Expected Air Date: 5/13/19
We are back to the book today – my upcoming book, “Flipping Houses in Ten Days.” You won’t be flipping a house in just ten days, but it’s ten short chapters. You read one chapter a day for ten days. If you listen to this show regularly you will eventually get the entire book in audio form and here’s a NOT secret for you – if you have the Flipping America app, which is completely free, you will eventually have the entire book. Why am I doing this? It’s all about giving value and providing content. Besides – I’ll need the audio version of the book, so we will have that ready to go in a month or two. Yeah, it’s about efficiency and all that. Today I’m going to read Chapter 3, Analyzing a Deal.
You need the skills to analyze any deal or opportunity that comes your way. And as you progress as a business owner you’ll need to translate those analytical skills to different opportunities. We won’t get to that translation step in this chapter but I will tell you every step in analyzing a deal, coming up
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- Lunch with me every Wednesday. Baraonda
- My latest article in Forbes is out. bit.ly/findredeals.
- The FAN is here!
- Would you like to invest in the Flipping America projects across the country? Coming soon you will be able to for as little as $100. That’s right, Flipping America is partnering with Ground Floor Funding to create a crowd-funded platform where you can invest in the deals we are doing here. The fund will pay out a 8% preferred rate of return and can go as high as 16%. You can make money with me, the Flipping America Guy.
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- Want a quick analytical tool to tell you how strong a potential fix and flip deal is? Download the Property Grade app. You answer 10 simple questions about the property and the app instantly tells you what you can expect to make, your return on investment, your return on cash, and then the program gives the project a letter grade using the proprietary Flipping America Investment Property Grade algorithm.
- Redfin is testing a feature that will let you offer on properties online. Sellers accept the offer, pay 2% commission. https://www.theverge.com/2019/5/12/18616888/real-estate-redfin-online-house-purchase-buying-zillow-opendoor
- Changing moral compass? This is just a new name for an old marketing strategy: Customer focus. https://www.propmodo.com/how-real-estate-is-adjusting-to-our-changing-moral-compass/
Your Questions: Send emails to email@example.com
- Anthony, Alexandria, VA, “Just came across your show. Really cool. Do you ever buy properties in other cities? I want rentals, but everything is too expensive here. What should I look for?”
- Dorothy, Villages of Ocala, “I like real estate. I’m a retired realtor. I like the house flipping shows and I listen to your show and enjoy it. I don’t want to do all this, but I’d like some income from it. My retirement account is in the stock market and it’s too stressful for me. I’m thinking about putting some of it into real estate. What could I do with maybe $100,000?
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Motivational Thoughts for the day
- “Everything worth doing is worth doing poorly the first attempt and getting better as you go along” —Gordon Catts
[0:17] Show that teaches you how to make money in real estate wherever you are whatever your situation there is an opportunity for you flipping America is sponsored in part by American IRA
founded by investors for investors on the web at American Ira. Com,
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and now you’re sad flipping America guy Rodger Blankenship good morning everyone we’re going back to my book today my upcoming book.
Flipping houses in 10 days.
Do you want be flipping a house in just 10 days but it’s 10 short chapters you read one chapter a day for 10 days.
If you listen to the show regularly you will eventually get the entire book in audio form,
and here’s a nut secret for you if you have the flipping America app which is completely free you will eventually have the entire book completely free why am I doing this well it’s all about giving value in providing content besides.
[1:24] Eventually I’m going to need an audio version of the book so we will have that ready to go in a month or two is I eventually read all of the chapters the entire book on the Shelf,
yep it’s about efficiency and all that so today I’m going to read chapter 3 analyzing a deal you need the skills to analyze
any deal our opportunity that comes your way and as you progress as a business owner you’ll need to translate those analytical skills to different opportunities we won’t get to that translation step in this chapter but I will tell you
every step in analyzing a deal and that’s coming up if you want to contact me you can find me on the web at Rodger Blankenship,
cam you can also find information about the show on Facebook at flipping America media just facebook.com flipping America media and I encourage you to follow us on Twitter and Instagram at flipping America,
if you have questions about real estate or real estate investing or just life in general or your business whatever you can actually.
[2:26] Contact us two ways you can send a question to questions at Roger Blankenship. Come or you can call our national comment line we’ve set up it’s for 04369,
ten 18 extension 1 questions are Roger Blankenship. Com or 40436 910,
18 extension one whenever your contact us please tell us where you’re from we like to know where the show is being heard and
please also let us know how you found out about us if you don’t mind that’s always interesting to
all right couple of invitations every Wednesday we do lunch at Miranda Italian restaurant on Peachtree Street right in the heart of midtown Atlanta every Thursday evening we do dinner at City Tap
which is just a few blocks away right in the heart of Midtown on Peachtree Street in Atlanta Georgia
Orondo you can get your parking validated at City Tap it’s free parking free valet parking and Ed both of these meetings there’s content there’s answers to questions,
there’s whatever your needs are we are there to meet your needs and talk real estate and to help you out hey if you haven’t checked out my latest article in Forbes I haven’t mentioned it in a little while it’s.
