Income 4 Independence. By Charles Shively, Co-Founder Real Estate Genius Network. 1 Real Estate Genius Network, Income 4 Independence

Transcription

1 Income 4 Independence By Charles Shively, Co-Founder Real Estate Genius Network 1 Real Estate Genius Network, Income 4 Independence

2 Disclaimer This course (book) contains performance data. Presentation of this data does not mean that the same or similar results will be achieved in the future. Past performance is no indication of future results, and any claim to the contrary would be unlawful. The data are provided only for illustrative and comparative purposes. A variety of time periods are illustrated. Rather than focus on any one-time period, the reader is encouraged to concentrate and learn from the educational message contained therein. None of the material presented herein is intended to serve as the basis for any financial, tax, accounting, legal, personal, business, or real estate decision. None of the enclosed information constitutes a recommendation or offer to buy or sell any security. Such an offer would be made elsewhere by prospectus, which you should read carefully before investing or sending money. Contracts regarding real estate, including transfers, must be in writing. Since contracts involve laws of countries, states and municipalities, it is recommended that you seek legal counsel. In this course and related writings, such as blog posts and online courses, we touch upon subjects that could vary in different parts of the United States. We do not vouch for the legality of our opinions, nor is there intent to supply legal or financial advice. The material herein is accurate to the best of the author s knowledge. However, the author s opinions may change. The reader is encouraged to verify the status of those opinions. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. In no event shall Real Estate Genius Network ( Rama Marketing LLC, and/or its agents and affiliates be liable to any party for direct, indirect, special, incidental, or consequential damages of any kind whatsoever arising out of the use of the information contained herein. Real Estate Genius Network ( Rama Marketing LLC and/or its agents and affiliates specifically disclaim any guarantees, including, but not limited to, stated or implied potential profits or rates of return or investment timelines. 2 Real Estate Genius Network, Income 4 Independence

3 Table of Contents Income 4 Independence... 1 Disclaimer... 2 Table of Contents Introduction to Wholesaling Flipping... 6 What is Wholesale Flipping or just Wholesaling?... 6 Many Different Ways to Wholesale... 6 What You Can Make Wholesaling... 7 Checks That I Made in a Six-Week Time Frame... 7 What About Being a Real Estate Agent?... 9 Why Are Wholesalers Necessary? How Long Does It Take To Start Making Money? Top Two Wholesaling Tips How to Wholesale Three Steps to Wholesaling The Three Primary Methods of Wholesaling Method #1: Put a Deal Together without a Contract Method #2: Putting a Property Under Contract Method #3: Buying and Selling Special Warning Finding and Building your List of Buyers Beginning Networking Networking Tools Keeping Your Contacts Organized Finding Properties & Deals Getting Started Finding Deals What Kinds of Deals Should I Be Looking For? Distressed Properties Distressed Sellers What Types of Neighborhoods? Which Houses Should I Target? How to Find Deals Evaluating Deals and Calculating Returns Evaluating Deals What You Are Evaluating What Data You Need Closing Costs Other Costs Rental Rates Returns for Investors Types of Returns Fix-and-Flip Net Profit Fix-and-Flip Cash-on-cash Return Fix-and-Flip Cash-on-cash Annualized Return Rental Cash Flow Rental Cash-on-Cash Real Estate Genius Network, Income 4 Independence

4 6.0 Deal Decision Making Is There Enough Profit? Accurately Determining After Repaired Value (ARV) What is After Repaired Value? How to Determine ARV How to Pull Comps Other ARV Tips Preparing a Rehab Budget Preparing a Rehab Budget Level of Finish Adding Value Make a List Specific Rehab Items to Evaluate Demo and Clean Out Roofing Electrical Plumbing HVAC Heating, Ventilation, and Air Conditioning Sewer Line Structural & Environmental Kitchens Bathrooms Flooring Finishes Trim Exterior Wholesale Pricing Strategy Wholesale Pricing and Strategy How Do I Know If I m Getting A Good Deal? How Much Should I Charge? A Quick Rule of Thumb for Pricing Wholesales - MAO Adjusting Your Fee Discussing Your Wholesaling Fee Building a Team Building Your Team Top 7 Keys to Building Your Team Real Estate Attorney Realtors Accountant/Bookkeeper General Contractors Big Issues Contractors Insurance Agent Things You MUST Know About Picking a Title Company Finance Team Due Diligence Before You Close Due Diligence Real Estate Genius Network, Income 4 Independence

