount keeps growing). But the loan you
made to your buyer is interest only. That means each month, the un-
derlying loan is getting paid off and down the road will be much
lower than $200,000. For example, in five years your buyer may re-
finance the loan you made him of $200,000. At that point, the un-
derlying loan may have paid down to $192,000. This means you
make an extra $8,000 payday.
Six Things Top Investors Do to Sell Fast
1. They stay in control during all phone conversations to set

appointments. Successful investors firmly take charge right
from the start.
2. They know how to pack a showing with five to ten families
or potential buyers. Remember, more is better.
3. They love collecting deposits and feel great about people
giving them money. Being comfortable accepting money
isn’t something you can just take for granted. It’s a state of
mind that can be cultivated over time.
4. They know it only takes one person to buy the property and
they feel confident that if the monthly payment and up-front
money are right and the house looks decent, they will find a
buyer.
5. They expect to collect a deposit to hold the property on the
spot. Real buyers put up or shut up. A promise from a buyer
only means something if it’s accompanied with cash.
6. They don’t care if they find the perfect buyer at the absolute
top monthly payment and price. They just want a good
buyer who gives them money right away.
‘‘
■ Peter’s Story
I’ve gone through all the “Oh my gosh, am I really going to be able
to find someone . . . Oh poor me, what if I can’t . . . what if I have
to make the payments for the next six months myself . . . or if the
seller freaks out . . . Did I really buy this right. . . .” Provided you’ve
done your homework and bought right, have faith you will find a
buyer. That confidence is contagious to buyers. Keep saying to
yourself over and over, like a mantra, “I’m only looking for
one buyer.” ■
A Powerful Selling Strategy: Rent-to-Own into

Owner-Carry Financing
One useful strategy is to combine selling a house on a rent-to-

own basis with owner-carry financing. For example, we sold a four-
bedroom house for $279,980 on a two-year rent-to-own basis. Our
tenant-buyers paid us a $15,000 option payment and a monthly rent
of $1,695. At the end of the two years, they still couldn’t qualify to
buy using conventional financing, but they really wanted the
house. So we agreed to finance them ourselves by selling it to them
on an AITD (the house was in California where this is the best way
to protect yourself when selling subject to the existing financing).
We bumped their price to $285,000 and they gave us $15,000 more
money as a down payment. We charged them interest-only pay-
ments at 8.9 percent, which meant they paid $1,891.25 a month.
We also set a deadline for them to refinance the property within
two years of the sale, when a balloon note for the rest of the money
came due.
If you choose this combined selling strategy, here are your
benefits:
• Less risk. You only rent-to-own first and don’t agree to the
owner-carry financing until after the buyer has proven to be
a good risk.
• Lots of control for you. You don’t obligate yourself to sell
with owner financing; you merely agree to talk it through to-
ward the end of the rent-to-own option period.
• Growing streams of monthly cash f low. You’ll get a lot more
money each month from your buyers than the rent they used
to pay. Because, at this point, they are owners, they also get
to write off the interest they pay on their taxes. This means
the net cost to your buyer will usually be negligible.
• You sell at the future price. When you sell on a rent-to-own
basis, you charge an inf lated price. When you roll this rent-
to-own property into owner-carry financing, you can again

bump the price because this nonbank financing commands
a premium in the marketplace.
• It’s easy to find people who want to buy a house like this.
There are many times more buyers for rent-to-own or owner-
financed homes than for traditional properties.
• You save thousands in real estate commissions. You won’t
need an agent to help you find a buyer.
Seven Secrets to Sell Your Properties Fast!
We want to close this chapter with these seven secrets to sell-

ing properties fast:
1. Always set up group appointments. Your time is too valu-

able to show a property to one person at a time. Leverage
your time by setting up group appointments. In addition to
saving you time this helps you create intense competition
for your properties, which means you’ll get more for your
properties and get it faster. Never underestimate the fear of
loss as a motivating force in your buyer’s mind. When he or
she looks around the house and sees four other families
there at the property you’ll be amazed how quickly a pro-
spective buyer can decide to buy.
2. Always make a “definite appointment,” not a “showing.”
While group showings are the way you think about market-
ing the property, that language is not the most effective with
prospective buyers. Instead always set up a definite appoint-
ment with a prospective buyer at a specific time. You then
go on to set all your definite appointments at the exact same
time!
3. Always get to the property early. You have too much riding
on each group showing to leave anything to chance. Get to
the property 30 minutes early and make sure it is ready to

show. Turn on all the lights and then do any last-minute
touch-ups to make the house warm and inviting.
4. Always use lots of neighborhood signs. Dollar for dollar,
signs are your cheapest and most effective ways to generate
buyers for your properties. Don’t settle for one or two signs;
instead, get 30 to 40 signs up each week.
5. Always use voice mail to screen potential buyers. This pro-
tects your time and gives buyers a safe way to find out more
about the property and offer you have to make them. It also
lets you make sure you balance your investing in with other
areas of your life. Return calls when it’s convenient for you.
6. Never talk through the numbers on the phone; wait until
the buyer comes to the property. Talking through price on
the phone with prospective buyers is a big mistake. Never
let them make a decision without meeting them at the prop-
erty. If they push you to go through the pricing, say, “You
know what. I’ve had a huge response of people for the prop-
erty and I don’t have time to go through the pricing with
each of them individually. To be frank, I don’t even have the
final pricing done [which is true since the final pricing is
done only after you collect all the money]. At this point I’m
just getting back to all the people who called me saying they
wanted to see the property. I’m quickly sorting out who I
even want to meet at the property to show through the in-
side and decide if I even want to sell it to them. May I ask you
a few more questions to see if it even makes sense for me to
invite you out to see the inside of the property?” You’ll be
amazed at how nice they’ll behave when they hear you
firmly say these words.
7. Never, ever stop marketing a property until you get a non-
refundable cash deposit in your hand (certified funds pre-
ferred). Buyers are only buyers when they have paid you
money. Period. Promises mean nothing from a buyer. We
know this sounds harsh, but it is just the sum total of a lot
of years of experience talking. The best insurance you’ll
ever have that a buyer will come through is to never stop
marketing the property until you’ve received cash in hand.
We hope that you will learn to master the techniques presented

in this chapter and in Chapter 7. Remember, you create equity when
you buy right; you create cash profits when you master the art of
selling your properties. Given time and practice, you can become
outstanding at this critical skill.
It’s time to move on to the final chapter, which ties all of the
strategies you’ve been learning into a concrete action plan so you
can start making money right away.
Putting It All
into Action
9C H A P T E R
Over the past eight chapters, you’ve learned the nuts and bolts
of how to make money investing in foreclosures. You’ve learned 12
ways to structure deals without cash or credit and 22 ways to find
great foreclosure deals. You’ve learned a simple five-step system to
close deals with sellers in foreclosure and how to avoid the 24 most
common foreclosure pitfalls. Finally, you’ve learned how to convert
your foreclosure deals into either quick cash or long-term wealth.
The fact is, your head is probably bursting with moneymaking
ideas by this point. Now it’s time to turn your attention to the best
way to translate all this specialized knowledge into money in your
pocket. Here’s a seven-step action plan to launch your foreclosure
investing business.
Step One: Test Out Three Different Lead Sources
Go back to Chapter 4 and choose any three lead sources to try.