[3:45] Bit. Ly / find re deals and I talk about where to look for the deals in 2019.
I got some news to report and I’ve got some questions to answer and I think I’m going to take a couple of the questions because they’ve been waiting for a few days and,
then we’ll do whatever news we have time for Anthony and the Alexandria Virginia said just came across your show
really cool do you ever buy properties in other cities I want rentals but everything is too expensive here what should I look for Anthony thanks for listening and we just added the Washington DC Market.
And so we’re so glad to hear from you.
[4:24] And here’s here’s what I think you should look for you should look for properties that provide the right numbers and,
yes I did let me back up and answer your question yes I buy properties in other cities and.
Not exactly the same reason but a similar reason the market in Atlanta is saturated stiffel to find properties that meet the numbers but it’s not too tough,
if you get in the other towns and you really don’t have to go too far from Atlanta but I have started buying these inexpensive houses around the country and really enjoying that process so far what I look for is,
a bit unless it’s a super super cheap property I’m looking for areas that have relatively low crime,
houses that are relatively low maintenance local Property Management in place and I’m talking like Turn Key Rentals and if you go back to the library Anthony
you can find some shows where I talked to the guys in Indianapolis Indianapolis Jack and shaky and with the high return real estate program they sell TurnKey rentals there
so you want low maintenance you want do you want the numbers to workout right and we’ve said a lot about the numbers but it’s something between the rent on 60 and the 1% Rule and the closer you can get to
monthly rent 1060 the better off you’ll be Dorothy from Villages of Ocala in Florida.
[5:51] I like real estate I’m a retired realtor I like the house flipping shows and I listen to your show and enjoy it I don’t want to do all of this,
but I’d like some income from it.
My retirement account is in the stock market and it’s just too stressful for me I’m thinking about putting some of it into real estate what can I do with maybe $100,000.
Well do you have you were talking about being a passive investor and you have a lot of options and I would encourage you to,
just get online if you feel like it Dorothy and look for real estate investment trusts also begin to research.
Crowdfunded real estate.
[6:31] And I was just at you stop at ground floor. Us just go in and look at those guys I’m friends with the the guys that founded the company and run the company and and I like and trust them enough that
we are actually doing a joint venture with them and Dorothy I want to tell you and anyone else is listening they may be interested I have a private opportunity.
That can make you 10% or perhaps even more from time to time on your money secured by real estate so,
we’re already reaching out to you about that but I’m answering the question here for the benefit of anyone else if you’ve got some money you want to put into real estate we’re looking at some opportunities now that can pay 10% or sometimes even more
it is a loan it’s.
And it’s a guaranteed loan didn’t have the words there’s a personal guarantee that comes behind it and it’s secured by real estate and is an option if you make 10%.
Or better so.
[7:31] Yeah reach out to me if you’re interested in that let me hit a few little news items before we get into the book so let’s do this,
Redfin is testing a feature that they actually had more than 10 years ago but they’re bringing it back I think maybe they were a little bit ahead of their time 10 years ago.
[7:55] It could be the time is now they’re calling it a way to let you make a bid on properties online it’s not really a bid is not an auction what you can do as you can make an online offer and if the sellers of the property will except,
offer they will pay Redfin a 2% Commission,
okay now it’s only in Boston right now but they’re rolling it out nationally little later on I want you to be able to say you heard about it here first pay attention to this because this is Redfin
also diving into the ibuyer market with the buying and selling of real estate they’re trying to match Zillow blow-for-blow
and I believe between the two of them we’re not going to be hearing a whole lot from open door knock and offer pad for too much longer because,
those last three I mentioned their they’re not profitable and they don’t have enough cash to compete with Zillow and Redfin so I could be wrong
but at that just the way I see it right now and this I’m not saying good or bad or indifferent I’m just saying I think that’s the way it is and I do believe this is another sign that the traditional model of buying and selling real estate is broken.
And I’m not saying that we are never going to have need Realtors again and I think they will need realtors for a long time but.
[9:16] Definitely the model is changing
the lawsuit against the National Association of Realtors I believe is ultimately going to fail but it I think it doesn’t matter
the way real estate is being bought and sold has changed is changing will continue to change and we may always have Realtors around
but a lot of people are going to be going a different direction now I’ve got another story from something of a website called prop moto.com it’s.
[9:45] The headline of the story is how real estate is adjusting to our changing moral compass okay,
that sounded like something written by a millennial then so I just had to click on it to see and sure enough it is you know anytime someone is writing an article that’s supposed to be a news piece and they
talk about themselves in the first person that tells you they’re not a classically-trained journalist and it tells you they are a
typically self-absorbed Millennial sorry that’s just the way I see it right now but this changing moral compass basically
I got the link in my notes and you can go read the article if you want to but I read the article so now you don’t have to it’s just talkin about
apartment buildings and multi-family units that are becoming that they’re tuning into the interest and needs of the people that live there.
