Over the weekend, Kelly and I looked at six properties we were interested in and we ended up putting an offer on one of them. We didn’t hesitate on the offer we put in because we were very confident in the property. Now, when you’re looking at investing thousands of dollars on a property, it is extremely important that you know what you’re buying. You don’t want to miss things, and looking at the property with a critical eye is very important. It’s very easy to overlook things when you’re inspecting a property and that’s why we always take our Inspection Checklist with us.
Click on the link and you can see that this is a simple 1-page form that we can use when inspecting a property. We simply print it out, put it on a clipboard and we use it to systematically go through each house we look at. This checklist is a system for us and it incorporates several important elements:
First of all, it provides a full checklist of potential issues with a property. When we’re done we can be sure that we’ve completed a thorough inspection of the property.
It provides a way for us to document the repairs that are necessary or the things we want ask our contractors about. When you’re looking at six houses in one day, the repairs can start to run together and it is very difficult (if not impossible) to remember what needs to be done on each property. The checklist takes care of this problem and gives us a way to take very good notes.
For each item in the checklist we also show directional pricing for common repairs that may need to be performed. With this information we can quickly develop an estimate for the repairs that are necessary. This is very important for turning offers around very quickly. If we know it’s a good deal, there’s a good chance other investors will think so too. If we can get our offer in and accepted before anyone else looks at the property we have a big advantage.
Now, there are some houses we walk into that we know are not for us with a few sniffs (sometimes literally). But for the properties that pass the initial sniff test our inspection checklist servers as a great tool for us to fully evaluate the property. Once we have the checklist filled out we use it as input to our financial calculations, and we can quickly develop our offer.
So this weekend we used this system to look at six houses and we wrote one offer…we’ll see where it goes, but hopefully it will be our next property.
Today is Day 51 in our drive for $60,000 in 60 days through real estate investing. Over the last couple days we have come across three new deals, and we are working through our analysis of these properties.
West Bloomfield Ranch
We have submitted an informal offer through email on this property, but it seems to be much lower than what the seller is looking for. We are discussing our selection of comparables with the seller and they have brought up some good points about our comp selection, so we are going to look at this a little more closely and see if it makes sense to come up on our offer price. This is strictly a numbers game, and if the numbers don’t make sense, we won’t be coming up on our offer price…we will see…
Sylvan Lake Ranch
We have done the analysis on this property, and there really just isn’t enough equity in the property to be able to wholesale it, so we are going to offer the potential to lease option the property. With this, we can offer a full price offer to the seller, but we will lease the property from them for the first 3-5 years. That way they will be getting a monthly cashflow from the property, and we will be building up credits towards the down payment on the property. In 3-5 years, we will execute the final sale. This is beneficial for the seller because they will get cashflow, and they will receive their full asking price. It is beneficial for us because we will find a tenant for the property that will pay a little bit more in rent each month than what the seller is charging us, and we will give them an option price just a little bit higher than what the seller is charging us. Therefore, we too will make cashflow during the 3-5 years, and we will make a profit on the back-end. We will see how this goes, it is really up to the seller as to whether they want to get into this kind of arrangement or not.
Highland Duplex
We have completed our analysis on this property, and we will be submitting a verbal offer to them today. Our offer will be low because we plan to try to wholesale the property, so we will see what they say. The property does need quite a bit of work, but it would make a great rental property if it were fixed up. We will see how this one goes.
Pontiac Property
We are working with our hard money lender to finalize the closing date on this property. Right now we are trying to get it setup for August 24th.
Highland Property
We have another showing tonight with a buyer that has given us a verbal cash offer on the property. Of course we have two land contract offers on the table right now, but we are leaning towards the cash offer even though it is lower to avoid the risks involved with the land contract. We will see how this goes tonight.
Today is Day 43 in our drive for $60,000 in 60 days through real estate investing.
Today we have a full plate of activities, so we are going to keep this blog post short. Here’s the skinny on today’s activities:
Highland Property
We put two bandit signs up this weekend, and we have received about 10 calls from these signs alone. It is really amazing to me how well these signs work! Nevertheless we have lots of followup calls to make on the interested buyers, so we will be doing that today. Additionally, we are planning to set up a meeting with the buyer we have been speaking with that seems really interested in the property.
