Thursday, May 22, 2008

Split test your direct mail campaigns and jack up your response rates...

Direct mail split testing is the process of testing two or more versions of your letter to determine which one produces the greatest response. It’s a simple concept, but has HUGE benefits when done properly. Direct response marketers do this all the time by testing different elements of the campaigns to ultimately product the highest possible responses.

A response is measured in a few ways, but ultimately it’s a measurement of the effectiveness of the letters ability to get your recipient to complete the call to action. That call to action could be to have them call you, visit a website, send back another letter, or perhaps send you a check (nice!). The response rate is just a percentage of actions that were completed for your mailing. If you sent 100 letters and received 3 phone calls, then you would have gotten a 3% response rate. Pretty simple stuff, right?

Ok, so the direct mail industry average response rate is something ridiculously low like 0.5%... but that takes into consideration all the bulk junk mail that gets sent to us. I would venture to say that we investors “that target our lists properly” are more likely to get a 2% or better response rate. If not, then something is wrong. Either the list is not targeted enough, or the letter isn’t hitting the right cord to get the reader to take your requested action.

But what happens if you have a highly targeted list, and a not so hot letter? You might get a low response rate… right?

Rather than throw darts and hope for a bull’s-eye, why not send two or more versions of a letter to one list and increase your chances of success? Just take that list and divide it in half and send one version of your letter to one half of the list, and the other version of your letter to the other half of the list. It’s the same amount of work to stuff the envelopes, and it cost the same amount of money in postage… but the difference could mean BIG profits if you hit a winning combination.

You should always split test your letters. The one that gets the highest response will be what is called your “control”. And with every mailing you should try to beat that control, and if you do… the new letter becomes your new control that you are going to try and beat.

So what should you change between each version? There are many views on this, but I personally feel that it really depends on the size of this list you are mailing to and where you are in the testing process. If you are just starting out with your test, then I would try using two letters with a different call to action, or tone. For example I often test the difference between having the letter come from my wife, or from me. I’ve tested sending from me as an investor, as well as looking like it came from a non-investor.

Once you get something that seems to be working the best you can begin to fine tune it by changing more subtle things like the headline (if you are using one), or the opening paragraph. Perhaps the paper it’s printed on, the text font, or the envelope you send it in.

It’s so easy to do, so why not do it? But don’t forget to print a code or something on the bottom of the letters so you can ask the seller to read it back to you when they respond… how else would you know which version it was?

I know it seems like more work, but it REALLY makes a big difference when you narrow down on a letter campaign that responds well with a targeted list. It means the difference between doing one deal a year, and one a week… and often on the same exact marketing budget.

Perhaps you don’t want to deal with all this and would like to have someone do all this testing for you. If that’s the case, then check out the letter templates that Steve Berchtold has created…

Steve has created a series of letter templates that have all gone through rigorous split testing and will guarantee a high response rate out of the box. Then you can make your own tweaks to see if you can improve your responses from there, or just enjoy the results from his hard work. I have used a few of his templates myself and have had some impressive results.

In any case, direct mail marketing is a very powerful marketing tool for us as investors, both for buying houses as well as selling houses. Split testing your letters can greatly improve your responses, as well as increase your profitability… even if you are working on a tight marketing budget.

Checkout Steve’s REIM letter templates here:

Friday, May 16, 2008

Timing the real estate cycle, and getting in front of the next BOOM!

As you might already know, I live and invest primarily in South West Florida, and this area is among the top areas in the country that have suffered the most from this recent real estate turbulence.

In fact, just south of Sarasota (where I live) about 20 miles in Cape Coral is ranked on and off as the #1 area in the U.S. for the highest foreclosure rates.  And where I am it’s not much better.  When the real estate market was cranking, we were seeing better than 30% annual appreciation rates.  A house that you bought for $150,000 in 2003 was worth over $300,000 by the end of 2005… and then seemingly overnight it just came to a screeching halt!

Everyone was talking about how this market bubble was going to pop, but no one knew it would happen that fast, and this severely.   Financial institutions have mounted HUGE historical record breaking losses in the 100’s of billions of dollars on mortgage write offs (nice work short sellers!)… and when a financial giant like Bear Stearns almost goes belly up… you know there are some serious issues in the financial markets.  It’s this financial liquidity crisis that is really causing the pain right now.

Housing prices in our area are just about back where they were in 2003… so now that house you paid $170k for in 03 is probably worth just about that.  And now I hear it all the time from people saying… “I knew this was going to happen”… yet these same people are the ones that are over leveraged and have 5 or 6 properties headed into foreclosure.  It’s like the stock market correction in early 2000… everyone that got financially smacked around by that one will tell you now… “I knew that was gonna’ happen”.  Yeah… good job Nostradahmas!

