Small Business Saturday - How to Start a Foreclosure Cleanup and property Preservation business
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A new record on June 3, 2009 from Msn Money writer Michael Brush indicates that there is a third wave of foreclosures still to come from prime borrowers (i.e. Those previously "safe-borrowers" with sound prestige and fixed-rate mortgages) as a effect of job losses thanks to the worsening economy ("Coming: A 3rd Wave of Foreclosures").
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The record states that "In the first quarter, the division of these borrowers who were behind on their mortgages or in foreclosure had doubled from a year earlier, to nearly 6%" and goes on to say that "Credit Suisseanalyst Rod Dubitsky foreseen, last week that 8.1 million mortgages, or 16% of all mortgages, will go into foreclosure over the next four years. A weak economy, continued declines in home prices and rising delinquencies among prime borrowers all but ensure that foreclosures "will march steadily higher," he says." Not such great news for the economy, but good news de facto for entrepreneurs concerned in beginning a foreclosure cleanup company to clean and fix foreclosed homes for the banks.
To put this in perspective, this means that there will be over 2 million foreclosures a year and more than ,025,000,000 up for grabs in money that will be spent on cleaning up these foreclosed properties (since the midpoint bill is 00+ to clean up one of these properties).
Let's take a look at how you can position yourself to capitalize on this arrival foreclosure movement
Set Up Your company Properly
If you want to be hired for cleanup or preservation work, you'll need to operate your company as a expert company. The good news is that you can set up a company speedily and inexpensively, and normally on your own. Many citizen settle to set up an Llc (Limited Liability Company) because of how speedily and de facto it can be done but you'll want to check with your accountant or other company expert to elect the type of company entity that's right for your personal situation.
If you do settle to start an Llc, you can normally find all of the documents you need online from your state's government website. normally the field you're looking for will be called the "Industrial Commission" or "Corporation Commission" or similar. Try typing in "start a company + ______ (your state)". Anyone ending in ".gov" is normally a good place to start as it indicates a government site.
Once your company is set up, you'll need an boss Identification amount (Ein), which is like a Ssn for your business. You can register for one online: type in "Irs" & "Ein" into a search engine to find the online registration link.
As soon as you have your Ein (which you can normally get immediately online), you can open up a company bank inventory for your company. This step is very, very important. In the excitement of things, many citizen get caught up in the day-to-day dealings of running a company and use their personal accounts to pay for company expenses. Not only does this gift an accounting horror at the end of the year, but it could gift problems for you with the Irs if you don't keep your personal and company finances separate.
Once you legally set up your business, you may be required to register your company with your county or city in order to get a company license to operate. You can start by calling City Hall or the Office of the County Clerk to inquire as to whether or not you need a city/county/state company license and if so, how to get one.
So to recap:
1. Legally set up your company
2. Get your Ein # and set up a company bank inventory
3. Apply for a company license
4. If you want to do preservation work, settle whether or not you need a contractors' license
Get insurance
You de facto must have a commercial Liability insurance course and Workers' recompense insurance in order to run your business. Not only is insurance significant for protecting yourself from liability and protecting those that work for you in the event of a work-related injury, but many asset supervision clubs will not do company with you if you do not meet their minimum insurance requirements.
Insurance will likely be one of your largest start-up costs, however, most insurance clubs allow you to pay the superior on a monthly (rather than yearly) basis, which right on makes this charge more affordable.
General Liability insurance policies can cover the following: bodily injury, property damage, contractual liability, personal and advertising injury, expert liability (also known as Errors & Omissions (E&O) insurance, this coverage protects you and your company from litigation caused by charges of expert neglect or failure to perform your expert duties), hired auto and non-auto liability and umbrella liability.
You'll want to speak directly with your insurance agent to get a best idea of the extent of the coverage provided by their particular course and one that is best distinguished for your private needs
Workers' recompense insurance is required in most states when you have W2 employees, and some states also require your insurance to cover your 1099 contractors also. Workers' recompense ("Workers' Comp") covers your employees' curative and disability expenses related to work-related illness and on-the-job injuries.
In the states where you are not required to cover your 1099 contractors you would need them to supply proof that they carry their own Workers' recompense insurance. Although tempting to shift the financial burden of maintaining a course onto your 1099 contractors, in all reality, you are probably best off to take on the cost of all staff Workers' recompense (all W2 employees and 1099 contractors). The suspect is that it's difficult to find only independent contractors that have their own policy. In addition, this industry has such high turnover that if you put this restriction on your independent contractors, you'll waste significant time and lost revenues trying to find replacements in a hurry.
Here's a great tip: sometimes you can get "pay-as-you-go" insurance where your workers' recompense insurance premiums are based on your actual payroll, rather than an estimated amount. This is great for clubs that are just beginning out or have a fluctuating workload. Type in "pay as you go workers comp" into a search engine for results in your area.
