Hi Everyone;

 

Well, firstly, let me apologize for being so tardy with my second blogsegment on staying safe on the job... I've been having a wonderful timechatting with you all by email but as a result I've been neglecting our bloghere!

 

In fact, one of the reasons I'm a bit behind is because I find I'manswering lots of emails on how to start a foreclosure cleanup company (or howto start a property preservation company - I'll explain the difference betweenthe two in a minute). 

 

So, what I've decided to do is take a short break from the safety segment(which is still very important, by the way!!!!) and write an entry on how toget started in the foreclosure cleanup industry so that I can help thoseentrepreneurs out there who want to get into REO field services.

 

How to Start a Foreclosure Cleanup Business

(or How to Start a Property Preservation Business)

 

A new article on June 3, 2009  from MSN Money writer Michael Brushindicates that there is a third wave of foreclosures still to come from primeborrowers (i.e. those previously "safe-borrowers" with sound creditand fixed-rate mortgages) as a result of job losses thanks to the worseningeconomy ("Coming: A 3^rd Wave of Foreclosures").

 

The article states that "In the first quarter, the percentage of these borrowers who werebehind on their mortgages or in foreclosure had doubled from a year earlier, tonearly 6%" and goes on to say that "Credit SuisseanalystRod Dubitsky predicted last week that 8.1million mortgages, or 16% of all mortgages, will go into foreclosure over thenext four years. A weak economy, continued declines in home prices andrising delinquencies among prime borrowers all but ensure that foreclosures"will march steadily higher," he says." To read the fullarticle, go HERE)

 

   

(One man's garbage is another's $1500 paycheck!)

 

Mmmm... notsuch great news for the economy, but good news indeed for entrepreneursinterested in starting a foreclosure cleanup business to clean and repairforeclosed homes for the banks.

 

To put this inperspective, this means that there will be over 2 million foreclosures a yearand more than $2,025,000,000 up forgrabs in money that will be spent on cleaning up these foreclosed properties (sincethe average bill is $1000+ to clean up one of these properties).

 

Let's take alook at how you can position yourself to capitalize on this coming trend:

 

Set Up Your Company Properly

 

 

 

If you want tobe hired for cleanup or preservation work, you'll need to operate your businessas a professional company.  The good news is that you can set up abusiness quickly and inexpensively, and usually on your own.  Many peopledecide to set up an LLC (Limited Liability Company) because of howquickly and easily it can be done but you’ll want to check with your accountantor other business professional to select the type of business entity that’sright for your personal situation.

 

If you dodecide to start an LLC, you can usually find all of the documents you needonline from your state’s government website. Usually the branch you’re looking for will be called the “IndustrialCommission” or “Corporation Commission” or similar.  Try typing in “start a business + ______(your state)”.  Anything ending in “.gov”is usually a good place to start as it indicates a government site.

 

Once yourbusiness is set up, you’ll need an Employer Identification Number (EIN),which is like a SSN for your business. You can register for one online HERE

 

As soon as youhave your EIN (which you can usually get immediately online), you can open up abusiness bank account for your company. This step is very, very important. In the excitement of things, many people get caught up in the day-to-daydealings of running a business and use their personal accounts to pay forbusiness expenses.  Not only does thispresent an accounting nightmare at the end of the year (trust me – I havepersonal experience on this one!), but it could present problems for you withthe IRS if you don’t keep your personal and business finances separate.

 

Once youlegally set up your business, you may be required to register your businesswith your county or city in order to get a business license to operate.  You can start by calling City Hall or theOffice of the County Clerk to inquire as to whether or not you need acity/county/state business license and if so, how to get one.

 

So torecap:

 

1. Legally set up your business
2. Get your EIN # and set up a business bank account
3. Apply for a business license
4. If you want to do preservation work, determine whether or not you need a contractors’ license (for more information, take a look at our blog on this topic below.  We also offer a full list of each state’s contractors’ association in the Foreclosure Cleanup Cash Program – www.ForeclosureCleanupCash.com )

 

 

 

 

Get Insurance

 

 

 

You absolutely must have a CommercialLiability Insurance policy and Workers’ Compensation Insurance in order to run your business. 

 

Not only is insuranceessential for protecting yourself from liability and protecting those that workfor you in the event of a work-related injury, but many asset managementcompanies will not do business with you if you do not meet their minimuminsurance requirements.

 

Insurance will likely be oneof your largest start-up costs, however, most insurance companies allow you topay the premium on a monthly (rather than yearly) basis, which definitely makesthis expense more affordable.

 

General LiabilityInsurance policies can cover thefollowing: bodily injury, property damage, contractual liability, personal andadvertising injury, professional liability (also known as Errors &Omissions (E&O) insurance, this coverage protects you and your businessfrom litigation caused by charges of professional neglect or failure to performyour professional duties), hired auto and non-auto liability and umbrella liability.