Your goal (in this and in the next step) isn’t to sign up deals but to
get a feel for what the real world of investing is like. Over the course
of two or three weeks, use these three trial runs to find three sellers
237
you can meet with to practice your negotiating skills. Remember,

you’re testing the waters at this stage so you can ease into your
investing.
Step Two: Meet with Three Sellers as Fast as You Can

Now that you’ve found a few sellers who might be motivated,
meet with them. You probably feel you’re not even close to taking
this step. You’ll say that you don’t know enough or you’re not ready.
Do it anyway!
Your immediate goal is to experience what it feels like to be sit-
ting face-to-face with a real live seller. Do you know that many
would-be investors have spent years studying how to invest without
ever taking this critical step of meeting with a seller? Remember,
no matter how much you learn about your investing, you’re still go-
ing to feel scared and overwhelmed during your first few appoint-
ments. Knowing this, just get these appointments over with so you
can get on with the business of learning to make money with your
investing.
To put you at ease, we don’t expect you to buy any of these
houses. (Of course, you can if you want to.) In fact, to take all the
pressure off, you can even visit with these sellers deciding before-
hand that you are not going to buy any of the properties. The point
is to prove to yourself that you can meet with sellers and survive.
Once this step is out of the way, the rest comes easy. Now, when
you commit to this stage, you’ll have real experience with which to
make sense out of what you’re learning.
Step Three: Dive In and Learn How to Invest

the Right Way
One of our favorite quotes is: “If you think education is expen-
sive, you should try ignorance.” At this point, you have a better
understanding of what’s needed, so it’s time to get busy. While no
9 / Putting It A ll into Action 239
university degrees exist for making money as an investor, if you’re

willing to take responsibility for your real estate education, you can
create a self-study program tailored to your needs and goals.
One word of caution: Make sure you’re learning only from the
best. Edward Deming, the world’s foremost quality-control expert,
repeatedly said there’s a precious window of opportunity to train
someone to do things the right way from the start. He cautioned
businesses to make sure they either used their best people or
brought in the best people to train their staff because if people
don’t learn something right at the beginning, it’s much harder to get
them to unlearn what they know and change their patterns.
We recommend you pay the price and learn how to invest the
right way from the start. Take great care to model your actions after
people who are the best in the world at what they do. We’ve pro-
vided a detailed list of resources for you to tap into to learn more
about how to make money investing at the end of the book.
You have five powerful sources to learn from:
1. Books. It takes an author five years or more of experience

and study to gather the insights to put into a book that you
can read in a few weeks. This is a great form of leverage.
‘‘
■ David’s Story
People might call me a bookworm, and that’s fine by me. I read
125 books or more each year. Not only do I love to learn, but the
ideas I harvest from this intensive study have helped me make
millions of dollars. ■
2. Home-study courses. The next step up from learning by

books is to carefully complete several high-quality home-
study courses. These courses usually include audio training
(using time-coded CDs is preferable because it’s easy to go
straight to the area you want to review), video components,
and a detailed manual. The most important aspect about a

home-study course is how current and detailed it is. A qual-
ity home-study course should not just tell you what to do,
but specifically how to do it.
‘‘
■ Peter’s Story
I didn’t go to college. In fact, I struggled to make it out of high
school. I regard my investment in home-study courses as my college
education. The only difference is that the courses I chose weren’t
at all theoretical—they were down-to-earth guides that came from
my instructor’s real-world experiences. Because I’m an auditory
person, I learn best by listening to material. That’s why I am
constantly upgrading my knowledge base by listening to CDs in
the car when I’m driving and on my portable player when I’m
exercising. Considering most successful investors I know outearn
college graduates by a factor of ten on average, I’d say this
kind of investment can pay off handsomely. ■
3. Workshops. There is something so powerful about shutting

out the world and immersing yourself in an intensive learn-
ing environment for three solid days. In fact, many people
can learn in three days what other investors struggle for
years to learn. So consider attending one or two high-quality
investment workshops each year as part of your ongoing real
estate education. Also see if you can purchase CDs, audio-
tapes, or DVDs of the workshop to review later. Considering
the amount of material you’ll be exposed to at most work-
shops, you’ll benefit immensely by repeating the course as
needed.
4. Investor associations. The power of association is such a
strong driving force to help you succeed as an investor that
we recommend harnessing it to help you reach your goals
faster. Get in touch with the investor associations in your
areas, and start attending their meetings and networking

with the most successful investors in the group. (See the
resources listed at the back of the book for more details. )
5. Mentors. Probably the fastest way to succeed at investing is
to find a successful person or company willing to take you
by the hand and mentor you. Here are five questions you’d
be wise to ask of any commercial mentoring program to find
the best fit:
• Question One: How big is the mentoring program? Some
people prefer working with the largest companies that
have tens of thousands of clients. Other people prefer
working with an individual they know who informally
works with just one or two people at a time. Many of our
clients choose us because they get the best of both
worlds. We work only with a small number of clients each
year (currently around 1,000) so we can give them indi-
vidual attention. But we have a large enough investor pool
that we constantly get exposed to new and innovative
ideas to share with students around the country. The key
is to choose the right size of program or group for you.
• Question Two: Who does the actual coaching? Make sure
you find out exactly who will do the actual mentoring.
Some programs use staff members as full-time coaches
who are available from 9 AM to 5 PM. While convenient,
these “full-time” coaches rarely are full-time investors;
rather, they are simply semitrained employees.
‘‘
■ Peter’s Story
Several years ago, we decided that the coaches we’d use would
come up through the ranks of our program. That way we could be
sure their ideas were consistent with what we taught and they
had the skills to help our students. This meant we use only
full-time investors as part-time coaches. While this really limits
the number of people we can work with because our coaches