As a second tip, we've used Farmers insurance for years and have always had exquisite customer assistance and great rates. Just Google "Farmers Insurance" for an agent in your area.
Foreclosure Cleanup v.s. property Preservation Services
As the name suggests as a Foreclosure Cleanup Company, you'll be cleaning out all of the junk in the house (also called a "trashout or a "junk out"), as well as cleaning the interior of the home. You may also be required to remove vehicles on the property. normally foreclosure cleanup clubs are also responsible for doing a basic scenery cleanup which includes hauling out any junk from the front/back yards, cutting the grass and trimming trees/bushes.
Cleaning up the property is the extent of services offered by a Foreclosure Cleanup Company, whereas a property Preservation company is also involved in the "securing" of the property and the "preserving" of the property.
Here are some of the services that a preservation company may offer (note that a property Preservation company will commonly also offer cleanup services):
Securing the Property
o Initial vacant property inspection
o Lock changes
o Boarding of windows and doors
o Temporary roof fix
o Securing swimming pools
Preserving the Property
o Exterior Debris discharge
o Abandoned vehicle discharge (cars, boats, etc.)
o Interior Debris discharge (junk-out)
o Hazardous waste discharge
o Interior cleaning services including floor covering cleaning
o Window washing/graffiti discharge
o Window transfer
o Pool services (draining, acid washing, maintaining, etc.)
o Pest operate services
o Yard maintenance/landscaping
o Snow discharge
o Winterization
o Gutter cleaning
o Pressure washing
o Carpet discharge & transfer
o Tile/Floor repairs
o Painting
o Sheetrock/drywall repairs
o Carpentry repairs
o Plumbing fixtures repairs & replacements
o Fire & mold remediation
o Fence repair
Here are a few things to consider when determining the extent of the services you want to offer:
A Contractors' License is commonly not required for Foreclosure Cleanup company but is likely required for preservation clubs doing work over a confident dollar value (usually 0 - 00+). Sometimes this license can be obtained by attending a course and successfully passing a test whereas other states require previous, verifiable industry experience.
The insurance premiums tend to be higher on clubs that offer preservation services as they are determined to be a "general contractor". However, the income inherent is much higher as preservation services tend to run from a few thousand dollars upwards instead of 0 - 00 for each cleanout.
Usually what citizen do is start out initially gift just the foreclosure cleanup services and then when things pick up, they'll add preservation items to the list of services they offer. This let's them get their foot in the door without having to spend a whole lot of money upfront when setting up their company.
Source the Right equipment & Tools
The great thing about beginning a foreclosure cleanup company is that the first expenses are quite low as much of the equipment and tools needed for cleaning foreclosures can likely be found in your own garage:
o Cleaning chemicals (i.e. All purpose cleaner, disinfectant, toilet bowl cleaner, window cleaner)
o Cleaning supplies (broom, mop, scrub pads)
o Vacuum cleaner
o Garbage bags and shovels
o Work gloves and disposable plastic gloves
o Lawn mowers & lawn tools
o Wheelbarrow
For the smaller items you don't have on hand, check your local dollar store. Their prices can't be beat and they normally have the same chemicals and cleaning supplies as the other retailers. Once you start doing some volume, consider shopping for your supplies at Sam's Club or Costco to keep your expenses low.
You can also find used equipment in great shape (such as vacuums) by going around to your local Saturday morning garage/yard sales. If you have a "Re-Use" center or a Salvation Army, you may consider checking there also as they often have vacuums and other small equipment or yard tools for sale.
For hauling junk, you'll need some sort of trailer and a vehicle large adequate to pull it. If you don't have a truck and a trailer, you can always borrow a friend's truck and rent a trailer from U-Haul or just go ahead and rent a absorbing truck from U-Haul. (Remember though, that you'll be charged a daily rate plus a per-mile rate when you rent a absorbing truck whereas if you use your own truck and just rent the pull-trailer, you'll only incur the daily rental rate for the trailer.)
Sometimes you'll be required to clean a property that doesn't have electricity or water. In the event that there's no electricity, you'll need a generator to operate the vacuum cleaners and other electrical equipment. These can be rented at Lowe's or Home Depot and is a much best alternative to purchasing one outright unless you're going to use it on a quarterly basis (a new one will run you about 0+).
To save on expenses, it's best to rent equipment in the beginning.
Once you get up and going, it may be worth looking into purchasing equipment of your own. Check the online classifieds ads (such as Craigslist, Kijiji and Backpage) for used trailers, generators, etc. You should also check with U-Haul as they have been selling some of their excess trucks as of late.