Auburn Hills Property
We also put up 4 bandit signs for this property this weekend, and we have received a lot of phone calls on this property as well. We are a little worried about this property though because many of the callers seem to be turned off by the area the property is in. I think that they’re thinking it’s a little too close to Pontiac, which is a valid concern, but the property also has a big upside because it is right around the corner from Oakland University. We will see how it goes, but we haven’t really had any serious lookers on this property.
Pontiac Property
Today we are going to speak with the title company about setting a closing date because after the walk-through this weekend, we are pretty much set to close. So we will see what the title company says about a closing date.
Today is Day 37 in our drive for $60,000 in 60 days through real estate investing. We have a number of deals working, and we wanted to update you on the status of each one of them. Some have gone very well, and others have not worked out as well. The good news is that we are continuing to learn every day.
2846 Cherry Rd, Highland, MI
This property is a 1050sq ft home that sits on 1.75 acres and is a definite rehab because the house is currently gutted. The nice thing about this property is that it has a lot of extra rehab materials included with the sale.
We have had this property under contract since July 9th, and our initial exit strategy for the property was to wholesale it as is, or rehab it ourselves. We put the property under contract for a very fair price to the seller, which made it very easy for them to say yes to our offer.
Since then we have employed our full sell that home fast marketing strategy and we have had a lot of interest in the property. We have received well over 20 calls on the property and have had about 8-10 people out to look at it.
From our buyer list, we have had 3 people who I would categorize as serious rehabbers out to look at the property, and the consensus is that the repairs are probably too much for the property to be profitable. We have confirmed this with our own contractor estimates.
Because of this, we have changed our plans on this property a little bit. We have spoken with the seller on a couple of occasions and discussed the feedback we are getting from the buyers. I think at this point, it is really going to take the right buyer to see the value in the property and it is going to have to be someone who is looking to do the repairs themselves and live in the house afterwards. We have a couple of people who fit this profile coming to look at the property in the next couple days, so we will see…
2080 Commonwealth, Auburn Hills, MI
This property is a duplex and is currently rented. Both units were completely rehabbed earlier this year, and at the price offered we’re estimating the property will cashflow at $371 per month. This is a great deal for any investor!
We put this property under contract on July 16, 2010, and we have used the same marketing strategy to market this property. To our surprise there hasn’t been near the amount of interest in this property as there has been on Cherry. We think the price point may be the main factor affecting this.
At this point we are going to try a few more things with this property. We are going to put up some more bandit signs for the property, send out more emails to our ever-expanding buyer list and put out some more online classified ads.
We will see what happens…
630 Lydia, Pontiac, MI
This property is a condo that is currently rented. The intriguing thing with this property is that the lease is structured giving the tenant the option to purchase the property within 5 years. They receive $100 per month towards a down payment, but they also pay the taxes, association fee, insurance and maintenance. This has a huge impact on the cashflow, and our analysis shows the property will cashflow almost $400 per month!
We have had this property under contract since July 31, and we plan to purchase and keep this property because the numbers are just too good. We will list it for sale, but we are going to be pretty stingy on the price because the cashflow is just too good to pass on!
Right now, we are just running through our due diligence on this property, but everything (including the financing) is looking good. So, hopefully we will have this one closed in the next two weeks…we’ll keep you posted.
Royal Oak Bungalow
We are still in negotiation on this property, but things seem to be stalling out. This property is a 4 bed / 2 bath bungalow and has a finished basement. It’s in a great area of Royal Oak, and we’re estimating it needs about $18k in repairs to make it a really nice home.
We submitted our initial offer on the property giving the seller two different purchase scenarios. One was simply a cash offer, and the other was a scenario where we would delay closing for 6 months and we would have the opportunity to go into the property, make the repairs and find a buyer…then close.
I just spoke to the seller yesterday about the offer, and he told me the offer is really too low for him, and he thinks that with minimal repairs (paint) he can get a much higher price.