only coach on a part-time basis, we still decided this was the
right way to train our students. ■
• Question Three: How much access to coaching will you

really get? Make sure you investigate all the ways you can
get your questions answered. Also ask these questions:
How does the program use technology to make it easier
for you to obtain quality help? How long does your sup-
port last? You want the program to give you at least six
months of support, preferably a full year or longer.
• Question Four: Does the system match your needs and
goals? A system is the sum total of a business’s methods
and procedures—that business’s best practices and work-
ing processes in one place. Take a close look to make sure
a strong match exists between the system offered and
your desired outcome.
• Question Five: Will you be held accountable? Whenever
people are doing something new or different, it can be
too easy for them to not follow the behavior that will
lead them to success. That’s why we hold our students
accountable for their behavior, even going as far as hav-
ing them fax in weekly performance summaries. While
you don’t need to find a program that goes that far, it’s
essential to find a program that won’t let you slide by but
will hold you to your commitments.
‘‘
■ David’s Story
I got off to a blazing start with my own investing career. After
spending time with Peter who showed me how to negotiate with
sellers, I went after investing in a big way. I remember a point early
in my career when I got nine properties under contract in the same
month. But I became so scared, I hid in my house. For two weeks,
I was so overwhelmed by the “success” I’d already had, I didn’t call

a single seller I had a pending deal with, nor did I market a single
property. As you probably guessed, I lost a lot of those deals
because the sellers got scared when I disappeared. In the end,
I closed on only one of those nine properties.
One of the reasons we require every student who signs up a
deal to work through a 29-point checklist to find the end user for
their property with one of our coaches is because it’s too easy
to let fear cause you to procrastinate or hide. ■
Step Four: Establish Three to Five Secure

Lead Sources
About three weeks into your study phase, actually get started
investing. You will not be totally ready, but do it anyway. Your goal
is to systematically test different lead-generating sources until you
find three to five that, on average, each yield one high-quality lead
a week. While it might take you several months to establish these
independent lead sources, when you’ve got them, your investing
business will be on a rock-solid foundation. To be successful with
your investing, you’ll need access to motivated sellers and this
takes work.
Step Five: Meet with Two to Four Sellers a Week,

Every Week
You must meet with a lot of sellers to find good deals. At first,
you’ll be working on getting comfortable actually being in their
homes. Soon, you’ll relax enough to stop thinking about what you
are going to say next and actually listen to what these sellers are
sharing with you. Next, you’ll get good at quickly analyzing a deal
and knowing what you could offer the seller that will meet his needs
and make you a fair profit. Finally, you’ll master the art of the end
game—of closing the deal.
This is a progression; the only known path to success is to have
enough sellers you’re meeting with work through this process.
Once you master your skills and become good at all these stages,
you’ll be able to earn a whole lot more money with less time and ef-
fort. So commit to consistently meeting with sellers to make this
happen.
Step Six: Start Cultivating Sources of Funding
Once you’ve paid your dues and learned enough to sign up a

deal or two, start to cultivate some outside funding sources. Begin
with brainstorming a list of all the people you know who might
know others who want to earn a healthy rate of return on any idle
cash they may have. Because any of these loans will be secured by
a mortgage on a property with a lot of equity protecting this private
lender, this will be a safe investment for them.
Also see about establishing any lines of credit at your local
bank. Talk with your bank about creating an equity line of credit.
While you might choose not to use these sources of funding, it’s a
good idea to establish them early just in case.
Next, find out who the hard moneylenders are in your area. Ask
around at your local real estate investors association meeting or look
in the newspapers under “Money to Lend” or “Real Estate Wanted.”
Call people in these categories to find out their requirements for
lending you money, and then start to cultivate relationships with
them.
Finally, put together your investors’ list of people you can f lip
deals to in case you find some deals you can’t fund yourself. This is
the easiest way to create quick cash f low with your investing. Re-
view Chapter 7 to refresh your memory about how to create this list.
Step Seven: Constantly Learn and Grow from

Your Experiences
With all this investing activity going on, make sure you profit
from every step you take. Ask yourself weekly, “What have I learned
so far from these investing experiences?” Capture on paper the tan-
gible learning points you’ve gathered that week from investing.
What’s been working well for you? What are you most pleased
about in your investing? What are the biggest questions you need
answers to? What can you do differently next week as a result of
what you learned this week that will create the most dramatic, pos-
itive impact on your investing?
One powerful technique you can harness is called master-
minding. A mastermind group brings together two or more people
for a definite purpose, in a spirit of mutual harmony and trust, in a
manner in which every member benefits. That’s a mouthful! Bot-
tom line is that a mastermind group of three to five other investors
meets regularly to assist each other in becoming successful with
their investing. They’ll give you objective input and encouragement
to supercharge your investing, and you’ll do the same for them.
Tithing and Seeding—Getting Comfortable

with Wealth
Tithing: Giving Part of What You Earn to the

Greater Good
Perhaps the most significant distinction we can share with you

is the difference between being wealthy and being rich. Being rich
means you have money, but we bet you know several people who
have a truckload of money but aren’t happy. Either they’re scared
to death of losing their money and hold on to it with a tight, white-
knuckled grip, or their relationships with others are distant and
unfulfilling, or . . . you get the picture.
Being wealthy means having abundance in all areas of your

life—physical, financial, emotional, and spiritual. We want you to be
wealthy in the broadest, juiciest sense of the word.
An important aspect of being wealthy is feeling like you have
more than enough. This feeling of abundance only comes from
having so much that you can congruently say you have more than
you need. There’s no stronger affirmation that you truly have more
than you need than to give some of it away.
We recommend you decide on a percentage of your real estate
earnings to give away in a manner that makes a positive difference
in the world. Whether you call this tithing or just paying for your
space on planet earth, it’s the most powerful way to shift your think-
ing to knowing you live in an abundant world and that you are
wealthy. It doesn’t matter what percentage you choose to give away
(we think 10 percent is a good number); all that matters is that you
do choose to give something away.
Many of us accumulated so much negative input about money
and what it means to have it while growing up that we’re scared or
uncomfortable or ashamed to allow it to f low into our lives. By giv-
ing part of what you earn to the greater good, you are also recondi-
tioning yourself about what it means to have money. Having money
means you can do a lot of good in the world.
Seeding—Investing in What Matters Most
In addition to giving a percentage of your real estate profits to