As if that’s some kind of a new idea I know it’s not an often-used idea but it’s also not a new idea basically this is just another way of talking about.
What do the customers actually want the interesting twist in this article is that what the customers want is a little bit different than you might think yeah amenities and all that but.
They want energy efficiency ratings and you know he talks about the things that are of interest to the.
[11:12] Today’s renters now.
Maybe that’s what he means by the changing moral compass but I thought that the article was about how real estate is adjusting and,
really all real estate is doing in the examples that elicits here is just responding to the needs of the consumers.
Then I’ve got an article from Seeking Alpha I Seeking Alpha is one of my go-to places to get information news of the headline is real estate outperforms rent as inflation heats up,
it’s an interesting analysis that talks about the fact that inflation is heating up and construction of new property is slowing down and that means that there is a perceived and actual shortage of rental units,
and that’s driving rent prices up also
it highlights the fact that just in the last few days the stock market is taking a nosedive because of all the talks about tariffs and all the fear and concern about
the tariffs and rents are up
in the stock market is down and so that’s their basis for stalking about the real estate outperforming well.
I think that it may be a little bit short-sighted because of a couple of factors first of all I don’t think the stock market is going to stay down that’s
one of the safest bets ever and is not it has nothing to do with what’s going to happen with the terrorists it doesn’t matter what’s going to happen with that are stock markets going to come back up.
[12:40] Okay that’s just the warp and woof of the the natural ebb and flow of the stock market it goes down it comes back up rents.
They go up but I am forecasting.
That rents are actually going to come down within the next 12 months and not on any kind of a massive scale and nothing alarming but I’m basically on the fact that we see inventory,
a multifamily inventory being built in America cities at a pace that is basically one of the highest.
[13:14] In a long time now I’m talking about multi-family single-family we still have a severe shortage of new construction in new construction starts that’s a whole different issue.
I think we have time for One More Story Equifax sets aside nearly seven hundred million dollars for expected data breach payouts you may remember that
Equifax had a massive data breach exposed the personal information of 148 million us consumers to hackers know the population of the United States is
just over three hundred million 148 million is not just half the population its most if not all of the adult population the people old enough to have
credit records in other words I think it’s everything everybody.
Every one of us in the US got exposed because of Equifax now.
[14:12] You may not know this but Equifax knew about the breach before.
A well before they revealed it to the public and during that time some of the actor for Equifax officials dumped their stock
anyway Xbox is set aside seven hundred million dollars to pay for this to pay the fees coming from this.
They have been sued by the state of Ohio and what actually they’re being investigated in nearly every every state
Federal Regulators authorities in Canada and the UK plus more than a thousand lawsuits over the breach
I guess the part that disappoints me about this is the people
that are going to receive these fees and settlements from lawsuits are municipalities and state and local governments in other people who have sued but not the consumers who were the ones who were actually damaged by this.
[15:10] At the time of the breach the company had 225 million dollars in cybersecurity insurance coverage well they’ve already taken out that hundred and twenty five million dollars on that insurance policy but they cost so far
has been 1.35 billion including
incremental technology data security cost and accrual for losses associated with legal proceedings and investigations the company also noted that the 700 million it has just set aside may not be enough to cover everything that’s
getting ready to come to them one more thing HUD the Department of Housing and Urban Development has.
Decided to end public housing assistance for undocumented immigrants
immigrants and this could lead to the evictions of 55,000 or more people so you just have to let you know.
You got to think about this folks I’m going to put the article a link in the article in the notes.
[16:12] HUD is ending using my tax dollars and your text dollars to pay for people.
To have a place to live who are in this country illegally how do we feel about that well you know who wants children put on the street not me but.
Who wants to continue to subsidize people who are essentially breaking the law this difficult It’s Tricky it’s something for you to think about.
You think about that for the next couple of minutes and we’re going to be right back and read to you chapter 3 from my upcoming book flipping houses in 10 days.
[17:17] What’s around the corner
but you can be confident that you’ll be ready for whatever comes your way Legal Shield and ID shield look out for you so you can get back to living life
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businesses for a low monthly rates you get comprehensive legal coverage entire law firm of professionals they can help you with a variety of issues and provide advice whenever you need it.
Protect it for a number of legal issues and assistance with common legal needs just go to Rodger b helps. Com right now to sign up that’s Rodger V.
[17:58] Dot-com Legal Shield protection for every part of life I want to take a couple minutes and tell you about the ultimate
real estate investing course it’s my new course it’s available online and what it is is the compilation of everything that I’ve learned over the last 17 years of investing in real estate buying and selling houses
buying rental properties buying commercial buildings everything I know is condensed about it now is condensed into this course and,
the reason I can call it the ultimate real estate investing course is as I learn new things I will be continually adding to the course now this is the same content,
and I think in some ways better than people are going out there and pay him $30,000 for with the guru’s that come through town you can access this course are you ready for this,
$50 a month that’s right for $50 a month,
you get access to the course all of the materials all of the spreadsheets the files the documents the contracts the papers everything
as long as you stay a subscriber you have access to all of those things once you downloaded the documents well they’re yours and you can just do with them what you want.