Stay Safe on the Job
As a company owner, you're responsible for keeping your staff safe while working on the job. Working safely is illustrious to the condition of your staff and the prestige of your company (and also keeps your insurance premiums low). It's imperative that you recapitulate security issues prior to allowing Anyone to work on the job - you must supply both classroom and on-the-job security training to all new hires.
Now, it doesn't have to be Anyone fancy; you can spend 20 - 30 minutes reviewing security policies, safe working practices and answering any questions and then you'll be done! Make sure you have citizen sign in and out of the meeting and that you document that a security meeting took place.
It's also very leading that you come to be familiar with Osha and security Standards as well as the condition & security hazards related with this industry so that you can keep your staff safe, avoid accidents and precious fines. You can find the Osha Pocket Guide to construction security (it's a short and an easy read) at the main website (Osha Dot gov) by searching for the record name.
Another way to safe your staff and your company is to make sure that you check references before you hire someone. Insist that they list non-related references (i.e. Not mother, sister or best friend) and instead list references of former employers or someone they know in a expert capacity. We also do drug testing and background checks - it might sound paranoid to some, but the security of our staff, our customers' property and our company's prestige is far too leading to risk not spending on a background check or drug test.
Price Your Services Right
In this industry, the lowest price always wins the bid (unless, of course, the lowest bidder has a terrible track record of not completing work and is utterly irresponsible and unprofessional, in which case the company has just committed "reputation-suicide" and will never be hired again). Lenders don't want to spend any more than they have to on these properties so you want to make sure you price your services comparable with the going store 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 0 - 00 for a cleanout (trashout, interior clean and first scenery cleanup), but it could be a bit more or a bit less, depending on your area. It's leading to know that most lenders have prescribed "price caps" for the maximum amounts that they'll pay for services.
If you're also providing preservation services, a great site that we've used before to settle our prices for doing repairs is www.CostEstimator.com for getting the store rates for construction costs - you can get a free 30 day trial (no need to enter prestige card - it de facto is free!). There are over 3,000 cost items adjusted for over 210 local, geographic regions to create your bid and you can add as many others as needed. If you want to sign up after the trial, it's only /month.
Market Your Services
It's true - "nothing happens until somebody sells something"... And you'll need to get out there and sell, sell, sell your business. Once you've done a few jobs, you'll find that word of mouth advertising and referrals will supply a large pool of new jobs for you, but in the meantime, you do need to do all things inherent to let customers know you exist.
A large measure of work will come from the relationships that you build with Real Estate Agents ("Realtors") who list bank-owned homes (often referred to as Reo listings). They are often given the task of bidding out the cleaning and repairs of new listings by the asset supervision company so you'll want to make sure the agents in your area know your company handles this type of work.
A great way to find out which Realtors in your area list Reos is to go online to the major bank's Reo websites and "data mine" the touch data for the listing agents (name, email, phone numbers). It can be painstaking work, but right on worth it.
Here's an example of a bank Reo sites to get you started collecting Realtor information
Wells Fargo (Properties managed by Premier Asset Services): pasreo.com/pasreo/images/pas_logo.jpg
Note: In order to way agent information, elect the state and click search. Then, individually elect each listing and click on "Print property record Cvs". Each listing and corresponding data (such as agent name, phone # and email) will be created in an Excel spreadsheet. You can way the page
Remember to effect up with a phone call a few days later. Don't be shy about request the Realtor if he/she has any jobs for you to bid, whether - most of them are very accommodating and willing to give a new company the opening to supply estimates.
The other way jobs are bid out is through large Asset supervision clubs (also referred to as Marketing & supervision Companies, Reo Field assistance clubs and property supervision Companies). Essentially, the lender says, "ok - I have thousands of properties to get rid of. Here, national Abc Asset supervision Company: clean, fix and sell these properties for us". And the national Asset supervision company will then subcontract out the work to local foreclosure cleanup and property preservation companies. In order to work for these companies, you normally need to sign up your company as a inherent vendor. Many times this can be done online.
There are both positives and negatives related with working for the larger companies. On the confident side, you will probably be given a few projects to work on at a time so you will be kept relatively busy. On the negative side, they normally want you to offer 'wholesale pricing' and don't pay until 30 - 60 days after you invoice them for the work. Working for one of these companies, however, will give you the touch you need to go after more work.
Other inherent customers contain wholesale property investors (groups of investors that buy foreclosed homes at the auctions and then sell them to smaller investors at a wholesale price), investors, landlords, property supervision companies, Realtors and so on.
You should also consider attending your local networking events such as the room of industry meetings and any local investor meetings in order to hand out your card and network with inherent customers. The more you get out there, the best opening you'll have of securing some great, long-term customers!
This is right on an absorbing industry and a very profitable one for those of you who don't mind getting your hands a bit dirty! Good luck!
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