It Was Mostly Fun Until They Called the Police (Our Yellow Letter Marketing Campaign)

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This is an excerpt from More than Cashflow: The Real Risks and Rewards of Profitable Real Estate Investing.

Chasing Real Estate DealsAs I watched Dave race up one of the many hills in St. John’s, Newfoundland en route to Ryan Mansion where we were staying, I wished I had our Flip camera handy. It felt like we were on our very own episode of Amazing Race: The Real Estate Investing version.

After months of research, property tours, and more research, we had uncovered two real estate gems. One was a duplex and the other a single family home. Neither property was distressed but they were both very solid deals.

So … we decided to buy them both. Everything was going along just fine until we encountered a little glitch with our partner. We had closed on a deal with him a few months earlier so we didn’t think there would be any problems getting a mortgage for the property with him on title. Unfortunately the entire lending landscape changed that year (it was 2009), and the main program that had been in place, the one that had worked to qualify him for deals, was no longer available.

No problem – we figured we’d just find a couple of new partners. Except the people we were contacting had less than 48 hours to make their decision before we took off on vacation. When you’re asking people for $50,000 out of the blue, they generally want more than 48 hours to think about it … even when the deals are compelling – which they were!

We worked the phones for two solid days, determined to find people to join us on these two deals. And … with only a few days to spare before we had to remove any conditions, we found two new partners with the cash to do the deals. But we were still hitting issues with the banks. We had to extend the conditions on the deals for four business days and keep working the deals. That meant we were running around St. John’s trying to get things signed, faxed and couriered to the appropriate people.

We were in St. John’s for our friends’ wedding and unfortunately didn’t really get to enjoy most of our vacation because we spent the better part of our 10-day vacation glued to the phone trying to save the two deals.

What had been working well for us in the past for many of our deals didn’t work anymore and we felt so frustrated. We decided to change our investing strategies so we didn’t have to rely on banks and other people’s money all the time.

We started to focus our attention on attracting motivated sellers. The idea was that we would find people who were willing to sell us their house creatively, using options that do not require a bank to finance the deal – options such as:

  • Wrap-around mortgages
  • Agreements for sale
  • Lease options
  • Seller financing.

Right around the same time, a U.S. investment guru was coming to Edmonton to share his expertise. His entire program was about finding motivated sellers so you could put together creative deals, and this was exactly what we were looking for.

yellow letter marketingAfter his three-day course in Edmonton, we set to work. The plan we chose focused on covering a couple of select areas in Nanaimo, BC with bright orange business cards, orange and black magnets, online ads, and flyers in newspapers. The foundation of our campaign, however, was the Yellow Letter Marketing.

The only snag in our plan was cost. We were looking at a $10,000 investment to produce everything, not even counting the fact that we had to have someone to answer our phone once all the leads started coming in. We were willing to invest that kind of capital into growing our business, but our concern was how much the call costs could run us.

My Dad, an active commercial real estate investor for over 30 years, went to the course with Dave. He was pretty excited about our plans to market to Nanaimo home owners, and he offered to partner with us. Instead of us paying a company that specializes in handling these types of calls at $1 per call, plus $1 per minute to take messages; Dad offered to handle the calls on the spot and become our partner in all the deals.

Setting Up Our Yellow Letter Marketing Campaign

Once Dad agreed to be our answering service, Mom offered to coordinate the creation of the letters. Next:

  • We found a list company from which to purchase our mailing list. We paid $1,500 for a list of approximately 6,800 names in specific postal codes in the city of Nanaimo.
  • We photocopied our handwritten letter that basically said, “Hi, my name is Rick. My wife Ruth-Anne and I are interested in buying your house at 123 Lovely Street. Please call us at 250-555-5555.”
  • We hired a handful of people to assist with writing the home owner’s first name and their home address on the letters, hand writing the addresses on the envelopes, and sticking on stamps. We paid 20 cents for each letter and 30 cents for each completed envelope, plus the 52 cents for the stamp.
  • We set up a separate phone line at Mom and Dad’s house so the calls would be separate from their personal and business line.
  • We prepared my Dad with plenty of lead sheets to complete while chatting with the people who called in. Each sheet had a list of questions he would need to ask so that he could get the important information about their houses for us to decide if we wanted to buy them. We also set up a tracking system so we could track who responded and who didn’t, who asked not to be contacted again, and who would need to be followed up with at a later date.
  • Starting in early November 2009, we began mailing the letters out at a rate of 250 per week.