worthy causes, we recommend investing a portion of your profits
in the three following areas. We call this “seeding.” You know how
farmers set aside a small portion of their harvest to use as seeds for
the next season? Similarly, seeding is investing in areas you’ll use to
make sure you live in a wealthy way all the seasons of your life. Take
care to set aside the money out of your profits today so your tomor-
row will be even more rewarding and secure.
Area one—invest in assets that grow. Take a definite per-

centage of your real estate profits and set them aside to invest in
other real estate deals. Over time, your goal is to create an asset base
of properties that generates multiple streams of passive income.
Area two—invest in your earning capacit y. Take a def-

inite percentage of your real estate profits and invest them in your
ongoing real estate education. One of your greatest appreciating
assets is your ability to make more money with your investing.
Area three—invest in your relationships. Take a definite

percentage of your real estate profits and use it to create experi-
ences of joy and connection with your loved ones. Use the money
for a vacation with your family, take your spouse on a special date,
or do something else out of the ordinary. Find ways to create special
moments and memories with the people who matter most to you.
What has all this got to do with making money investing in
foreclosures? It’s got nothing to do with making money and every-
thing to do with making money. Until you are able to hardwire into
your brain the message that “Making money is a good thing” and
“You use your wealth in positive and uplifting ways,” we believe
you can never truly be wealthy. Tithing and seeding are powerful
techniques to help you reach your goal of being wealthy.
It’s Really Possible for You
We’ve come to the end of time together in this book; it’s time
for you to step out and put what you’ve been learning into practice.
We know it can feel overwhelming and scary, but just keep in mind
it’s real.
Remember the story about one of our Mentorship coaches,
Byron? He got started as a full-time investor after being laid off
from his high-paying job as a corporate sales manager. For the first
four months of his investing, he didn’t close on any deals. About

that time, he and his wife were looking at their depleted savings
and wondering if Byron should just go and find another job.
Then a small “accident” changed their lives. Byron came across
a copy of Making Big Money Investing in Real Estate at a local
bookstore. Something about that book and the ideas it shared
sparked him to try things a new way. He joined our Mentorship pro-
gram and three weeks after the live training portion, he signed up
his first deal. In fact, a week later, he picked up his second deal.
Over the next six months, Byron went on to complete nine deals,
made $75,000 cash, and created more than $200,000 of equity for
himself and his wife. He also created a $2,000 passive monthly cash
f low from his investment properties. He’s moved on to many more
deals—if he can do this, it’s possible for you too.
Or take Mike, a student of ours who has been blind for the past
six years. Mike sent us an e-mail about a house he bought subject to
the existing financing from a seller in foreclosure where he made
$20,000 profit. If Mike can do this, know that you can too. You just
need to take action and go after your dreams.
‘‘
■ David’s Story
I remember talking with Scott, a Mentorship student from
Colorado. He was sharing his frustration over how slow things
were going for him. A few months before, he had left the company
he was working with as vice president and become a full-time
investor. He had cut a few corners on his first deal and looked like
he might lose the $8,000 he had into it. Scott told me about the
pressure he was feeling from his wife who was scared that
investing might not work out. After listening to Scott and doing my
best to encourage him to hang in there, we ended the call.
Fast-forward to today. Scott has successfully completed 20
deals and his investing business has taken off like a rocket ship.
Something has just clicked for him. Scott now averages two to four
deals a month. He says one of the best parts to his investing is that
he can plan his work around his family, not the other way around.
Can you think of any greater gift to give your family? ■
‘‘
■ Peter’s Story
I remember when I bought my first fourplex from a seller who
responded to my classified ad. My ad read, “Private investor wants
income property. Will look at all. Any condition.” The sellers, an
elderly couple, had just foreclosed on the property when their
previous buyer had stopped making them payments. I was so
scared when I talked with them over the phone, my hands were
shaking. I remember sitting with them on their back porch and
pouring out my dreams of becoming a real estate investor. I’m sure
I did it all wrong but somehow these two generous spirits took a
chance on me and sold me the property with owner financing. The
$87,000 I made when I sold that property four years later was less
important to me than the powerful experience of this couple
believing in me when I didn’t have the courage to believe in
myself.
Know that David and I believe in you. We know you can do
this. It’s not just possible . . . it’s possible for you! We wish
you true wealth and lasting happiness. ■
Resources to Help in
Your Investing
Real Estate Associations
Local Real Estate Investor Associations (REIA Groups)
Across the country, local groups of investors have come to-

gether to form investor associations. These groups typically meet
once a month at a local venue and discuss items of importance to
the member investors. For a state-by-state listing of local groups, go
to <www.resultsnow.com> and click on the link for “Investor Asso-
ciation.”
American Real Estate Investors Association (A REIA)
The American Real Estate Investors Association is a nationwide

group of real estate investors who have joined to help each other
and themselves be more successful in their investing. AREIA not
only gives its members the chance to network with other success-
251
252 Resources to Help in Your Investing
minded investors, but it also provides them with ongoing training

and support.
AREIA is a “virtual” investor group; its members meet through
conference calls and over the Web on their “members only” Web
site. It’s interesting to note that most AREIA members also belong to
their local investor group. AREIA members have greatly benefited
by having access to investors in other areas of the country, too.
Whether these investors are just more willing to share because they
don’t view the other members as local competition or simply be-
cause different areas are the breeding grounds for new ideas, AREIA
members benefit greatly from this free exchange of ideas. For more
information on joining AREIA, visit the association’s Web site at
<www.americanreia.com>.
Recommended for Your Further Study
Seven “Must-Read” Books for Real Estate Investors
• Making Big Money Investing in Real Estate without Ten-

ants, Banks, or Rehab Projects (Conti and Finkel)
• Flipping Properties (Bronchick and Dahlstrom)
• Rich Dad, Poor Dad (Kiyosaki and Lechter)
• Real Estate Loopholes: Secrets of Successful Real Estate
Investing (Kennedy and Sutton)
• Inf luence: The Psychology of Persuasion (Cialdini)
• Investing in Real Estate, Fourth Edition (McLean and Eldred)
• How to Create Multiple Streams of Income Buying Homes
in Nice Areas with Nothing Down! (Conti and Finkel)
Home-Study Courses
Over the past seven years, we have created several high-quality

