Well it’s day 18 already and we’ve been a little lax with updates…sorry about that, but we’ve been very busy over the past 10 days with our Michigan Cash Flow Property Tour. We had a great time with the two investors we had in town over the past two weeks. The bad news is we haven’t sold any properties during the event, but I’m confident in the relationships we were able to build with these two investors. In fact one of them will be coming back in town in a couple of weeks for more exploration of the Southeast Michigan market.
All in all it’s been a great two weeks, although we are a little run down…but we do have some good news coming soon…stay tuned for that…
Today is Day 53 in our drive for $60,000 in 60 days through real estate investing, and we received some awesome news today! Our offer on the property in West Bloomfield has been accepted! This property is in need of significant rehab, and right now, our conservative estimates show that the deal will net us about $24,000. Here’s a summary of our analysis:
Purchase Price: 28,400
Purchase Costs: $3,800
Rehab Costs: $25,000
Holding Costs: $6,300
Selling Costs: $7500
Expected Sales Price: 95,000
POTENTIAL PROFIT: $24,000!!!
They have a saying in real estate:
You make your money when you buy!
From these numbers, we are extremely excited, and can’t wait to get started on this rehab. Of course we need to confirm the assumptions in our numbers, so we have many activities planned over the next couple weeks. Of course, our contract was written to allow us to complete these activities, and if our numbers are not confirmed we have the right to exit the deal. We think our numbers are conservative, so we’re confident that this will not happen, but if we uncover anything in the inspections that was not anticipated we are covered.
So, over the next week we have the following activities planned in an effort to confirm our numbers:
Bring inspectors in to review the property
Bring contractors in to gather estimates for the repairs
Speak with hard money lenders to fund the project
Begin marketing the property as a wholesale
This is our short list. You can probably gather that we have two exit strategies for the property that we are going to pursue. Our primary strategy will be the rehab of the property, and our secondary exit strategy will be to wholesale it. If you are interested in purchasing the property on as a wholesale or you are interested in participating in the financing of the project, please contact us.
Stay tuned, there will be a lot happening over the next week on this property. Of course we will keep you updated on our progress on this project, along with the other properties we are working on. Overall it has been a great day!!!
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 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!