[19:12] And of course you know within reason I’m cording to the law but all of this is available for $50 a month now there is an Initiation fee
an Initiation fee is $750 that’s going to get you
access to the course and then it’s $50 a month for as long as you want to stay a member I really didn’t even want to do the $750 Initiation fee but the people that are on my team now believe that the information is so valuable they wanted me to charge you if you know 1500 up front and then
I agreed to split the difference with him,
and so it’s 750 but here’s what I’m going to do because I’m the boss and I can do this I am going to give you an opportunity to save $300 off that because you are listening to the show right now all you have to do is go to Roger Blankenship,
click on the resources Tab and then click on Ultimate real estate investing course,
register for the course and at checkout use the coupon code save 300 and you save $300.
That’s the ultimate real estate investing course at Roger Blankenship. Com.
[20:42] As promised chapter 3 chapter 3 and Eliza deal.
[20:51] You found a potential deal hooray it looks like you could buy it for a discount and sell it for a profit maybe how can you be sure.
Okay you’ll never be one hundred percent sure this game is full of surprises.
But get this analysis routine down and you’ll eliminate most of the uncertainty.
Here’s what we’re going to cover resale value also known as after repair value or a RV.
Repair costs repair time holding costs days on Market other factors mileage.
[21:31] Resale value what’s the property worth.
[21:35] Do a quick online search for a million-dollar House in Atlanta Georgia you’re going to find something like this.
[21:42] There’s a photo of the beautifully landscaped 5000 square foot house in Suburban Atlanta Georgia.
[21:50] Search for $1000000 house in Seattle Washington and here’s what you get and there’s a photo of a tri-level house that in Atlanta Georgia would sell for at the most a hundred and fifty thousand.
[22:03] How could a million bucks get you so much more in Atlanta the answer has a lot to do with the value of the land underneath the house.
Real estate in Atlanta and Dallas
for example will always be cheaper than other parts of the country because there are no natural barriers to their geographical expansion there are no rivers oceans mountain ranges are other features limiting their growth and expansion developers can always move another mile down the road to create another Suburban subdivision
most cities have barriers that prevent geographical expansion so the dirt is in limited Supply this drives up demand and prices.
As a rule coastal cities will be more expensive than anywhere else once you understand this principle the property valuation issues are more obvious.
[22:53] Here’s where it can get tricky as I write this I am working on an historic house in downtown Atlanta we expect to sell the 3200 square foot 5 bedroom 3 and 1/2 bath house for $650,000.
Right next door is a similar-sized house with 4 bedrooms that wouldn’t bring more than 500,000.
What’s the difference my house was built in 1909.
The one next door was built in 2004 on a lot where the historic house burned down the restored historic homes are bringing top dollar but the newer construction sells for as much as $100 per square foot less.
[23:34] Because the value of anything is not completely inherent it is perceived people want older restored homes much more than the newer Construction.
[23:44] What is the value of anything the correct answer is whatever someone is willing to give you for it.
This is true in every cash or barter transaction in the history of Earth but there’s another Factor you must consider when buying real estate and that is the lender valuation
most people aren’t going to pay cash or trade you some cattle for your property they’re going to borrow money.
The lender has money because they’re pretty smart and they are going to make sure they get their money back if you default on the loan.
So they’re going to research the property establish of value and Loan a percentage of the value they decide one of the craziest and dumbest things I’ve seen on TV,
is 4 a real estate investor to buy a house spend a bunch of money fixing it up and then bring in a realtor in front of the cameras and ask what they’re selling price will be what.
[24:35] I guarantee you this is just staged for the cameras that’s precisely the opposite of the correct way to do this.
[24:44] The correct process number one begin by figuring out what this property will sell for in repaired condition.
We call this the after repair value or a RV number two.
Tractor in your desired profit margin we start with 30%.
Never 3 subtract your costs this is a separate formula number for.
This formula yields the most you should pay we usually offer something less than that depending on the situation here it is as a formula.
Parentheses arv x 7 close parentheses Minus cost equals maximum offer.
[25:31] The math is easy.
The arv and costs are the hard part wait if that math isn’t easy for you go ahead and skip to the appendix titled real estate investing without the hassles you don’t need to be doing this for a living.
[25:47] So you found a property that looks like you could add some value by fixing it up you want to know what you will sell it for before you begin negotiating with the seller how can you know that the simple answer realtor.
I’m going to say more about realtors in chapter 10 but I need to say this right now you need a realtor on your team.
Not just any realtor the ideal realtor is one that is hungry but not brand-new you want one that knows the market area but is not a top agent
frankly the top agents are all too busy to spend time with investors what you’re going to be asking can be very beneficial to the agent but it will take more time
then merely listing properties are showing properties to buyers your agent will need to be self-motivated and it is essential that they see how this will redound
to their benefit realtor has access to the multiple listing service you probably do not the realtor knows the market area better than you do.
