This is the second installment of excerpts from my interview with Tom Conway. I asked him about the best way to implement long-term strategies for sticking in the market, and he shared some great tips with me. Read on…
On his formula for buying properties…
If you’re buying junker or fixer properties, I follow the typical pattern that most of the national gurus do; that’s 70% of after repaired value minus repairs. So if you have a house worth $100,000 and it has $5,000 worth of work, then $65,000 is the maximum I’d pay. I’d try to start below that. If you’re going to wholesale to somebody you have to start lower. You know whatever you want to make as a wholesale fee; if it’s $5,000, you would have to buy that house for at least $59,000 to make that.
It’s easy to make a wholesale deal if you can follow that formula yourself and buy under it, then you can flip it to these guys who do rehabs. However, if I’m in a highly competitive area, I might go a little off that formula just to get the deal. Why miss a deal over a few bucks?
It also greatly depends on who your market is after market. If you’re selling to the retail buyer, even on a junker, there’s a market for those people if they’re in the construction business or something. I do a lot of what they call “sweat equity” deals with these people. In other words, if I do a sweat equity with a guy in a construction market who doesn’t have any down payment, I could go up to about 90% some of the time; he’ll do the work to fix it up before he gets his down payment. That’s just another technique that someone could learn over time. It’s just another formula for the 70% one, but if you have an exit strategy of sweat equity or a landlord or something like that, then you can violate your own rules.
On how to handle incoming calls…
Motivated seller calls need to be handled live; these people are like junkies, they need their hit right away, and you have to handle their problem right then. I use an answering service because I’m not available 24 hours a day. I give them a script which has 7 to 9 questions, and the people who call in will answer those questions my answering service asks them. Then these responses will be emailed to me, and I can have that lead within seconds of it coming in. That way, I can see whether it’s worth calling on right then or jumping out of my chair and going out and getting the deed or whatever. But I do highly recommend these calls be handled in person, preferably not by yourself if you’re an active investor because you’re doing other things and you might be underneath a house looking at something when a call comes in.
This is also a good screening device. I don’t throw those other leads away, I’ll go to them when I get time. Let’s say I have two or three days and I’m getting three or four leads a day and then all of a sudden there’s a day where no leads come in. I’ll go back to the ones that didn’t look that good and call them just to see what’s going on. Some people want to talk to the main guy, and they don’t want to talk to some person at the answering company. So I don’t give them priority but I will get back to them at some point.
I like negotiating; it’s a favorite of mine. When I’m dealing with a junker, for example, I will use basically the net sheet close. That’s where you go down and show them the numbers, especially if you’re dealing with an engineer type. They like to see the bottom line, and you can bring them right down the list so they understand why you’re offering what you’re offering.
If I’m doing a major negotiation for a pretty house, I might be involved in less of the numbers and more of the seller’s emotions. I think the best negotiating technique here is not negotiating at all. In other words, being quiet and being able to listen. New people in any business especially have a hard time with this, but you think you have to get out all this information and explain how smart you are, when in fact if you let them talk, they’re just trying to get something off their back. They’ll go on forever and eventually they’ll think you were the great negotiator just by listening. In fact, I almost think of myself as a real estate therapist. You’re really solving a life changing situation for people.
In the area of real estate, moving from house to house is one of the most stressful things for people. After we’ve been in this business for a while, we start to forget this but we have to get back to reality. It’s a major upheaval in people’s life, and so having a way of empathizing with their situation is a great negotiating technique. I’m not talking win-win here, but I do want both sides to win. I want to make a profit or I’m not going to do the deal. One of my friends says, “Listen, I’m here not for something that’s for sale, I want something that’s on sale.”
Tom Conway is from Palm Springs, California, and he got started in real estate investing in 1968; since then, he’s bought more than 1,000 homes. He’s invested using lease options, Subject to, wholesaling, rehabbing, owner financing, and even mobile home parks — the list just goes on and on.
Tom covered a lot more great information in his interview that’s part of a much large package called the Vault. The Vault contains in-depth interviews with expert investors from across the nation and covers topics ranging from wholesaling to subject 2 investing to private money and more. Learn how you can get your hands on the Vault at a 36% discount by visiting this page.