 

You’ll want to speakdirectly with your insurance agent to get a better idea of the extent of thecoverage provided by their particular policy and one that is best suited foryour individual needs

 

Workers’ CompensationInsurance is required in most stateswhen you have W2 employees, and some states also require your insurance tocover your 1099 contractors also. Workers’ Compensation (“Workers’ Comp”) covers your employees' medicaland disability expenses related to work-related illness and on-the-jobinjuries. 

 

In the states where you arenot required to cover your 1099 contractors you would need them to provideproof that they carry their own Workers’ Compensation insurance.  Although tempting to shift the financialburden of maintaining a policy onto your 1099 contractors, in all reality, youare probably better off to take on the cost of all staff Workers’ Compensation(all W2 employees and 1099 contractors). The reason is that it’s difficult to find only independent contractorsthat have their own policy.  In addition,this industry has such high turnover that if you put this restriction on yourindependent contractors, you’ll waste valuable time and lost revenues trying tofind replacements in a hurry.

 

Here’s a great tip:sometimes you can get “pay-as-you-go” insurance where your workers’compensation insurance premiums are based on your actual payroll, rather thanan estimated amount.  This is great forcompanies that are just starting out or have a fluctuating workload.  Type in “pay as you go workers comp” into asearch engine for results in your area.

 

As a second tip, we’ve usedFarmers Insurance for years and have always had excellent customer service andgreat rates.  Just Google “FarmersInsurance” for an agent in your area.

 

 

 

Foreclosure Cleanup v.s. PropertyPreservation Services

 

 

 

As the name suggests as aForeclosure Cleanup Company, you’ll be cleaning out all of the junk in thehouse (also called a “trashout or a “junk out”), as well as cleaning theinterior of the home.  You may also berequired to remove vehicles on the property. Usually foreclosure cleanup companies are also responsible for doing abasic landscape cleanup which includes hauling out any junk from the front/backyards, cutting the grass and trimming trees/bushes.

 

Cleaning up the property isthe extent of services offered by a Foreclosure Cleanup Company, whereas aProperty Preservation Company is also involved in the “securing” of theproperty and the “preserving” of the property. 

 

Here are some of theservices that a preservation company may offer (note that a PropertyPreservation Company will generally also offer cleanup services):

 

Securing the Property

• Initial vacant property inspection
• Lock changes
• Boarding of windows and doors
• Temporary roof repair
• Securing swimming pools

 

Preserving the Property

• Exterior Debris removal
• Abandoned vehicle removal (cars, boats, etc.)
• Interior Debris removal (junk-out)
• Hazardous waste removal
• Interior cleaning services including carpet cleaning
• Window washing/graffiti removal
• Window replacement
• Pool services (draining, acid washing, maintaining, etc.)
• Pest control services
• Yard maintenance/landscaping
• Snow removal
• Winterization
• Gutter cleaning
• Pressure washing
• Carpet removal & replacement
• Tile/Floor repairs
• Painting
• Sheetrock/drywall repairs
• Carpentry repairs
• Plumbing fixtures repairs & replacements
• Fire & mold remediation
• Fence repair

 

Here are a few things toconsider when determining the extent of the services you want to offer:

 

A Contractors’ License isgenerally not required for Foreclosure Cleanup Company but is likely requiredfor preservation companies doing work over a certain dollar value (usually $500- $1000+).  Sometimes this license can beobtained by attending a course and successfully passing a test whereas otherstates require previous, verifiable industry experience.

The insurance premiums tend to be higher on companies that offer preservationservices as they are considered to be a “general contractor”.  However, the revenue potential is much higheras preservation services tend to run from a few thousand dollars upwardsinstead of $800 - $1500 for each cleanout.

 

Usually what people do isstart out initially offering just the foreclosure cleanup services and thenwhen things pick up, they’ll add preservation items to the list of servicesthey offer.  This let’s them get theirfoot in the door without having to spend a whole lot of money upfront whensetting up their company.

 

 

Source the Right Equipment & Tools

 

 

The greatthing about starting a foreclosure cleanup company is that the initial expensesare quite low as much of the equipment and tools needed for cleaningforeclosures can likely be found in your own garage:

 

• Cleaningchemicals (i.e. all purpose cleaner, disinfectant, toilet bowl cleaner, windowcleaner, etc.
• Cleaningsupplies (broom, mop, scrub pads)\
• Vacuumcleaner
• Garbagebags and shovels
•  Workgloves and disposable plastic gloves
•  Lawnmowers & lawn tools
•  Wheelbarrow

 

For thesmaller items you don’t have on hand, check your local dollar store.  Their prices can’t be beat and they usuallyhave the same chemicals and cleaning supplies as the other retailers.  Once you start doing some volume, considershopping for your supplies at Sam’s Club or Costco to keep your expenses low.