Ok, so maybe we weren’t completely prepared for this drastic of a real estate correction… but perhaps we can get prepared for when the market starts to shift again.  This is where smart investors make their big moves… they get ahead of the market cycles and capitalize BIG TIME on them.

If you study the financial markets and economic cycles you would find that the stock market tends to lead the economy out of recessions.  Now I don’t know if we are technically in a recession or not, but it sure feels like one.  In fact, it’s often the case that the FED will go back and determine that the US was in a recession a few years after the fact because only then will they have enough statistical data to be able to truly analyze the situation.  So, for argument sake let’s say we are *almost* in a recession, and we should be looking for indications of light at the end of the tunnel.

And so if you follow the stock market, you would see that the market has been slowly and steadily changing direction and is within a few hundred points of being considered in a long primary trend… meaning its technically moving in a strong upward direction.  Its currently in a short-term and intermediate upward trend, so that is very promising. 

Then next positive indicator of a switch in the real estate markets is the fact that much of the initial losses have been realized in the financial intuitions and they are now for the most part starting to lend again.  But of course they are only lending to the most qualified of borrowers.  Building a buyers list is more important now than ever before as investors because finding a house for a buyer is much easier than a buyer for a house.

And the last indicator that I have been watching is the month over month MLS inventory numbers in my area.  Being that we are in one of the most depressed housing markets, it tends to speak volumes when you see any kind of positive change in our market.  The inventory here has stopped rapidly increasing, and were actually starting to see sales volume beginning to increase.  Buyers here are starting to feel comfortable with making a purchase, and FHA financing guidelines have increase the loan amounts to allow qualified buyers to purchase houses at higher price points, therefore the need for creative financing is not as necessary for properties that are purchase above the median home price.

And last but not least, were starting to see the new construction inventory begin to stabilize. Lennar homes is one of the nation’s largest home builders and they are starting to report better (not great) retail sales numbers, and large developers are beginning to buy up large tracks of land again.  These builders have the best resources to determine market conditions, and when I see them buying land for future development that is a pretty good sign that they are preparing for something.

Now the big issue is the cost of fuel, commodity prices, and the weakening dollar.  Many analysts believe that the commodities market is the next bubble to burst, and I happen to agree.  The question is when… of course.  But if commodity prices drop, then the dollar should strengthen…. And because Oil prices are pegged in dollars, we should see the cost of fuel and energy come down, as well as the cost of groceries, and so on.  All this makes it a little bit easier for people to buy a home.

Based on the few market reports I subscribe to and the industry analysts that are tracking this type of economic and financial data… this commodities market should shift sometime in the summer or later part of the year… which historically is the busiest part of the real estate market (in most parts of the U.S.).  Plus… Wal-Mart, McDonalds, and many other large retailers are reporting great earnings, which for the most part seems that the consumers are still consuming. (must be that $600 bucks that G.W. gave us)

So, what I personally derive from all this information… is that we’re at the bottom, and it’s time to get your game face on.  The smart investors are getting prepared to take advantage of yet another amazing opportunity that real estate has to offer.  So even if you were beat up, or discouraged by what has happened in the last two years… get over it!  Nothing in life worth having comes easily.

Anyway, I hope this post will give you some inspiration to do your own homework and look at the true market conditions in your area… and don’t let all the doom and gloom reporting (FOX!), and whiny investors out there get you down.  Just remember, problem solving is how we get paid. And the bigger the problem… the bigger the payday.  This current real estate market is just a GIANT problem, and if you keep your eyes open it could mean a tremendous payday for you!

To your investing success!

John Schroeder

Sunday, May 04, 2008

Filtering targeted mailing lists from county tax roll data...

I’m often asked from RealProspect software users, and on occasion when I do a tele-seminar or podcast… “Where do you get your mailing lists from?”

And while the answer is easy for me, it’s a little difficult for me to explain.  You see, I get my mailing lists by filtering my county tax roll data using specific criteria that I am looking for.  And I can get my entire tax roll data on a CD for just $25!

While that sounds great, it’s a little easier said than done.  This weekend I was trying to explain the process to one of my RealProspect software customers and decided to create a video that explains the entire process step-by-step. 

I’ve uploaded this video and made it available for anyone who is interested in learning how to take a large database of records, and filter out a small targeted mailing list to use in your direct mail marketing campaigns.

Keep in mind this may not work for everyone, but if will work for you I can guarantee you will benefit GREATLY from knowing how to do this.

click to watch the online video now

NOTE:  Please be patient while it may take a minute to load, and you will need a broadband internet connection to watch the video (Cable or DSL, etc).


John Schroeder