home-study courses to help investors. To find out more information
on any of the following courses, visit us on the Web at <www.results

now.com>.
“The Protégé Program: The Complete Purchase Option Home-

Study Course”
36 CDs, 5 manuals (1,200 pages), CD-ROM of forms and
contracts
“How to Find, Close, and Sell Properties Subject to the Existing
Financing”
12 CDs, 450-page manual, CD-ROM of forms and con-
tracts
“How to Buy Apartment Buildings With Little or Nothing Down”
15 CDs, 400-page manual, CD-ROM of forms and con-
tracts
“The Advanced Purchase Option Training: Leveraged Business
Systems and Training to Take Your Real Estate Investing to the
Next Level”
27 CDs, 500-page manual, 20 hours on DVD, CD-ROM of
forms and contracts
“Negotiate and Grow Rich: How to Handle Every Negotiation
You’ll Ever Face as a Real Estate Investor”
24 CDs, manual, 20 hours on DVD
“How to Buy Foreclosures without Cash or Credit”
24 CDs, manual, 20 hours on DVD, CD-ROM of forms and
contracts
Live Workshops
In addition to these home-study courses, we host several inten-

sive three-day workshops on various investing topics from foreclo-
sures, to negotiating, to lease options. For information on the
Purchase Option Masters Series, go to < w w w.resultsnow.com/
p1462.html>.
254 Resources to Help in Your Investing
Mentorship Program
Each year, we work with a handful of investors in a comprehen-

sive yearlong program that teaches them to be successful investing
in real estate. With daily access to expert coaching and personalized
help to walk through every step of their deals, this program is only
for individuals who are committed to make their investing work in
the shortest possible time. To find out more or apply for this pro-
gram, go to <ww w.resultsnow.com/p1198.html> or call toll-free
877-642-3466.
Web sites to Help You with Your Investing
www.resultsnow.com—Site hosted by Peter Conti and David Finkel

containing free investor resources and articles
www.davidradio.com—Biweekly two-hour radio program called
Real Estate Radio hosted by David Finkel
www.nationalreia.com—Lots of useful information on local real
estate investor organizations around the country
www.creonline.com—Great discussion groups and investing arti-
cles
www.resales.usda.gov/properties.cfm—Information on govern-
ment-owned real estate for sale
www.treas.gov/auctions/irs/index.html—Information on IRS-
seized property being auctioned off
www.inman.com—Great real estate articles and information featur-
ing syndicated columnist and attorney Robert Bruss
www.taxloopholes.com—Great site on saving money on taxes with
special section for real estate investors hosted by Diane Kennedy
www.legalwiz.com—Great site on legal aspects of investing
www.Bankrate.com—Mortgage rates from Bankrate.com
www.list.realestate.yahoo.com/re/neighborhood/main.html—
Useful site through Yahoo to find home values and neighborhood
information
www.census.gov—Access to detailed census data, down to zip-code
level
www.mbaa.org/consumer/—Consumer section of Mortgage Bank-
ers Association of America; useful calculators and planning tools
www.myfico.com—Information on your credit score
www.financenter.com/—Best mortgage and financial planning
tools on the Internet
www.propertydisposal.gsa.gov/property/—Information on govern-
ment auctions including real estate
www.hud.gov/offices/hsg/sf h/reo/homes.cfm—Information on
HUD foreclosures for sale and other programs they have available
I N D E X
A B review of, 90
risk minimization, 29–30
Advertising Bankruptcy, 3, 55, 120, 128, short sales, 49–51
see also Marketing 173–74 “subject to” buying. See
billboards, benches, etc., Banks/bankers, 10–11 “Subject to” buying
102–3 REO/loss mitigation strategy
classified, 97–99, 200–202, departments, 130–31 traditional, 30–32
224–25 Billboards, 102–3 wholesaling/“f lipping”
After-repair value, 84, 193, 194 Bird dogs, 121–24 deals, 46–48
Agreement for deed (land Black’s Law Dictionary, 38
contract), 222–23 Bond for deed (land contract),
Agreements, written, 81 222–23 C
Bonus Web Pack, 15, 26, California foreclosure laws, 177
All-cash closing, 31
263–65 Cash buyers, 70–71
All-Inclusive Trust Deed
(AITD), 72, 182, 220–22, 233 Books, 239, 252 Cash deals, 193, 195
Broker’s price opinion (BPO), Cash f low, 191
American Real Estate Investors 50
Association (AREIA), 133, Chapter 7/Chapter 13
Bruss, Robert, 93 bankruptcies, 173–74
203, 251–52
Buyers Charitable giving, 245–46
Amortization, of loans, 36, 191,
buyers’ list, 198–99 Classified advertising, 97–99,
231
cash, 70–71 200–202, 224–25
Appraisals, 34 other investors as, 198–99, Closing(s)
Appreciation, 192 206 f lipped deals, 206–10
“As is” value, 84, 193, 194, 195 Buying strategies paperwork, 175–77
Asset base, increasing, 247 assessing costs, 33 “simultaneous,” 209
Asset protection, 186–87 assuming financing, 89–90 Coaching, 241–43
Assignment fee, 193, 206 credit problems and, 28–29 Community property issues,
Assignment of Contract, 206, foundational foreclosure, 171, 172, 174–75
207 32–35 Comparables, 56, 169–70
Attorneys, networking with, funding sources (other Competition, 127
120–21 than bank), 71–89 Complaint, 20
Authorization to Release help sellers win, 30 Consideration, 36
Information, 52, 53 little/no money down, 28 Consumer debt, 3
257
258 Index
Contingencies, 58 Estate issues, 171 Foreclosure pitfalls, 163–90