At this point, we’re going to look a little closer at the comps we pulled by driving by them to get a better analysis of our after repair value. We have also discussed offering him a piece of the deal on the back side if we are able to sell the property for more than what our analysis showed. So this deal is not dead yet, but it’s definitely not looking that great…
Bloomfield Hills Ranch
This property seems to be fizzing out because we are simply too far away on price (about $150k) with the seller. This property is really intriguing because it is in a great area. There are literally homes on the same street that are valued at $1.5 million. The trouble is, this home is a 1300sq ft 3 bed/2 bath home with no basement. Everything else in the neighborhood is 2500sq ft plus and are quite frankly nicer homes.
For our analysis, we are showing that the property needs about $15k in repairs, but we really don’t think the home will sell for more than $158,000. The trouble is that the seller wants $200k and they’re being pretty firm on that price.
At this point, we have to let this one go because we are just too far away on price…maybe they’ll come around 6 months from now after they figure out that they’re priced too high…
Summary
So this is where we are at after 37 days. We’ve had a lot of activity and we’ve learned a tremendous amount just by attempting to execute these deals. We need to hustle if we’re going to make it to our goal of $60,000 in 60 days, but we’re trying…Stay Tuned!
Welcome back, it’s Day 23 in our drive for $60,000 in 60 days. Today we’re going to continue our series on the Anatomy of a Deal. In Part 2 we talked about how to analyze the numbers looking at your return on investment. Over the next three topics we will apply the techniques discussed in Part 2 to specific real estate deals. Today, we’re talking about Wholesaling.
What is Wholesaling
Wholesaling real estate is merely buying a piece of property and selling it as quickly as possible for a small profit normally $2k-$5k (although you can make significantly more than this on any given deal). The goal is not to hold the property. You want to get the property under contract and then sell the contract either by assigning the contract to an end buyer, or conducting what is called a double close. A double close is where you buy the property and sell the property in the same day. I know this sounds a little daunting, but remember, you’ve been building up that buyer list, so you should have buyer leads ready and waiting for you to call.
Analyze the Numbers
Analyzing a wholesale deal is actually pretty straightforward, and involves 4 steps.
The first thing you need to do is determine the After Repair Value (ARV) for the property in question. We talked in Part 2 on how you establish the ARV, so we won’t go over it again here.
Once you have the ARV established, you need to know what your end buyers are willing to pay for the property. This probably ranges between 50% – 70%, and a good rule of thumb if you’re not sure is 60%. Multiply the ARV by this number.
Now, with most wholesale deals, the property is in some state of disrepair. In fact, the best properties you find may be condemned. You will need to understand what repairs are needed to the property and their associated costs. Don’t get too caught up in this number though, I’ll explain why in a minute. Just put a number in that you’re comfortable with and go with it. Subtract your estimate of repairs from the value you calculated in step 2.
The last step is to figure in your profit. Simply subtract what you would like to make on the deal from the number you calculated in step 3. This is the Maximum Allowable Offer (MAO) you can present to the seller.
So, to summarize you can use the following formula:
MAO = 60% x ARV – Repairs – Profit
It’s That Simple!
If you get the property under contract, you will farm it out to your buyer list at a price where you will make your profit plus a little negotiating room. For example, if you get a property under contract for $100k and you want to make $5k on the deal, then you would probably list it for $110k. This will allow you some negotiation room.
Now, I mentioned previously that you shouldn’t get caught up in the details of the repairs. Normally we ask the seller what they would estimate for the repairs and use that number. I know, you’re probably thinking we’re crazy for trusting the seller because they are probably underestimating the repairs.
Here’s the catch. We’re going to do our analysis using the seller’s numbers for ARV and repairs. By using their numbers, there’s a much greater chance that we will be able to get the property under contract, and then we will control the deal from there.
Now, once we put it on the market, our end buyers are going to tell us exactly what the ARV and the repairs are. If the numbers don’t line up we can always go back to the seller and present the case why we need to lower our asking price. Except now, we have built a rapport with the seller AND we have justification for our statements (estimates and comparables from our end buyers).
We can normally get the seller to agree to a lower price at this point alot easier than if we do the due dilligence up front. And, if the buyer says no now, then they probably would have said no to our initial offer anyway.
