For Real Estate Sales Professionals

November 19, 2001 E-zine

Jim Gillespie's
November 19, 2001
Publisher: Jim Gillespie


Doing what has you become the best real estate
agent in your territory definitely beats all
of your other options.


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1. Why Now May Be the Time to Buy

2. Don't Be a Slave to Your Cell Phone

3. The Buyer That Got Away

1. Why Now May Be the Time to Buy

These are changing times in real estate sales. And, as we both
know, people want to purchase real estate when they feel it will
be going up in value in the coming months and years, not when
they're wondering if it will stagnate or possibly go down in

As we go through this transition together there is something
going on this time around that makes this period different than
most cooling off periods of the past......interest rates.

Interest rates are now at unbelievably low levels and this really
makes me wonder if now may truly be the time to buy even if
prices take a short-term dip in the near future. To illustrate
this, take a look at the following scenarios:

Let's say you're considering buying a home for $500,000.00. (In
these examples simply adjust the dollar amounts upward or
downward appropriately to best fit your market and your own
particular situation.) And, let's say further that you're going
to put down 20% as the down payment and finance the remaining
$400,000.00 in the form of a first trust deed payable at 6.75%
interest fixed and amortized over 30 years. This then would leave
you with a monthly mortgage payment of approximately $2,595.00.

Now if home values in your area begin to take a short-term dip as
they sometimes do after a hot market, you might see the value of
your home actually decrease. At first glance you're not going to
be very happy about this, but let's take a deeper look at the

If the value of this home drops 10%, you've lost $50,000.00 in
the value of your home. But what happens instead if interest
rates begin to move up in the coming months and years ahead?

If interest rates were to increase by only three percentage
points, up to 9.75%, a monthly loan payment on a newly-financed
$400,000.00 30-year loan would now be approximately $3,437.00, a
whopping difference of over $840.00 a month! So if you buy now
and lock into a fixed 6.75% rate, you may actually be feeling
pretty good in the future! And, if you plan on keeping your home
for over 5 years, the amount of savings from your lower monthly
loan payments at today's interest rates will probably more than
offset any drop in the home's value. And besides, five or more
years in the future the home will probably be worth more than it
is today anyway.

So in this situation would you rather buy the home at $500,000.00
and have monthly payments of $2,595.00, or would you rather wait
and hope to purchase it for $450,000.00 and maybe have higher
monthly loan payments? (Approximately $3,093.00 per month based
upon a $450,000.00 purchase price with 20% down with the balance
at 9.75% amortized over 30 years.) And while we're at it let me
throw something else on the table...

When the time comes for you to sell the home, if you decide to
pocket the profit your basis for calculating the profit will be
$500,000.00 if you buy now versus $450,000.00 if you wait to buy
in the future, assuming that prices actually do go down. Which
means that you will be paying tax on less profit when the time
comes to sell the home. (Please check with your accountant on
this one as the tax laws are constantly changing and your
accountant is the one who can best advise you here.)

There's another consideration inherent in the numbers I've just
given you, too. You can qualify to purchase a much more
expensive house now at 6.75% than you could at 9.75% should
interest rates go up. The person who could just barely qualify
for the $400,000.00 loan in the scenario above at 6.75% can now
just barely qualify for a $302,000.00 loan at 9.75% with the same
monthly payments of $2,595.00. If we kept the down payment the
same at 20% you could now only qualify to purchase a home for
approximately $375,000.00 instead of $500,000.00. And all this
because of a simple change in interest rates!

The same applies for investment property. And more investment
deals can make sense right now at these lower interest rates,
too. You just have to find the deal. And finding the deal
is always the hard part.

For example, if you had an investment property that could be
purchased for $500,000.00 with 20% down and the balance carried
at 8% amortized over 25 years, your monthly loan payments on the
$400,000,000.00 first trust deed would be approximately $3087.00.
If the annual net income from the property was $50,000.00 (a 10%
cap rate), your net spendable return (cash-on-cash return) would
be approximately 12.95% on your $100,000.00 down payment
calculated as follows:

$50,000.00 annual net income minus [$3087.00 X 12 loan payments
per year], all divided by the $100,000.00 down payment.

However, if interest rates went up only three percentage points
to 11%, your net spendable return would be eroded all the way
down to 2.95% a year! And if this were to happen, most of your
buyers probably wouldn't even consider buying the property

These changing times require us to adopt much more bigger
picture, long-term thinking. If we believe in the long-term value
of real estate, we must realize that now may, in fact, be the
best time to buy in the coming months and years. And we need to
make this clear to our clients also. Show them the numbers and
make it clear to them what they might miss out on if they don't
act now. Otherwise they could become just like so many others who
now wish they had bought property when they had the chance to
five to ten years in the past.

And if your clients tell you that there's no way that interest
rates will rise by three percentage points again, remind them
that the prime rate hit 22% back in the early 1980s. And at that
time, people were saying that we'd never, ever see single-digit
interest rates again!