5 What Further Due Diligence to Conduct? Submitting an Offer Submitting an Offer How to Submit an Offer Contract Overview Protecting Yourself (and your Earnest Money) The Top 4 Ways to Make a Strong Offer Offer Strategies In Summary Making a Deal and Money! How to Sell a Deal Schedule Showings Negotiate a Deal Closing Wholesales How and Where Closings Occur Top 5 Rules for Closing Wholesales Getting Paid Simultaneous Closings LLCs, Taxes and Accounting LLCs, Taxes, and Accounting Reminder LLC s Types of Companies and Legal Protecting Entities Why Use An LLC? Taxes Accounting Sample LLC Structure for Real Estate Real Estate Investing Glossary Real Estate Genius Network, Income 4 Independence

6 1.0 Introduction to Wholesaling Flipping What is Wholesale Flipping or just Wholesaling? Wholesale flipping, or wholesaling, is in its most simple terms getting a property under contract (or your control), marking the price up, and selling the property at a higher price. As a wholesaler, your profit is the amount you marked up the price, and usually, you are selling the property to a real estate investor. Once you start looking under the hood, however, there are many ways to wholesale and many tricks of the trade that we will fully cover in this book. Many Different Ways to Wholesale While the most traditional method of wholesaling is putting a property under contract (U/C), marking it up, and then selling; some wholesalers borrow money (hard money or transactional funding which we will explain further later), buy the property, mark it up, and sell it very quickly. Some still, who have the cash, buy the properties themselves and follow the same pattern. While some people do not classify all of the methods we teach as wholesaling, we will also teach you how to wholesale, by charging fees for marketing properties to your investors or becoming an acquistions manager for them to help them buy more properties. 6 Real Estate Genius Network, Income 4 Independence

7 What You Can Make Wholesaling Wholesaling can be very lucrative, very quickly. Most of the time, I see wholesalers making between $5,000 and $10,000 per house. A couple of days ago, I was on the phone with a real estate agent that told me about a house he had just sold to a wholesaler. The wholesaler, bought the property, marked up the price $50,000 and resold it in a couple of weeks. It was a great week for her; it was a frustrating one for the broker who wished he would have done that himself! I have made between $0 and roughly $30,000 on wholesales that I have done, but usually charge $5,000. I try to do a couple of wholesales per month on the side in add2ition to my other businesses. Checks That I Made in a Six-Week Time Frame In respect of my clients and closing companies, I blurred their account numbers and some of their names. 7 Real Estate Genius Network, Income 4 Independence

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9 What About Being a Real Estate Agent? Many beginning wholesalers ask if they need to become a real estate agent to wholesale. While there are other benefits to being a real estate agent, it s not always necessary to be a wholesaler. If you put a property under contract, you have an equitable interest in a property and have the right to sell that interest. Similarly, if you build a relationship with an investor, you can become an acquisitions manager for their company and charge them a success fee every time you identify a property for them to buy. Neither Kriss or I are real estate agents, and we work on wholesaling properties on a daily basis. That said, be sure to check with your local laws (your state s real estate commission is the best place to start) to make sure this is the case in your state. We cannot stay on top of each 9 Real Estate Genius Network, Income 4 Independence

10 state s every changing real estate laws, so it s important for you to understand what they are in your state. Why Are Wholesalers Necessary? Sellers need buyers, and buyers need sellers. Many sellers of distressed properties don t know how to sell their properties. Often times, these sellers are banks who are trying to get foreclosures and short-sales off of their books. Their properties may not sell well to regular home buyers, but will sell well to investors. On the flip side, many real estate investors don t have the time or skill set to find, identify, and analyze potential investment opportunities for buy-and-hold rentals or for fix-and-flips. As a wholesaler, you can bridge this gap. How Long Does It Take To Start Making Money? We are often asked how long it takes to start making money wholesaling. Of course, this depends on the individual, the level of effort they put in, the local market, how they build relationships, and who they meet. This said, after going through this course, it seems reasonable that you could put together your first deal in 30 days. There will be those that put together deals way faster; and there will be others who read this book and expect deals to come together without going through the mandatory steps. As soon as you can find investors willing to buy your deals, and you can find below market deals, (both of which we teach in this course) you will do your first deals. 10 Real Estate Genius Network, Income 4 Independence