If they don’t get a different realtor.
Your realtor knows how lenders and appraisers will look at the property and will help you know the arv be advised that most Realtors do not know what a RV means you will need to provide the investor lingo definition for them.
[27:00] The CMA.
Realtors will conduct what is known as a comparative market analysis or CMA for you if you want to sound informed,
call them comps they will look through the MLS to find similar properties near by and see what they sold for.
[27:19] Parentheses solds they will also considered expired listings AKA expired and properties currently listed for sale.
[27:32] Tips by examining these three groups they will be able to tell you.
How the market is trending what you’re selling price should be and the average days on Market in the area don’t leave out the last one it’s vitally important especially if you are playing with your own money appraisals.
[27:51] Appraisers are hired by lenders to do a comprehensive evaluation of the property.
They have access to more information than Realtors their information also includes property records that were never listed on the MLS which would include cash transactions or corporate Holdings.
Appraisers are Guided by industry standards that attempt to take the guesswork out of their job but even so,
there’s a bit of an art to it appraisers working independently may arrive at different conclusions about the same property
space and attention span prohibit a lengthy discussion but know that appraisers will look for properties of similar size similar Bed and bathroom counter
and similar lot size.
They will also consider the condition of the property they are praising and make a guess about the condition of the comps hear something you really need to know a bedroom doesn’t count as a bedroom unless it has a
pause it a door that opens into a common area such as a hallway not another room and a window that opens for fire escape.
You can’t count a bonus room over a garage as a bedroom unless you put a closet in it and it has relatively easy access to a bathroom,
i e not across the house you also should know that Realtors can Market the room as a bedroom if it has a closet and a window even if the appraiser wouldn’t count it.
[29:16] Bedroom count is significant if two houses are otherwise equal in one has three bedrooms and the other has for the four-bedroom house will be worth more.
Additional bedrooms add value until you get to five the vast majority of buyers wouldn’t need or even want six or seven bedrooms so their value is much less.
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[30:34] Hey flipping America listeners have you ever walked into her property and said I have no idea what it will cost to repair this home those days are over
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[31:51] The broker’s price opinion or BPO.
A broker is a realtor with at least 3 years experience additional training and is passed a broker’s exam
the person who supervises the activities of other Realtors must have a Brokers license and all Realtors must work under the authority of a broker
some lenders will hire Brokers to give a price opinion.
A BPO is not as thorough or detailed is an appraisal but it’s considered more authoritative than a CMA so what do you need.
[32:24] I have a great realtor in my home Market who has sold hundreds of houses for me over the years A couple of years ago we ventured into a small town about 30 miles South.
I found a house that was being auctioned at the courthouse steps he researched and told me it would sell for 215000.
I bought the house which is been on the market a while but needed repairs I called the agent letting her know the house has been sold at the auction
since I intended to Liz with my friend she needed to come get her sign and give me the keys she did and we had a pleasant conversation she told me the top of the market for that property was 185 not 215
I just smiled and nodded knowing she only sold a few houses a year in my realtor sold hundreds.
We repaired the house and listed for 219,000 after a month we engaged in our pricing strategy described in chapter 6 and began reducing the price after 6 excruciating months of the market we finally got an offer.
[33:25] We took it just to get out and move on ironically the agent for the buyers was the same agent who previously told me it would only bring 185,000.
The moral of this story local knowledge Trump’s and all real estate values are informed by local knowledge.
[33:46] I know work with more than a dozen Realtors each one of them tuned into their local market I have spent time with each one helping them understand exactly what we are seeking and how we approach both valuation and pricing to sell.
You will have to go through a few Realtors to finally find someone who will work effectively on your behalf returned your calls and follow up with your valuation request in a timely way sadly the majority of Realtors I met just do not follow through
I want to think they intend to but get sidetracked.
No hard feelings but if you’re too busy to help me you’re too busy to help me I’ll find someone else and I do.
This reasoning applies to anyone working for me in any capacity by the way.
[34:32] So you need a realtor knowledgeable in your Market your agreement with him should be something like this
you’re going to ask them to help you find and evaluate deals in their market area and exchange when you buy from the MLS you will use them as your agent.
And when you list anything for sale and their area you will list it with them ask him to sell your first two properties for the standard 6% commission and after you have demonstrated that you’re serious and going to be a real
commission for them reduce their commission to 5% they were probably have to ask their broker but if their broker has any Vision at all
she or he will agree.
After all they are going to get listings and occasionally they will get paid both when you buy and when you sell tell the realtor what you’re looking for and ask them to keep their eyes open.
[35:23] Whether it be pocket listings off Market opportunities or whatever take a hard look at anything they bring you.
You are not hiring a realtor to send you a CMA report for you to read study and digest they will send you one and you should review it especially when the relationship is new but let them know you are hiring them to give you an opinion.