So that’s how we analyze and execute our wholesale deals. In part 3 we will be talking about how to analyze a Rehab. Stay tuned!
Today is Day 22 in our drive for $60,000 in 60 days. Today we will be talking about 3 deals we are putting offers in on this week. We will discuss how we arrived at these deals and why we think they are good deals.
Deal #1 – Cashflow in Pontiac
The first deal we’re gonna talk about is a property in Pontiac. We found this deal by simply browsing through Craigslist searching for “Investors”. The title to the add included the words “Investors Wanted” and so we were able to find this property very easily by utilizing this search technique.
Now, we don’t normally like to invest in Pontiac because it is a rougher area, but the numbers on this home are just simply too good to pass up. For about $4500 we can get into this property (assuming we can get a loan for the rest) and the property will cashflow $367. That is assuming an interest rate of 8% on the loan. Even if we have to get a hard money lender involved charging upwards of 15%, we would still cashflow about $290 per month. That’s a 77% return on our cash invested into the property.
Now, the great thing is, the property is already rented as a lease option for a 5 year term. The tenant buyer is responsible for the rent, taxes, insurance, utilities and maintenance on the property (this is the key to the excellent cashflow). Now in 5 years, the tenant has the option to purchase the property at a set price, but we are submitting our offer below that price, so we will be completely covered.
Bottom line, this deal is too good to pass up, so we are jumping on it. Offer was just submitted today!
Deal #2 – Estate Sale in Royal Oak
This property we also came by on craigslist by searching for “Estate” in the garage sale section. It turns out this property needs what I would call “light” rehab to the tune of about $15k-$20k. We have spoken with the seller, and he would like to get the property sold as soon as possible, but he is really not interested in doing the rehab himself. I asked him if he would consider seller financing, and he said no…so I asked another way. I asked him if he would consider closing on the house in 6 months and allowing us to come in during those 6 months and complete the rehab. He said that he would definitely be interested in that.
So to go off topic just a bit, you need to keep things like this in mind when speaking with sellers. When I asked him about seller financing, he probably didn’t know what I meant, and immediately dismissed it. When I explained exactly what I wanted to do, it was much more appealing to him.
So now, we have run the numbers, and we are ready to sit down with him to present the offer. We think it is mutually beneficial because he does not have the time to dedicate to the house, but he can still get it taken care of. Of course, we will stand to make money on the rehab.
So we plan to present the offer to the seller later this week when he is back in town.
Deal #3 – Bloomfield Hills Rehab
This property actually found us through one of our bandit signs. We received a call about 3 weeks ago about this property and we were able to finally take a look at it on Friday. The seller told us they need to sell because her husband got transferred and is already in Colorado (i.e. motivated). It was interesting in the initial phone call because the seller described what sounded like a pretty nice home, but then she ended the description with “but I think it’s probably a tear down because everything else in the neighborhood is selling for $350k and above”.
That one threw me for a loop. They were only asking $200k for the house, and everything else was selling for $350k? I definitely wanted to look at this one, and we finally did on Friday. (Note the seller would not provide the address until we went to look at it, so we couldn’t do any research on the property beforehand).
Now, when we looked at the property, there are definitely issues with the home, but nothing that cannot be overcome. We figure there is about $15,000 in repairs needed to the home, and walking away on Friday, I thought the home was worth every bit of $200k as is. I was wrong…we pulled comps on the property and it turns out the property is worth about $110,000. I was very surprised, but I have to believe the numbers. Now mind you this is the value of the home after repairs are completed, so we need to figure in our repairs, holding costs and purchase costs for the project.
Needless to say we will be offering significantly lower than what they want from the property, but we’re still going to put the offer in. There are a few things that make us think there is a chance that our offer could be accepted
The seller needs to sell because her husband got transferred
Through our research, we found that there is no mortgage on the property therefore they don’t need the cash to pay off a mortgage
In our initial call, the seller told us it was a “tear down” so they may be asking for $200k, but they know they will have to take less for the property.
So we will put this offer in most likely tomorrow…we will see how it goes!