Contract for deed (land Eviction (unlawful detainer), 22 community property,
contract), 222–23 Exit strategies, 40–41, 192 174–75
Contracts Expenses, 33 credit reports and, 172
assigning interests in, 197 loans and, 34 insurance, 178–79
f lipped deals and, 193–97 investing in your own
Co-op mailing campaigns, 97, name, 186–87
110–12 F legal issues, 177, 181–82
Credit card advances, 76 Financing/financing sources, loan called due, 180–82
Credit check(s) 244 paperwork, 175–77
fee, 34 cash sources, 76 payments to seller and,
on seller, 172 hard moneylenders, 81–85 166–69
Credit problems, 28–29 money partners, 80–81 personal involvement with
Credit records, “subject to” private lenders, 76–80 seller, 187–88
sales and, 41–42 rent-to-own into owner– property value/condition,
carry, 233–34 169–70, 175
seller backing out, 184–86
D seller financing, 71
seller bankruptcy, 173
VA/HUD foreclosures,
Debt seller claiming duress/
85–89
consumer, 3 misrepresentation,
your buyer, 71–74
discounting, 60–70, 192 182–84
your money or lines of
types of, 65 seller living in house,
credit, 74–7
Decision makers, 156–57 163–66
Finder’s fee, 122
Deed of trust, 10, 11 summarized, 189–90
“Flipping” deals, 46–48, 182,
versus mortgage, 15–16 title issues, 170–72
193–210
Default list, 104–6, 128–29 Foreclosure service business,
advertising and, 200–202 129
Deficiency judgments, 14–15
building a buyers’ list, Foreclosure specialist, 120
Deming, Edward, 239
202–3 For sale signs, 226–28, 235
Deposits, 192, 232, 235–36
closing, 206–10 Foundational foreclosure
Depreciation, 191
creating an investors list, buying strategy, 32–35
Direct-mail, 97
244 401(k) plans, 76
postcard campaign, 103–4
Direct-response advertising, 97 finding a buyer, 197–205 Fraudulent conveyance, 173–74
Discounting debt, 60–70, 192 locking up property under Funding sources, 244
Distressed notes, 130 contract, 193–97
Divorce, 120, 128 “or assigns” clause, 196
Documentation, 176–77, 187 Flyers, 109–10 G–H
Document delivery fees, 34 Forbearance agreements, Gambling, 3
Door hangers, 109–10 39–40, 129 Hard moneylenders, 81–85, 244
Down payments, 28 Foreclosure(s) Home equity loans, 76
Due diligence, 40, 167–69 benefiting homeowners, 14 Homeowner association liens,
Due-on-sale clause, 37–39, 178, deals, finding. See 171
179 Motivated sellers, finding Homeowners insurance policy,
deed of trust vs. mortgage, 178
15–16 Home-study courses, 239–40,
E deficiency judgments, 252–53
Education (investment), 14–15 HUD foreclosures, 85–89
238–43, 247 foreclosure defined, 9–10
books, 239 judicial, 16, 19–22
home-study courses, laws, 177 I
239–40, 252–53 myths, 3–6 In-house buyers’ list, 202–3
mentors, 241, 254 nonjudicial, 16, 17–19 Instant Offer System, 61,
E-mail sales messages, 203 pitfalls. See Foreclosure 136–62
Equitable title, 222 pitfalls avoiding negotiating
Equity preforeclosure, 17, 22–26 mistakes, 152–62
equity line of credit, 244 rates of, in U.S., 3 building rapport, 137–39
growth, 211 real costs of, 49, 55 building seller’s
lack of, and short sales, sample deals, 11–14 motivation, 141–46
49–51 sheriff’s sale, 21 steps, 136
Index 259
talking numbers, 146–51 Loan(s) Motivated sellers, finding,

up-front agreement, amortization of, 36, 191, 91–133, 237–38, 243
139–41 231 billboards, etc., 102–3
“what if” step, 149–51 expenses, 34 bird dogs, 121–24
Insurance, 191 loan origination fee, 34 classified ads, 97–99
converting homeowner 90-5-5 loan, 72 co-op mailing campaigns,
policy, 178–79 “nonperforming assets,” 51 110–12
title, 170, 171–72 recasting, 40 creating ugly/vacant house
Interest, 191 seller pushing to get called lists, 131–32
due-on-sale clauses and, 38 due, 180–82 distressed notes, liens, etc.,
hard moneylenders and, 82 Loan-to-value ratio, 84 130
seller financing and, 231 door hangers and f lyers,
Long-term wealth buildup,
Investor associations, 240–41, 109–10
211–36
251–52 friends and family, 124–25
Loss mitigation departments
IR As, 76 (bank), 52–54, 130 “I Buy Houses” signs,
99–101
in-person visits with sellers,
J–K M 112–15
Jargon, 161 magnetic car signs, 101–2
Mailing lists, 111 mailing lists, 111
Judgments, 130 Making Big Money Investing in
Judicial foreclosures, 16, 19–22 marketing efforts, tracking,
Real Estate (Conti and 132–33
Kaiser, Joe, 127 Finkel), 27, 58, 151, 248 networking, 120–21,
Marketable title, 170, 177 126–27
L Marketing Notice of Default lists,
co-op mailing campaigns, 104–6, 128–29
Land contract, 72, 218, 222–23 110–12 postcard campaign, 103–4
Landlord insurance policy, 178 creating competition, qualifying sellers, 94–97
Land trust, insurance and, 224–25 real estate agents, 115–20
178–79 direct-response, 97 REO/loss mitigation
Lead sources. See Motivated door hangers and f lyers, departments, 130–31
sellers, finding 109–10, 228–29 sequenced letter campaign,
Lease option, 27, 32 106–9
group showings, 224, 230,
Legal issues (foreclosure laws), 232, 234 starting a foreclosure
177 service business, 129
“I Buy Houses” signs,
Legal notices (newspaper), trigger documents, 127–28
99–101
111–12 wholesale deals from other
magnetic car signs, 101–2
Legal title, 222 investors, 125–26
momentum and, 230
Lenders Motivation, building seller’s,
bankers, 10–11 postcard campaign, 103–4
signs, 226–28, 235 141–46
conventional, 84, 208 Multiple Listing Service (MLS),
forbearance agreements timeline, 230
115
and, 39–40 tracking your efforts,
Myths, 3–6
private, 76–80 132–33
real costs of foreclosures voice-mail script, 225, 226,
and, 49, 55 235 N
short sales and, 52–59 Market value, 84, 169–70
Negative phrasing, 142–43
Letter sequence campaign, Mastermind group, 245 Negotiations
106–9 Mechanics’ liens, 65, 130, 171 buying below value, 192
Liens, 130, 170, 171, 192 Memorandum of Agreement, debt discounts, 65
discounting, 64–70 81, 184–86 instant offer system. See
Limited liability company, 81, Mentors, 241, 254 Instant Offer System
186–87 Merger clause, 183 mistakes, 152–62
Limited partnership, 81 Mortgage(s), 10, 11 real estate agents and, 117
Limited power of attorney, deed of trust versus, 15–16 Neighbors, consulting with,
181–82 wraparound/AITD, 168
Lines of credit, 74–76, 244 220–22, 233 Net sheet (HUD-1), 56
Liquidated damages, 58 Mortgage Brokers Association of Networking, 97, 120–21,
lis pendens, 20, 106 America, 3 126–27
260 Index
Newspaper inspections, 175 S