You don’t have time to be fully up to speed in all of the market areas in which you operate you just want the arv,
that’s what you tell them and eventually you will rely on their number but when you start out
are starting new into an area you owe it to yourself your family your partners and your lenders to thoroughly acquaint yourself with that Mark
study what is available now look at historical Trends know your average days on Market,
be aware of area developments that will impact values in the short and long-term.
Once familiar with the area and confident in your realtor you won’t need to review their numbers every time unless you just want to.
[36:28] After a while you will be familiar enough with the market that you can make offers without calling on the realtor.
[36:34] The realtor might even give you access to the MLS and show you how to run comps this is ideal.
You will learn quickly how to do your own CMAs and value properties there are always exceptions unusual factors or properties you should only call on the realtor for the exceptions respect
his or her time they will love you and help you if you do that they will love you and help you more if you become a repeat buyer and seller in their Market.
I spent a good bit of time talking about value and this is a key factor in urinalysis but there are other important factors in your decision as well remember our formula arv * 7,
Minus cost equals maximum offer now we need to consider the formula for cost and here it is.
Cost equals repairs plus parentheses daily cost X hold Diamond Days close parentheses.
If you need to make a quick decision
you can use your repair number plus 10% for your cost so for example if you think it will take 30,000 to repair the property use 33,000.
Even then your net margin after all operating expenses won’t be 30% but it stands a good chance of being in the 20s and that’s a good thing.
[37:59] I cover repairs in chapter 5 I have developed the formula for daily cost also and here it is.
Daily cost equals parentheses parentheses loan amount times interest rate close the first parentheses.
Bus monthly Insurance * 12 + monthly utilities * 12 + monthly maintenance * 12.
Plus annual taxes all / 365.
This number is very important because you not only need it for initial analysis you will use it again during your negotiation with your rehab contractor and we’ll consider it again when you are in negotiating the sale of the property.
It is tedious but this analysis will set you apart from the amateurs I will cover the loan information in more detail and chapter 4.
Here’s your formula for hold time hold time equals.
Repair time plus average days on Market + 21.
[39:05] Or 120 whichever is greater you need to add some extra days for the time it takes to pull permits and start the work plus
bad weather delays in a little wiggle room for days on Market so if your contractor can fix the property in 3 weeks or 21 days and your average days on Market is 60.
Your hold time is 21 + 60 + 21 or 101.
That’s not bad thanks to the federal government’s lending guidelines your minimum hold time is 90 days if your buyer is getting a loan keep that in mind have everything ready and write the contract on day 91,
this will almost certainly make your actual minimum whole time a hundred and twenty days or more but
you cannot date the sales contract before you held the property for 90 days cash sales can close sooner but you can’t build a business with cash buyers there just aren’t that many.
So you have for formulas to consider on every deal the maximum offer.
[40:12] Cost hold time daily costs.
[40:19] Listen up this next part is important you almost never use these formulas in the order in which I’ve shared them
the order is based on explaining the parts of the hole in a logical sequence if you want to thoroughly analyze a property you need to start with the last formula and work your way to the first filling in the variables as you go
here’s one of the many gachas in this business you need to make a lot of offers to succeed in this business most of them will be rejected.
You don’t have enough time to do a complete and thorough analysis on every property before you make an offer instead.
Assess the situation are you making an offer from the MLS.
Begin with values based on your knowledge of the market and assumptions about the cost of repairs and throw out offers Lots with a 7-Day due diligence.
If you get an offer accepted you will dig a little deeper into your analysis of the property.
[41:19] If you kill the deal with in the due diligence. You’ll get your earnest money back.
Beware Hut deals do not have a due diligence. Some banks do not allow them either so you will need to look closely at the listing.
[41:33] So now I’m going to share with you another formula invented for this business it’s based on years of experience but it’s not guaranteed to be accurate it has however served me well over the years.
I call it the default repair formula.
When we rehab a normal house in decent condition that needs only updating we will end up changing out about 25% of the house if we can assume $100 a square foot to build a house.
We didn’t know that it will take about $25 a square foot to remodel this one.
[42:08] That’s a good beginning point but there’s more every 10 years or so something major wears out so I had $5,000 for every 10 years of age,
did occasionally we add square footage to an existing plan that’s the aforementioned $100 a square foot lastly
we have the occasional weird item these are things you might encounter once or twice in your career so there is no formula for them you just have to get a quote examples might include removing a tree,
that the family room was built around it was quite alive when the house was built but died some time ago yes this happened.
Other things include adding porches or removing chimneys these are done often and have to be priced out but here’s what I can provide as a default repair formula.
$25 a square foot plus age in years.
Divided by 10 times 5000 plus $100 a square foot for additions plus the weird stuff.
[43:12] Use this formula while sitting at your desk throwing out offers.
If you get something accepted get to the property immediately for a more accurate estimate if the lead comes in from your deal marketing,
you would be well served by starting with a more complete analysis you won’t be able to truly assess repairs until you see the property and most likely you won’t have photos like you may have with a listing
so you will just need to estimate the repairs
have everything else ready so when you actually see the property you can plug in the number and know what you’re going to offer.