2. Don't Be a Slave to Your Cell Phone

If you're a successful real estate agent you probably have a cell
phone. And if you do, you probably notice how it rings many
times throughout the day with people on the other end of it who
divert your attention away from what you need to get done in your
business NOW. If this is true for you what you need is to become
the master of your cell phone, not a slave to it.

See if this sounds familiar to you:

You start out the day with the best of intentions to get the
things done that you know will cause you to have an incredibly
productive day, and then things just seem to happen that take you
off track from accomplishing all of your goals for the day. If
this sounds like one of your normal days your cell phone may be
playing a major role in creating this scenario for you.

I remember several years ago when I had a listing with a property
owner named Brad. Brad was one of those owners who felt that he
should speak with me once or twice a day to find out what
specifically I was doing each and every day to sell his property
for him. Most of the time he would call me when I was with other
clients, insisting that I stop everything I was doing and give
him the attention he wanted RIGHT NOW! I finally realized that I
was becoming a slave to people like Brad with my cell phone and
that I had to do something about it. Perhaps the same thing is
happening to you, too.

Are there times during the day when someone calls you on your
cell phone asking you to do something right now, or if not right
now, very quickly? And are quite a number of these callers people
who are asking you to do things that you know don't really have
to be done right now in order for your deal with them to
effectively move forward? If so, how often is this happening to
you and what is it costing you mentally, emotionally, and

In real estate sales you need to become the master of your own
time, otherwise your clients and prospects will master your time
for you. If you were an attorney charging by the hour your
clients would probably not be calling you nearly as frequently.
But since you're getting paid on commission, every phone call
they make to you doesn't cost them any additional money. And
getting you to do whatever they're asking you to do right now
doesn't cost them any additional money either.

Consider changing your cell phone number. Or, when you're engaged
in activities that are important and productive for you, let the
calls on your cell phone go into voicemail and check them when
you can to see if any of the messages warrant immediate action.
You are the one who knows who needs to be called back now and who
can wait. Follow up accordingly and trust your intuition in doing
so. Just do what you have to do to get control of your time!

In real estate sales it is very rare to have a situation that
can't wait for at least 1-2 hours to handle appropriately.
However, many times clients feel it should be handled
immediately. But most of the time if you allow these kinds of
clients to just leave you a voicemail message they'll be off
focusing on other "urgent" matters in their own lives for the
next several hours and you'll be focusing on what you need to
focus on to build your business and also take care of their needs
within the appropriate amount of time.

If you're not the master of your own time in real estate sales
other people will be. And when you continue to allow this to
happen you are costing yourself thousands and thousands of
dollars in commissions year-after-year.

3. The Buyer That Got Away

This past Friday I was talking on the phone with David, one of
my earliest clients when I began full-time coaching about 3 1/2
years ago. David told me a story about a property he currently
has listed that I felt I should mention here...

It seems that two potential buyers were going head-to-head
against each other, each one trying to beat the other one to the
punch and successfully get the property into escrow. Finally the
seller's attorney, Sol, asked that the two buyers, John and
Steve, bring their final highest and best offers to his office at
9:00 a.m. the following day and the one with the highest bid
would earn the right to purchase the property. Sol further added
that, "One of you is currently offering $15,000.00 more than the
other for the property based on the offers you've already
submitted to us, and I'm not going to tell you which one of you
has offered the higher price." It seems that Sol definitely knew
a thing or two about stirring-up competition between buyers...

OK, so 9:00 a.m. the following day arrives, and both of the
buyers are in Sol's office along with David and the agents
representing the two buyers. The final bids are revealed, and it
turns out that Steve barely nudged John out for the highest price
by only a few thousand dollars. Sol then announces that the
seller will open escrow with Steve at the price that Steve
offered for the property.

Meanwhile, John is furious! He immediately raises his voice and
loudly exclaims that he was wrongly setup, and that HE is the one
who is entitled to purchase the property. He further states while
storming out of Sol's office, "I will see the owner in court!"

Shortly after the meeting Steve, the high bidder, departed for
China for a long-needed vacation. And about a week later David
gets a call from Bill, Steve's agent...



"Hi, this is Bill."

"Hi Bill. How are you?"

"Well, not so good?"

"Why? What happened?"

"Well, I just got a call from Cathy, Steve's sister."


"She told me that Steve passed away while on vacation."

"Oh my God!!!"

"I know. I can't believe it either. And after all we went through
to get him the deal, too."

"Wow, this is really unbelievable."

"I know."

"Bill, I really feel bad about this. I mean after all the work
you went through and winning the showdown in Sol's office. I just
don't know what to say."

"I know. Me too."

And then shortly after putting down the phone at the end of that
conversation, David realized that there was another call that
needed to be made immediately. A call to Andy, John's agent...



"Hi. This is David. Wow, I'm a little speechless here. How can I
say this to you?"

"Say what?"

Well...hmmmmmmmmm....let's see.....Well......let's just say that
John might not have to see my seller in court after all!"

And when you stay in real estate sales long enough, you begin to
accumulate your own list of stories just like this one.


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