The Trump Blog

Make no mistake about it. All the best indicators are telling us that the coming months will see a dramatic increase in property foreclosures in the United States.

Just two days ago on March 13, an Associated Press article reported that late mortgage payments and foreclosures had reached a 3 ½ year high. The alarming news even made the front page of the New York Times on March 11, when “Crisis Looms in Mortgages,” an article by Gretchen Morgenson, described some startling realities. Not only are more property owners losing their homes to foreclosures, now some mortgage-lending institutions themselves are beginning to close their doors. They were lenders that were writing sub-prime mortgages to customers who really could not manage their loans - often buyers who were already carrying excessive credit card debt.  

It looks as though things will get worse before they improve, which will be a very bad thing for people who cannot carry their mortgages. But it will also be an advantageous time for real estate investors to acquire foreclosed properties.

Buying foreclosures and profiting from them is challenging. If you're new to real estate investing, you need to know what you're facing. Although the profits from foreclosure investing can be huge, there is an awful lot to know in order to avoid the problems that can occur. You need the skills to:

• Identify properties with high-profit potential.
• Buy at the lowest price.
• Strategically finance your investments.
• Work the numbers on your deals to be certain that big profits lie ahead when market conditions change.

Remember, too, that buying foreclosed properties does not mean taking advantage of unfortunate people who are unable to hold onto their homes. There are many ways to structure deals and make huge profits. I’d urge you to take a close look at the Real Estate Foreclosure Coaching Program that I have created for Trump University. Opportunities like these don’t come along every day. Act decisively, and you can make significant profits in the months ahead.

When you ask most people how much they are willing to pay for a property, they usually say something like, Well,the asking price is $275,000 . . . maybe I can bargain that down to $245,000.

That's how they decide how much they are willing to pay for a property. And that kind of thinking makes no sense. To make sure you make a profit from every deal, you have to back into the price you will offer by working the numbers.

First, Determine Your Estimated Sales Price

This is the price you will be able to sell the property for after you have improved it. Look at comparable sales in your area, determine whether the market is going up or down, and understand exactly how much your property will sell for.

Don't exaggerate this figure, based on optimism. Don't expect your property to sell for more than comparable homes, just because you think it will. It is that kind of unrealistic optimism that causes most people to lose money on real estate investments.

Second, Total Up Your Projected Expenses

These generally include:

• Closing costs – Total closing costs, both for the time when you are buying the property and the time when you are selling it too.
• Costs of renovations – Cosmetics, mechanicals, masonry, painting – everything.
• Taxes – And don't forget that the longer you hold the property, the more taxes you will pay.
• The cost of borrowing to buy the property – Your loan costs money, both at the inception and every month.
• Realtor commissions – Unless you can realistically expect to sell the property yourself, plan to pay realtor commissions when you sell it.
• Hidden costs – Depending on the age and condition of your property, you can expect that something unexpected will go wrong or need to be added to your list of renovations to perform. An older house can hit you with as much as 15% of its market value in unanticipated expenses.
• Insurance - Buy fire, liability as well as builder's risk insurance.
• Maintenance costs – You will have to hire companies to shovel the show, cut the grass, do post-construction cleanups and possibly protect your property from vandalism while it is vacant.

Third, Subtract Your Projected Expenses From Your Estimated Sales Price

For example, let's say that you realistically expect to sell a property for $375,000. However, your projected fix-up and other expenses total $125,000.

That means the maximum sum you should offer the seller is $250,000. Otherwise, the deal makes no sense. Actually, you should offer the seller less than that. After all, you are investing in real estate to make money. If you are not making money, what is the point of investing in real estate? So know how much you would like to make on the deal and work that into your estimates too.

Numbers never lie. Make them work for you, and never pay more than you should for any property. If you do, you have no one to blame but yourself. But if the numbers tell you that you stand to make a good profit, negotiate hard for the price that will allow that to happen. If the seller won't accept your offer, don't feel bad about walking away. There will be another deal. When it comes along, work the numbers to make sure it will earn you a handsome profit.

Jay D. Gottliebis one of the real estate experts on the Trump University faculty. In 1997, Mr. Gottlieb was recognized by Crain's NY Business as one of the "40 under 40" top business people of the year. In 1999, he won the Ernst & Young "NYC Entrepreneur of the Year" award in real estate. Currently, Mr. Gottlieb is president and CEO of Tri-State Home Sales LTD, a multifaceted real estate company that builds homes, owns land and rental properties; and specializes in the purchase, renovation, and sale of family residential properties throughout the United States.

Tolearn more about making money in any market, register today for Trump University's Real Estate Investor Training Program.

Property-selling wizardry from the Trump University faculty

The primary reason to advertise a property is to sell it. But there is another reason for advertising too. It is to generate a database of potential buyers for properties you will sell in the months and years to come.

This secondary advertising activity is especially important today. Properties are not selling as quickly as they were a year ago. If you have a database of prospective buyers and know what they are looking for, you can sell your properties more quickly. And moving properties faster saves you money in taxes, insurance and other costs.

The key is to advertise in ways that generate a lot of calls. Here are some of my well-tested strategies that work.

• Advertise a selling price that is lower than the norm. I am currently selling a three-family house in a city where similar properties rarely sell for less than $300,000. However, I am selling this property for $285,000 because it is not in the greatest neighborhood. If people call and want to see the property, I show it to them of course. But if they are not keen to look after I tell them the location, I ask what they are looking for and politely say, "May I have the opportunity to call you when something like that comes along?" So my advertising dollars are working for doubly hard for me.
• Advertise a benefit that sets you apart from the competition. I once ran an ad campaign in the New York subways that said, "Why rent when you can own your own house for $5,000 down?" Our phone rang off the hook and we built a huge list of potential buyers. "Zero percent down for qualified buyers," "motivated seller" and "seller to pay closing costs" are other phrases that generate calls.
• Craft ads that encourage people to call for full information. When I am advertising a property, for example, I never put its address in the ad. That would only encourage people to drive by and look at it without calling me. If they call, I will take them to the house, of course. But if they just drive buy, I cannot add them to my database or sell to them in the future.
• Analyze your advertising. How many calls do you get when you advertise a house at $250,000 in one town, for example? How many calls do you get when you advertise a house there for $300,000? You have to analyze the contact-generating abilities of different ads and invest your advertising dollars strategically.

Remember, it is never too early to start taking calls and developing your database. If you are building houses that will not be completed for a few months, for example, you can advertise now and start building your list of customers.

Never forget the power of advertising to make your phone ring, because calls represent dollars.

Jay D. Gottlieb, has taught the self-instructional course, Make Quick Profits in Any Real Estate Market at Trump University.Jay co-founded First Home Brokerage in 1994, a real estate investment company that acquired, renovated, and sold distressed single and multi-family homes to first-time homebuyers. The company quickly grew to be one of the largest re-developers of affordable 1-4 family homes in the nation, with sales of approximately $100 million annually and with over 3000 homes bought and sold. In 1997, Mr. Gottlieb was recognized by Crain's NY Business as one of the "40 under 40" top businesspeople of the year. In 1999, he won the Ernst & Young "NYC Entrepreneur of the Year" award in real estate. Currently, Mr. Gottlieb is president and CEO of Tri-State Home Sales LTD.

To master more powerful property-selling strategies, enroll in our comprehensive new course, The Real Estate Investor Training Program.