The Immediate Results of the Campaign

Yellow Letter CampaignWe ran bus bench ads, placed newspaper ads, ran online promos, distributed flyers through newspapers, put magnets on mail boxes, and handed out hundreds of ‘we buy houses’ business cards in a 12-month period. No other marketing method we tested came close to the response we received from the Yellow Letters. Within 48 hours of the first batch of letters hitting the post office, Dad’s phone was ringing off the hook. He walked around with a headset on and chatted happily to the curious, confused, angry or scared folks that called in. [We shot a few videos at the time – please keep in mind this was six years ago – but you can check them out here.]

From the first 2,000 letters we mailed out, we had a 30-40% response rate. That is, for every 10 people that received a letter, we were getting 3 to 4 calls!

A lot of callers were on guard when they first called. They were defensive and wanted to know how he got their name. They were scared that it was a scam. They were curious but concerned.

My Dad was brilliant at disarming folks and making them comfortable. [This video covers some of the strategies Dad used to disarm people.]

When someone would skeptically ask him, “What are you up to?” he would say, “I’m up to about 5’9″ and 185 pounds, but I am trying to lose some weight!” With Dad’s humour, people generally relaxed, and then he was able to find out whether they had a house they were interested in selling or not. He had some wonderful conversations with people and thoroughly enjoyed himself most of the time. He even had an invitation to come out and see a guy’s race cars, invitations to come and see homes even though they weren’t for sale, and dozens and dozens of people who said they would hang on to the letter and call us first when they were ready to sell.

It Was Mostly Fun Until the Police Were Called

Not everyone was comfortable with what we were doing. A small percentage of the calls my Dad received were from very hostile people who felt we were targeting elderly people or the families of someone who had just passed away. We began to receive the odd letter from someone’s lawyer asking us to cease and desist contact with their client. At least a dozen people called the local police. That resulted in one call from the police to investigate what we were doing and another call a month or so later acknowledging that while we weren’t doing anything wrong, they would appreciate it if we stopped because they were still getting complaints.

Of course it didn’t take long before the local newspaper got wind of what we were doing and ran a story on it as well. It was full of negative commentary about what we were doing, but it did include a statement from the police that we were not doing anything illegal.

For the most part, it was entertaining; but there were days where it was emotionally draining for my Dad. Especially when two months into it, and nearly 500 calls later, we hadn’t found a single person willing to sell their home creatively. In fact, we actually uncovered a lot of people who had paid off their home fully and weren’t moving until nature made them.

Eventually we started to speak with some folks that were very interested and willing to sell creatively. When a lead like this came in, Dave and I would head out to view the home and meet with the seller. What we discovered in each of these cases was that:

  • The house was in a terrible area; and/or
  • The home needed way too much work and wasn’t worth what they were asking, given the work required; and/or
  • The seller wanted at least 20% more than the home was actually worth.

In every case where we found someone willing to be creative with their deal, that person wanted a grotesque amount of money for their property or the property was one we didn’ want to deal with. We began to think we were doing something wrong! We figured we must be missing something important, so we went back over all the leads that had come in (nearly 1,000 by this time) and followed up on some of them to make sure we hadn’t missed an opportunity. If we had, we were still missing it. There were deals in that pile for the person with the right expertise and resources to handle bad areas and ugly properties, but that was not us.