Today is Day 13 in our drive to $60,000 in 60 days. We attended class again today…we are learning a great deal of information about creative financing and we are excited to apply these concepts in future deals.
Today I also went out to the property in Highland and put a few signs up…this has already generated 2 phone calls. It really is amazing to me how these little things we’re doing work, but the good thing is that they are working.
So to track what we’ve done thus far to market the property in Highland, below are the different things we have done to market the property along with the number of leads/calls we have gotten from that particular campaign:
Email / Phone call to buyers list – 2 calls
Classified ad submission – 1 call
Signs – 2 calls
Social Networking – 0 leads
Networking to other investors – 0 Leads
Website / Video Tour – 29 leads
As you can see we have talked with 5 potential buyers in just a little over 36 hours since we launched our various campaigns. Additionally, through reports from www.tubemogul.com we are able to see that 29 people have viewed the video tour of the property. We’re really excited with these results thus far and hope to have an offer or two next week on the property…we will see.
Additionally, today I spoke with the owner of the property in Auburn Hills that we submitted an offer on. He had a few questions with the offer we submitted because he was a little confused about what we are trying to do. I basically told him that we were investors and we work with a number of other investors, and that we were interested in purchasing the property. I explained that we would not be the end buyer for the property, but that we could potentially bring him an end buyer and he was very happy about the sound of that…so things are looking pretty good right now. He has to discuss things with his partner and we have agreed to have another conversation tomorrow evening.
We will keep you posted, but hopefully this will be deal number 2…
Welcome back it’s day 11 in our drive for $60,000 in 60 days, and we have some awesome news to report. The offer we submitted on the property in Highland was accepted. We are working very hard to get all of our marketing materials together for that property, so very shortly you should be able to go to www.2846CherryRd.com and check out all the details. We’ll send out a blog post when the website is live.
The property is at 2846 Cherry Rd in Highland, MI 48356. It sits on 1.75 acres, and the home is about 1050 sq ft, but you will see in our video tour how the previous owner was planning to increase the home to 1400 sq ft. We are listing the property at $29,900 and we will be looking at all offers. If you or someone you know may be interested in the property let us know by emailing me at todd@michiganpropertybuyer.com.
We also had a great meeting today with Property Solutions of Michigan. They are a local company that specializes in short sales. We think this will be an excellent connection for us in the future because we have been shying away from short sales. These guys are very knowledgeable about short sales and will be conducting any short sale business that we come across. We think this is going to open up a very big door for us, so look for some more good information in the very near future on short sales…
So, if that wasn’t enough, we also submitted an offer on a property in Auburn Hills, MI. This property is in a whole different class than the property in highland as it is currently a rental making an excellent cash flow. We may get word back as soon as tomorrow on whether the offer will be submitted…so we’ll keep you posted.
So we’ve had a great day, but our work is not done yet…we’ll keep you posted on how everything unfolds. As always you can stay tuned to this blog for all the updates on our progress.
Also, before we go, we just want to send out a big THANK YOU to everyone we’ve gotten feedback from. It means a lot to us and we’re going to make it to $60,000 in 60 days!!!
We took a ride out to Highland today to meet with the owners of the property we’re looking at. They are asking $19,900 for a property that sits on 1.75 acres. There is a 1050sq ft house and a small shed on the property now but the house is in pretty rough shape. The house is currently gutted an is in pretty rough shape. They showed the plans they had for the home, but because of a recent lawsuit they have a judgement on, they need money and need to dump the property.
There are a number of extras that they are offering with the house including kitchen cabinets, appliances, 2 furnace, a hot water heater, windows and interior doors. This is looking like a pretty good deal for us, and we’re going to submit an offer on the property tomorrow.
That’s about it for today, everyone have a safe and happy 4th of July!!!
Over the weekend, Kelly and I looked at six properties we were interested in and we ended up putting an offer on one of them. We didn’t hesitate on the offer we put in because we were very confident in the property. Now, when you’re looking at investing thousands of dollars on a property, it is extremely important that you know what you’re buying. You don’t want to miss things, and looking at the property with a critical eye is very important. It’s very easy to overlook things when you’re inspecting a property and that’s why we always take our Inspection Checklist with us.