 

You can alsofind used equipment in great shape (such as vacuums) by going around to yourlocal Saturday morning garage/yard sales. If you have a “Re-Use” center or a Salvation Army, you may considerchecking there also as they often have vacuums and other small equipment oryard tools for sale.

 

For haulingjunk, you’ll need some sort of trailer and a vehicle large enough to pullit.  If you don’t have a truck and atrailer, you can always borrow a friend’s truck and rent a trailer from U-Haul or just go ahead and rent a moving truckfrom U-Haul.  (Remember though, thatyou’ll be charged a daily rate plus a per-mile rate when you rent a movingtruck whereas if you use your own truck and just rent the pull-trailer, you’llonly incur the daily rental rate for the trailer.) 

 

Sometimesyou’ll be required to clean a property that doesn’t have electricity orwater.  In the event that there’s noelectricity, you’ll need a generator to operate the vacuum cleaners and otherelectrical equipment.  These can berented at Lowe’s or Home Depot and is a much better alternative to purchasingone outright unless you’re going to use it on a regular basis (a new one willrun you about $500+).

 

To save onexpenses, it’s best to rent equipment in the beginning.  Once you get up and going, it may be worthlooking into purchasing equipment of your own. Check the online classifieds ads (such as Craigslist, Kijiji and Backpage)for used trailers, generators, etc.  Youshould also check with U-Haul as they have been selling some of their excesstrucks as of late.

 

 

Stay Safe on the Job

 

As a business owner, you’reresponsible for keeping your staff safe while working on the job. Workingsafely is paramount to the health of your staff and the reputation of yourbusiness (and also keeps your insurance premiums low).  It’s imperative that you review safety issuesprior to allowing anyone to work on the job – you must provide both classroomand on-the-job safety training to all new hires.  

 

Now, it doesn’t have to beanything fancy; you can spend 20 – 30 minutes reviewing safety policies, safeworking practices and answering any questions and then you’ll be done!  Make sure you have people sign in and out ofthe meeting and that you document that a safety meeting took place.

 

It’s also very importantthat you become familiar with OSHA and Safety Standards as well as the health& safety hazards associated with this industry so that you can keep yourstaff safe, avoid accidents and costly fines.  You can find the OSHA Pocket Guide to Construction Safety (it’s a shortand an easy read) at this LINK

 

Another way to protect yourstaff and your business is to make sure that you check references before youhire someone.  Insist that they listnon-related references (i.e. not mother, sister or best friend) and insteadlist references of previous employers or someone they know in a professionalcapacity.  We also do drug testing andbackground checks – it might sound paranoid to some, but the safety of ourstaff, our customers’ property and our company’s reputation is far tooimportant to risk not spending $20 on a background check or drug test.

 

For more great informationon staying safe on the job, read our previous post, which can be found below.

 

Price Your Services Right

 

In this industry, the lowestprice always wins the bid (unless, of course, the lowest bidder has a terribletrack record of completing the work and is utterly irresponsible andunprofessional, in which case the company has just committed reputation suicide and will never be hired again).  Lenders don’t want tospend any more than they have to on these properties so you want to make sureyou price your services comparable with the going market rates (but at the same time, priced so that you still make a great profit and don't leave any money on the table).

 

For cleaning out foreclosures,most banks expect to spend anywhere from $500 - $1500 for a cleanout (trashout,interior clean and initial landscape cleanup), but it could be a bit more or abit less, depending on your area.  It’simportant to know that most lenders have prescribed “price caps” for themaximum amounts that they’ll pay for services. In the Foreclosure Cleanup Cash program (www.ForeclosureCleanupCash.com),we tell you exactly what the correct price ranges and caps are so that you’llnever price yourself out of a contract. We’ve also included as a special bonus an actual bid that we did (withphotos) so that you can get an idea of what a real winning bid looks like.

 

If you’re also providingpreservation services, a great site that we’ve used before to determine ourprices for doing repairs is www.CostEstimator.comfor getting the market rates for construction costs  – you can get a free 30 day trial (no need toenter credit card – it really is free!). There are over 3,000 cost items adjusted for over 210 local, geographicregions to create your bid and you can add as many others as needed.  If you want to sign up after the trial, it’sonly $15/month.

 

Market Your Services

 

 

It’s true –“nothing happens until somebody sells something”… and you’ll need to get outthere and sell, sell, sell your business. Once you’ve done a few jobs, you’ll find that word of mouth advertisingand referrals will provide a large pool of new jobs for you, but in themeantime, you do need to do everything possible to let customers know youexist. 