This can get complicated unless you’re already handy with the spreadsheet or you can just get my deal analysis tool at www. Rodger Blankenship. Com and all the hard stuff is done for you.
That may seem like a Shameless promotional plug so listen up if you can write your own spreadsheet by all means do so.
However I work with millionaires who wanted to become investors but didn’t even know how to add up a column of numbers in a spreadsheet.
They were better off just paying me for the two of them learning how to use it.
[44:39] If you’re a real estate investor.
[44:41] You owe it to yourself to get a profile on the fan the flipping America Network it’s at flipping America network.com.
The profile is free if you’re a buyer a landlord a rehabber you enter what you’re looking for.
Particularly the ZIP codes of interest you can put up to 10 but we’ve already we’re working now to expand that to 25 you don’t have to sit on the app you don’t have to sit on the on the website,
all you have to do is tell us what you’re looking for your profile includes your cell phone number which will verify at the time you register and when a property is posted in the zip code you’re interested in your going to get a text message that says,
look what just hit the fan everyone should register.
All 43,000 ZIP codes in the United States are included and you could be finding your next property just by listening for your text tone we call it snap click sold because.
If you are a seller.
[45:45] You can download the app will anyone can download the app and in the App Store it’s called flipping America Network all one word no spaces you download the app flipping America Network and.
If the course has a buyer you can search for properties using the app but as a seller you could be at the property negotiating a deal with someone that you want to wholesale you could take a few pictures of the property that’s the snap part then you can,
take to upload this property to the fan put a little information about the property there and.
Immediately that property will get texted to 5:10 doesn’t hundred I don’t know
however many investors have expressed an interest in that zip code you no longer need to manage a mailing list you don’t have to go out and put together your flyers in your brochures or create
ads for Craigslist or other sites just posted in the fan dozens of people will see it it may be sold by the time you get back to the office that’s why we’re calling it snap,
Www.dot flipping America Network. Com register now.
[47:05] If you set up your deal analysis properly your end result
should provide you with multiple deal possibilities based on structure and Exit Plan.
It should look something like this cash offer offer amount a.
[47:23] Asset loan offer amount be dependent on terms owner financing offer amount C with terms X and Y.
Offer amount D with terms X and Y if your offer is going to be made to a person rather than to a bank or a website remember to put yourself in their position and focus on their benefits especially their cash take away
but wait there’s more,
I once bought a couple of great cash flowing rental houses the numbers look Strong by the analysis I was capable of at the time I took my wife to see them and her reaction.
These houses are ugly it hurt my feelings and I figured she just didn’t know what she was talking about it turns out
her opinion was shared by others and by others I mean everyone who has ever looked at those houses whenever these properties are available for rent I have a hard time getting any takers and usually have to take less rent than comfortable properties
I finally got rid of one of them in 2010 I went by that location a few weeks ago and here’s what I found.
And I have a photo of the still smoldering remains of a house that has just burned down.
[48:39] It actually looks better like this it truly wasn’t ugly house he need to consider other factors not just the numbers.
[48:49] Here’s a quick rundown subjective factors curb appeal how does the house look.
[48:57] Read it from a 1 to 5 with a one being but ugly and 5 meaning beautiful this is important if you think it’s ugly others will also.
If it’s ugly but the numbers look great can you improve the appearance.
Use your imagination and problem-solving skills if you can’t improve the ugly pass.
[49:23] Neighborhood quality how does the neighborhood look.
Is there a general pride of ownership are there run down houses or ignored lawns all around I bought a great property at
at the auction want some is excited about the property in the prospects I admit I was adding up the prophets in my head while driving to see the property for the first time I had sent a runner to take pictures of the house prior to the auction when I drove up.
My heart and hopes sink.
The next door neighbors in this otherwise nice upper-middle-class neighborhood were hoarders they were cars on jack stands in the yard instead of grass there was a sofa halfway in and halfway out of the garage
which was full to the ceiling with useless crap.
The porches the yard the driveway everything was cluttered it looked awful we offered to help them.
With their agreement I put a 30 yard dumpster in their driveway so they could have a spring cleaning when they finished the dumpster was only half-full and the stoffa was still there.
[50:31] It’s been years by the way and it is still there.
[50:35] We ended up erecting an 8 foot privacy fence between their house and ours and sold ours for far less than we expected now my Runners are instructed to pay attention to the neighborhood as well and take photos of any eyesores.
[50:51] There are many neighborhoods in Atlanta that are being rebuilt I don’t mind seeing run down houses in those areas in this case they represent opportunity not blight you and your agent need to know the area.
[51:05] Difficulty of rehab how tough is it how long will it take.
It goes without saying that we would rather paint and carpet then roof and HVAC this Factor doesn’t Trump the numbers but the rehab time is a part of your holding cost formula.
If you do the numbers right and you have a tough rehab you might want to go ahead.
I have a friend that won’t buy a house if it needs a lot of work he just doesn’t want to manage a big rehab.
Seems silly to me but each person is entitled to his or her preference I’ll take anything with the numbers are good objective factors.