ads, 224–25 legal description of, 176
legal notices, 111–12 Property taxes, 171 San Diego Challenge, 261
Niches, 46 Public auction, 18 Savings rates, 3
90-5-5 loan, 72 Purchase Option Masters Series, Screening potential buyers, 235
Nonjudicial foreclosure, 16, 253 Scripts
17–19 Purchase Option Money Game, bird dog, 122–24
Notice of Appointment of 146 discounting debt, 66–69
Successor Trustee, 127–28 friends and family, 124–25
Notice of Default lists, 17–18, Q–R in-person visits to sellers,
104–6, 128–29 113–15
sequenced letter Quiet title action, 223 obtaining Notice of Default
campaigns and, 106 Quitclaim deed, 174 lists, 105–6
Notice of Election and Demand Range technique, 62, 147 qualifying sellers over the
for Sale by Public Trustee, 17 Real estate, 120 phone, 94–97
Notice of Sale, 18 Real estate agents, 115–20 voice mail, 225, 226, 235
REO specialists, 131 Seeding, 246–47
O Real estate investors Seller(s)
associations, 203, 240–41, backing out of deal, 184–86
Option payments, 192
251–52 bankruptcy declaration by,
“Or assigns” clause, 196
Real Estate Owned (REO) 173–74
Owner financing, 214–36
property, 23–24, 28, 130–31 building rapport with,
buyer benefits, 216–19
Real Estate Radio, 59 137–39
criteria for avoiding,
Recasting a loan, 40 claim of duress by, 182–83
219–20
hidden profit centers, 231 Recording fees, 34 claim of misrepresentation
land contracts and, 218, Redemption period, 19, 21–22 by, 183–84
222–23 References, checking, 81 expectations of, 147
marketing the property, Rehab projects finding motivated. See
224–30 funding, 43–45 Motivated sellers, finding
quick sales with, 232, hard moneylenders and, 83 instant offer system. See
234–36 real costs of, 43 Instant Offer System
rent-to-own into owner– Reinstatement period, 23 meeting with, 112–15, 238,
carry financing, 233–34 Rental property insurance 243–44
sample deal, 216 policy, 178 renting property back to,
supply and demand, 215 Renting out properties, 212–13 164–66
wraparound mortgage/ Rent survey, 170 running credit check on,
AITD, 220–22 Rent-to-own sales, 23, 72, 213 172
Ownership and encumbrance REO (Real Estate Owned) staying in property, 163–64
report, 170 properties, 23–24, 28, “subject to” sales and,
130–31 41–42
P Resources Sequenced letter campaign,
Paperwork, 176–77 books, 239, 252 106–9
Partnerships, 80–81 home-study courses, Sheriff’s auction, 21, 25–26
Pension plans, as cash source, 252–53 Sheriff’s Deed, 21
76 mentorship program, Short sales, 13, 49–59
Personal judgments, 65 241–42, 254 Authorization to Release
Points, 34, 82 real estate associations, Information, 52, 53, 54
Postcard campaign, 103–4 240–41, 251–52 closing, 59
Preforeclosure, 17, 19–20, Web sites, 254–55 discounting debt, 61–62
22–26 workshops, 240, 253 getting property under
Prepaid interest, 34 Retail buyer, 198, 199, 206, contract, 51–52
Prepayment penalties, 81–83 208–10 lender negotiations, 52–54,
Price, discussing, 235 Right of rescission, 177 58–59
Probate, 120, 128 Risk short-sale packets, 55–57
Profit centers, 191–92 minimizing, 29–30 working with lenders on,
Promissory note, 10 traditional investing and, 54–57
Property 31 Short-term “subject to” rehab
appraisal, 34 Roth IR As, 76 deal, 44–45
Index 261
Showing properties, group, Technical language, 161 W

224, 230 Terms deal, 193, 194
Signs, 226–28, 235 Tithing, 245–46 Walk-throughs, 167
billboards, benches, etc., Wealth, defined, 245–46
Title
102–3 Wealth strategies
companies, Notice of
“I Buy Houses,” 99–101 owner financing sales,
Default and, 104–6
magnetic car signs, 101–2 214–36
equitable and legal renting out property,
Simultaneous closing, 209 compared, 222
“Subject to,” 35–37, 40–42, 212–13
obtaining marketable title, rent-to-own sales, 213
60–70 170–71
discounting debt and, Web Bonus Pack, 132
Title insurance, 171–72, 177 Web sites, 133, 254–55
60–70 Training. See Education
exit strategies, 40–41 “What if” step, 149–51
(investment) Wholesaling, 46–48. See also
financing technique, 23 Trustee’s sales, 16, 17–19, 18
seller’s credit record, “Flipping” deals
41–42 Workshops, 240, 253
Wraparound mortgage (AITD),
seller’s loan paperwork U 182, 220–22, 233
and, 168–69
short-term rehabbing and, Unlawful detainer, 22 financing, 72
42–45 Up-front agreement, 139–41
Utility company liens, 171
taxes and, 42 Y–Z
Your Bonus Web Pack, 15, 26,
T V 132, 263–65
Taxes VA foreclosures, 85–89 Zero-down deals, 28
benefits of real estate, 191 Value of home, lenders and, 84
nonpayment of property, Voice-mail
171 marketing response, 133
“subject to” sales and, 42 message, 225–26, 235
A B O U T T H E A U T H O R S
Self-made millionaires Peter Conti and David Finkel are two of

the nation’s leading investment experts. They are successful busi-
ness owners, investors, and co-authors of How to Create Multiple
Streams of Income Buying Homes in Nice Areas with Nothing
Down, which was selected as one of the all-time top three investing
books by the American Real Estate Investors Association. Their last
book, Making Big Money Investing in Real Estate without Ten-
ants, Banks, or Rehab Projects, was one of syndicated columnist
Robert Bruss’s top ten picks for 2002.
Each year Conti and Finkel hold workshops and seminars, at
which thousands of investors across the country discover the reali-
ties of making money by investing in real estate. Their personal real
estate holdings are valued at over $15 million, and their students
have bought and sold close to $800 million worth of real estate over
the past decade.
Conti and Finkel were also the masterminds behind the origi-
nal San Diego Challenge, in which they guided a group of three
novice investors in picking up over $1.5 million worth of proper-
ties—with only $37 down.
263
264 About the Authors
Finkel is also the host of Real Estate Radio, the top-rated show
on wsradio.com, which is the largest Internet talk radio station in
the world.
For more information, visit their Web site <www.resultsnow
.com> or contact them at:
Mentor Financial Group, LLC