 

A largeportion of work will come from the relationships that you build with RealEstate Agents (“Realtors”) who list bank-owned homes (often referred to as REOlistings).  They are often given the taskof bidding out the cleaning and repairs of new listings by the asset managementcompany so you’ll want to make sure the agents in your area know your companyhandles this type of work.

 

A great way tofind out which Realtors in your area list REOs is to go online to the majorbank's REO websites and "data mine" the contact information for thelisting agents (name, email, phone numbers). It can be painstaking work, butdefinitely worth it.

Here are a few bank REO sites to get you started collecting Realtorinformation:

WELLS FARGO

(Properties managed by Premier Asset Services)
NOTE: In order to access agent information, select the state and click search.Then, individually select each listing and click on "Print Property ReportCVS". Each listing and corresponding information (such as agent name,phone # and email) will be created in an Excel spreadsheet.   You can access the page
  
M&T BANK

OCWEN FINANCIAL CORP

(We also list about 20 more different lenders’ REO sites in the Foreclosure Cleanup CashProgram which is essential for findingout which Realtors list bank-owned homes)

Remember tofollow up with a phone call a few days later. Don't be shy about asking theRealtor if he/she has any jobs for you to bid, either - most of them are veryaccommodating and willing to give a new company the opportunity to provideestimates.

 

The other wayjobs are bid out is through large Asset Management Companies (also referred toas Marketing & Management Companies, REO Field Service Companies andProperty Management Companies). Essentially, the lender says, “ok – I have thousands of properties toget rid of.  Here, national ABC AssetManagement Company: clean, fix and sell these properties for us”.  And the national Asset Management Companywill then subcontract out the work to local foreclosure cleanup and propertypreservation companies.

 

In order to workfor these companies, you usually need to sign up your company as a potentialvendor.  Many times this can be doneonline (in the Foreclosure Cleanup Cash program (www.ForeclosureCleanupCash.com),we provide you with over 25 direct links and contact information to AssetManagement Companies (different from the lenders’ REO sites) where you can listyour company right away).  There are bothpositives and negatives associated with working for the larger companies.  On the positive side, you will probably begiven a few projects to work on at a time so you will be kept relativelybusy.  On the negative side, they usuallywant you to offer ‘wholesale pricing’ and don’t pay until 30 – 60 days afteryou invoice them for the work.  Workingfor one of these companies, however, will give you the experience you need togo after more work.

 

Other possiblecustomers include wholesale property investors (groups of investors thatpurchase foreclosed homes at the auctions and then sell them to smallerinvestors at a wholesale price), investors, landlords, property managementcompanies, Realtors and so on.

 

You should alsoconsider attending your local networking events such as the Chamber of Commercemeetings and any local investor meetings in order to hand out your card andnetwork with potential customers.  Themore you get out there, the better chance you’ll have of securing some great,long-term customers!

 

Well, hope thisinformation helps to get you started in the right direction – this isdefinitely an exciting industry and a very profitable one for those of you whodon’t mind getting your hands a bit dirty

 

****

The Foreclosure Cleanup Cash Program

There iscertainly much more to know than can be found in this short article, so ifyou’re interested in learning all of the ins-and-outs of the business, considergetting the Foreclosure Cleanup Cash Program (www.ForeclosureCleanupCash.com). 

In this program,we provide you with a 200 page manualon exactly what you need to know to start your company, how to market it to theright contacts, what services to provide and how to do them and exactly how toprice your services within the industry guidelines.  We actually alsoprovide you with a real estimate of aforeclosure cleanup bid that we did, including step-by-step estimate instructionson exactly how we priced the services and before/after photos to go withit. 

 

As an additionalbonus, we include all of the forms,estimate spreadsheets, sample agreements, checklists etc. that you'll needto get your business off to the right start.  If you go to the website andscroll down to the bottom of the page, you can see a full chapter-by-chaptertable of contents (www.ForeclosureCleanupCash.com)

 

The thing thatmany people really like about this program is that it's detailed - we don't just tell you"go out and market your company" - we say, "Ok, here's the exactperson you need to contact to get your company signed up on the vendors list soyou can start receiving requests for estimates".  It's a full 200pages long plus a bonus15 page report that shows you in detail an actual foreclosure cleanup that webid on (and won the contract for), including pricing and work scopeinformation.

Since we have firsthand knowledge from running a successful cleanup andpreservation company, we know exactly how this industry works and what you needto do in order to succeed.  This is the most comprehensive programavailable online for learning how to start and run a profitable ForeclosureCleanup & Property Preservation service.  We're always updating ourblog and forum, which are also great resources, and we're always here to helpanswer any questions you might have with the program

 

Now… stay tunedfor the next segment on on-the-job safety!

 

Happy Trashing!

Les Tyler

CEO/President

www.ForeclosureCleanupCash.com