Crime rates you can find these statistics online soaking your buyers don’t buy in high-crime areas if you can avoid it.
Quality of schools if your home will possibly be sold to someone with school-aged children you need to know generally how the schools are the buyers will be asking the same question if your buyers don’t care about how the schools are.
It’s quite possible the area is not a good place to flip properties Market temperature days on Market.
Do you want to do deals in an area where the average days on Market is less than 60 just trust me on this okay the math behind it will become obvious to you later on.
[52:29] Opportunity costs.
I recently considered a deal where I could be all in on a house for $160,000 and could reasonably expect to sell it for 250,000 the only catch average days on market for houses in that price range in that area was
275 why would I do that when I can find other deals that I can turn in half the time this is made even more important by the fact that my all-in price
would increase by almost $10,000 during that extra time so I make 60000 rather than 70,000 that’s nothing to sneeze at right
Except for the missed opportunities while my cache is sitting in that property there are times when we don’t even really have a property we may decide that our money and time are better spent on a different opportunity.
[53:20] It’s difficult to quantify the factors in this decision
believe me I have tried I have created an enterprise-wide return on cash calculation that is somewhat informative but I’m not yet been able to quantify every factor in my decision,
when I get something figured out I’ll update the book the reasoning is something like this.
Deal a maybe a 65% Roi easy rehab we can turn in a hundred and twenty days and make $40,000 deal B is a 50% Roi
more challenging rehab and 180-day hold time why would I ever choose deal.
[54:01] Because the projected profit is $180,000 the extra effort and time is,
worth the difference now normally I would try to find a way to do both deals but if my resources are limited
I’ll wholesale deal a and get the people working on Deal be no two situations are exactly alike and my cash position varies over time as well sometimes you just have to make a decision.
[54:30] Mileage this one isn’t as obvious but becomes important if you live in a metropolitan area like we do,
we used to live on the southside of Atlanta when I bought a property on the Northside of Atlanta
I had to think long and hard about going to see it On Any Given afternoon
white because rush hour begins around 3:30 in Atlanta and the 40 mile trip could take a couple of hours just to get back home if I’m heading that way after 2 p.m. I plan to grab dinner on that side of town and come home around 7,
I also delay going into the city until after 9 a.m. because I would,
otherwise be sitting in eight Lanes of bumper to bumper traffic it’s not just the time it’s the miles your contractors inspectors and runners,
are all going to want more money or mileage reimbursements for traveling that far
in spite of the mileage issue we found it was a better use of our time and money to go south rather than try to go through the city to do deals.
We bought a number of properties in Macon Georgia which was further from us than the other side of Atlanta but easier to get to.
[55:43] Let’s put all of this together here are the major pieces of urinalysis a RV.
Repair costs repair time holding cost days on Market other factors mileage.
[56:01] I’ve given you five crucially important formulas that will help you get started buying houses if you apply these formulas.
[56:08] You’ll be ahead of 95% of your peers but wait there’s more what if there was a way to quantify the mileage and other factors,
these factors are perhaps not quite as important as the prophet in Roi numbers correct
if you were looking at equal deals and one is 50 miles away versus one that is 5 Mi away that’s easy but what if the nearby deal is a bit uglier a bit more work or smaller net profit
how can you compare based on years of experience and hundreds of deals I’ve written an algorithm that considers all of the analytical factors discussed in this chair,
weighted them appropriately study the range of raw scores possible and have created an app called property grade.
It’s completely free and in the App Store now.
You enter 10 simple questions about the property assuming you know your numbers and the app instantly provide you with the projected net profit return on investment return on cash.
And using my algorithm gives the property a letter grade we call the flipping America investment property grade.
If you are willing to conduct the analysis in this chapter over and over you will soon be looking at property like a real Pro.
You can buy with confidence and fully execute the plans I’m going to lay out for you in the coming chapters as soon as you get your deal funded and that’s chapter 4.
[57:38] Chapter 3 action step pick a property any property and run and Analysis on it considering all the factors mentioned in this chapter.
[57:49] Do it 9 more times.
You will eventually speed the process up there’s no shortcut until you’ve analyzed to properly thoroughly you don’t know if it’s a deal.
[58:03] And that’s all the time we have for today folks we got chapter 3 in we’ll do the rest of the chapters in the next in the coming weeks we’ve already done chapters 5 7 and 8.
[58:15] So thanks for joining we really appreciate you listening remember you can send your questions to Rodger and I’m sorry do questions at Roger Blankenship.
[58:56] My good friend Gordon cats provides the quote for the day today.
He said to me the other day remember Rodger everything worth doing is worth doing poorly the first attempt and getting better as you go along.
[59:10] This thought is brought to you today by the foundation for Renewal working together with communities to bring lasting life change find them on the web at renewal fund. Net.
[59:31] You’ve been listening to flipping America real estate investing for everyone if you have any questions about real estate send them two questions at flipping America network.com,
listen three times a week on stations across the country or on the flipping America app free in the App Store,
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