7475 W. 5th Ave., Suite 100
Lakewood, CO 80226
e-mail: [email protected]
Your Bonus Web Pack—A Free
$245 Gift from the Authors
As our way of congratulating you on finishing this book, we’ve

set up a special bonus pack of all kinds of investor goodies waiting
for you up on the Web. There was so much more we wanted to
share with you about investing in foreclosures but ran out of space
here. So we’ve included all this extra material on the Web for you.
Here’s what you’ll get when you claim Your Bonus Web Pack:
• A state-by-state summary of the foreclosure process

• Links to the applicable state laws for many areas of the
country
• Information on how to get investor-friendly forms and con-
tracts
• FREE one-year membership to the American Real Estate
Investors Association
• Two FREE tickets to a two-day Real Estate Success Confer-
ence we hold (currently offered ten times a year in various
cities across the United States)
• FREE one-year subscription to Purchase Option Investors
E-Newsletter
265
266 Your Bonus Web Pack—A Free $245 Gift from the Authors
Audio Interviews with Leading Foreclosure Experts

As part of Your Bonus Web Pack, you’ll get free access to more
than six hours of downloadable foreclosure training! You’ll meet
some of the nation’s leading foreclosure experts as they share their
best ideas on how you can be more successful.
Here’s just some of what you’ll learn from these powerful ses-
sions:
• How one ex-IBM accountant earned a seven-figure investing

income handling more than 30 rehab projects a year—and
how you can too.
• How one real estate entrepreneur made more than $1 mil-
lion in less than three years investing in foreclosures with
private lenders—and how you can too.
• Plus 12 special audio sessions with Peter and David in which
they’ll walk you through foreclosure secrets that build on
what you’ve learned from this book.
How You Get Your Bonus Web Pack for FREE

To get your free bonus Web packet, simply go to <www.for
tunesinforeclosures.com>. When you’re at this site, you’ll be asked
to register, so when asked for your “Entry Code,” type in 34book.
This will give you complete access to Your Bonus Web Pack.
One More FREE Gift for Registering within 30 Days of Buy-

ing This Book
For a limited time only, you’ll be able to download three free

Special Reports:
• “Report One: The 27 Questions You Must Ask Before You

Purchase Any Foreclosure”
• “Report Two: The Inside Secrets of the San Diego Challenge:
How a Group of 3 Beginning Investors Picked Up $1.5 Mil-
lion Worth of Real Estate with Only $37 Down”
Your Bonus Web Pack—A Free $245 Gift from the Authors 267
• “Report Three: The Answers to the Top Ten Real Estate

Questions”
Thank you for buying and reading this book and good luck
with your investing!
Peter and David
P.S. To get your free Bonus Web Pack ($245 value), simply go
to <www.fortunesinforeclosures.com> and register using the entry
code “34book.”

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This publication is designed to provide accurate and authoritative informa-

Vice President and Publisher: Cynthia A. Zigmund

 2003 by Dearborn Financial Publishing, Inc.

Printed in the United States of America

Library of Congress Cataloging-in-Publication Data

To Nino—you succeeded in business with the odds stacked

To my best friend, Peter—you have added so much to my life

1. YOU CAN E ARN UP TO AN EXTRA $100,000

2. T HE BIG PICT URE OF IN VESTING IN

3. 12 WAYS TO STRUCT URE DE ALS WIT HOUT

4. 22 WAYS TO FIND MOTI VATED SELLERS 91

Technique #16: “Trigger” Documents 127

5. T HE INSTANT OFFER SYSTEM—FIVE SIMPLE

6. 24 FORECLOSURE PITFALLS T HAT CAN

Pitfall #13: Messing Up Your Paperwork 175

7. HOW TO FLIP YOUR DE ALS FOR QUICK

8. INVESTING FOR LONG-TERM WEALT H

Six Things Top Investors Do to Sell Fast 232

9. PUT TING IT ALL INTO ACTION 237

Resources to Help in Your Investing 251

As a CPA to the wealthy, I get to really see what they do that’s

• Real estate ownership has tax breaks that are unavailable

Many of my clients are high-income, self-employed taxpayers

If Real Estate Is So Great, Why Don’t More People

Real estate investing requires a different set of skills than other

takes (and recover afterwards), you will likely succeed. However,

Why Now Is the Time for Learning to Invest

Property continues to appreciate at record rates in some mar-

Why Using a System Is So Important Now

Real estate investing requires a range of skills that most people

—Diane Kennedy, CPA and Tax Strategist

This book would never have been written if we didn’t receive

Three years ago, Sarah, a student in our Mentorship program,

Why the Time Is Now

There has never been a better time to take control of your

Three Biggest Myths about Investing in Foreclosures

A ll of our lives, well-intentioned people have stated reason

Myth #1: It Takes Money to Make Money

I started investing while I was an auto mechanic working for less

When I started investing in real estate, I was living in the attic of

It doesn’t take money to make money. It takes specialized

Myth #2: You Need Good Credit to Borrow Money

I’ve had a hand in hundreds of real estate deals—acquiring interest

Myth #3: If You Buy a Proper ty from a Seller in

The Choice Is Yours

When we tell people, “Anyone can make big money investing

Investing in foreclosures and preforeclosures is a rewarding

When people go to a bank to borrow money, they’re asked to

teenager must follow: He must be home by 11 PM; he must tell them

What Foreclosure Deals Look Like

One of our Mentorship students found a couple about to lose

Michael, one of our students in New Orleans, found a moti-

Another student, Sally, bought a VA (Department of Veterans

Gina, a full-time investor who read our book Making Big

Maggie, a Mentorship student from North Carolina, found a

Add to this their possible feelings of shame, failure, and embarrass-

What You Can Offer a Homeowner Facing

• Helping them save their credit

1. Trustor: The borrower