It took almost four months before we found a deal we wanted to do – and even then it was not a creative deal. It was simply an awesome house in a great area that we could buy with $30,000 of equity in it. If we wanted to finance it without a bank, it was going to be through private money – not through creative techniques like an agreement for sale or a VTB (vendor take back) mortgage. But for a house that didn’t need any work, in a great and centrally located area of town, we grabbed the deal and worried about the money afterwards.

The second deal that came through our yellow letter campaign was a deal similar to the first – in that it was a good house, in a good area, and we could buy it with about $30,000 in equity in the home. We grabbed it too. We solved our financing challenges by finding joint venture partners that could qualify for financing and provide the capital.

The Return on Investment

Sticking to the initial campaign, which cost us about $12,000, and hundreds of hours of my Dad’s time, and dozens of hours of our time, our return on investment was definitely low. We didn’t do any creative deals – which is what we set out to do in the first place. But we did manage to pick up two great properties in six months with $60,000 in equity and a combined total of $900 per month in positive cash flow. Not a bad result, but not the result we were going for.

In 2012 we closed on a property assessed at $400,000. We paid $320,000 for it. The owner had received our letter and held onto it for two years until she was ready to sell. The house was in our favorite neighbourhood and was perfect for putting in suites – so that is what we’ve done. [We put a legal suite in this property, and I filmed that process. You can find that playlist right here.

The yellow letters were the only marketing we did that gave us a return on our investment. (We did receive a few calls from our bus bench ads, online ads and flyers, but the response was very small and none of those calls resulted in leads we were interested in).

Because there was so much negativity around the letters, in a later mailing that we did in mid-2010, we tried to change the wording a bit to make it clear that we were investors interested in buying their home. (Before that, the letter had only given our name and said that we were interested in buying their house at 123 Street). We also sat down and went through our list line by line and hand-picked very specific houses to send the letters to. It took dramatically more work to put together the list for mailing, and our response rate dropped to under 10%. We did not do any deals from those letters.

Lessons for Yellow Letter Campaigns

Yellow letters are a great tool to generate targeted leads and also learn a whole lot about the community you are investing in; but, as described, there are big challenges. I do not think this strategy is right for very many investors, but if you decide to tackle creating a yellow letter campaign, here are a few suggestions:

  • Mailing lists are expensive and they go stale fast, so get yourself organized and ready before you order the list.
  • Figure out how you’ll handle the calls. If you are going to take the calls yourself, set up a separate phone line that you can turn off. Some people called my dad in the middle of the night! Another option is to just set up a voicemail account like evoice.com. All the calls will go to voicemail and you may lose some leads; but if someone really wants to sell, they will leave you a message.
  • Also, you may want to consider outsourcing this to a country with good English and low wage costs, like the Philippines. We work with high quality folks from the Philippines in our business and this is how we would handle a campaign like this if we were to do it today. Successful wholesalers we know in Alberta use a team from the Philippines that they have trained to screen the leads. It took them time to find good people and train them, but at least they don’t waste time on possible deals that don’t meet their specific criteria. [Here’s how to hire a great virtual assistant.]
  • Know what types of deals you are willing to do. Just because a house is cheap or a seller will work with you on a creative deal does not make it a good opportunity.
  • Prepare yourself for all kinds of responses. Some people will be furious with you. My Dad was caught off guard because some people were very angry. We did not expect that kind of response and at times it was draining. Expect it, and get ready to brush it off and move on.
  • Be polite and friendly to everyone – some of our best leads from that campaign came via people who gave our name to a friend or family member that was selling.
  • Be patient. It is not overnight. Nothing in life, or real estate, is.

This is an excerpt from the International Book Award Winner and Amazon #1 Bestselling Book, More than Cashflow. You can find copies on Amazon or in Chapters Bookstores across Canada.

Image Credit:
1st Image: D 37652408 &  Diana Eller | Dreamstime.com
2nd & 3rd Image: Julie Broad

Julie Broad