11 Once you set up your system and have a few deals under your belt, it is reasonable that you could do a deal or two per month. I know some wholesalers that do many more per month, and I know some wholesalers that do not do any deals. I try to do one to two wholesale deals per month. Top Two Wholesaling Tips Tip #1: Real estate is a numbers game. You ve got to fill all of your pipelines. Don t track one house that looks like it could be a good buy; track twenty. Don t work with one buyer or one seller; build a list of twenty of each. The more inputs you have into your system, the more successful you ll be. Tip #2: Action. Take action. Too many beginners worry about getting all of the details right. As long as you run things by your core team (accountant, attorney, real estate agent, and contractor) and you take action, you will do great. 11 Real Estate Genius Network, Income 4 Independence

12 2.0 How to Wholesale Three Steps to Wholesaling To successfully wholesale, there are three main categories of things you need to be able to do: 1. Build a list of investors who are looking for properties either as fix-andflips or buy-and-hold rentals. You ll need to get a deep understanding of what each investor is looking for, keep track of them, and continue to build a relationship with them. 2. Find and evaluate properties that have enough profit for both you and the end-buyer usually one of the buyers from your growing list of investors. 3. Manage the wholesale process get an investor to buy a deal, structure the deal properly, manage the deal and its paper work through closing, and get paid! This course will cover how to do all of these steps. But, before we get into the specifics, let s examine how sales work at a strategic level. The Three Primary Methods of Wholesaling 12 Real Estate Genius Network, Income 4 Independence

13 There are three main methods of wholesaling: Method #1: Put a deal together without having a property under contract. Method #2: Put a property under contract and assign the contract (or buying entity) to a buyer. Method #3: Buy-and-resell a property (usually with someone else s money). Method #1: Put a Deal Together without a Contract I use method #1 the most: I help put investment deals together without putting a property under contract. I either help on the buy side of the transaction, the sell side, or both sides. Let s explore all three of these: Help an Investor Buy: After you build a list of investors, inevitably some of the investors will get very excited to work with you to increase their deal flow. They will tell you exactly the type of property they are looking for, and they are more than willing to pay you to find that deal for them. When you spot a deal, let an investor know about it, and they end up buying it; this process is called bird-dogging or scouting and isn t technically 13 Real Estate Genius Network, Income 4 Independence

14 wholesaling. But, you re spotting deals for investors and getting paid for it with no money down and no credit. To make sure you get paid in these types of deals, when you spot a deal and call an investor about it, negotiate a bird-dogging fee at this point in time. Usually, people charge $1000 for this type of deal, but I often charge much more. The other way to make money when you know what your investors are looking for is to literally buy for them. You must check with your local real estate laws, because in some states you must be a licensed real estate agent to do this. In some states, if you become an official manager of an investor s company, then you can legally buy for them. I have worked as a manager of a couple different investor s companies and have bought several properties for them at public trustee auctions for a $5000/property success fee. Help Someone Sell: Many times other investors or wholesalers will put a property under contract and have a hard time finding investors to buy them. You can help them by marketing the property for them. We often charge a marketing fee of $5000 to send the opportunity out to our investors list (via Quick Tip: A really easy way to make money wholesaling is to get on wholesalers lists, find good deals, call your investors about the opportunity, and tack on a few thousand dollars for your fee. If someone is interested, call the wholesaler and tell them you have an interested buyer, at X price, and that your fee if factored into that! 14 Real Estate Genius Network, Income 4 Independence

15 phone calls to our preferred investors and to the rest) and get paid if the deal closes with one of our investors. Put Together Both Ends of the Deal: Of course, if you can put together someone who is selling their property with an investor that wants to buy the property, you are creating even more value than simply working one side of the deal. Here, you find a seller, go out and find a buyer, negotiate a fee for introducing the two, and close. Case Study: In one instance, we found a seller who was losing his portfolio of rental homes to foreclosure. He knew that by conducting short sales instead of being foreclosed on would reduce some of his liabilities and would help his credit. We helped find investors for seven of the properties, and we collected an average of $5000/property for doing so. 15 Real Estate Genius Network, Income 4 Independence

16 A Real Deal I had a friend that had this Lafayette home under contract and needed some help marketing it. I contact my investor list and had it sold in about 14 days. I got paid $3500 for about 4 hours of work. Method #2: Putting a Property Under Contract Putting a property under contract (U/C), marking it up, and then selling/transferring/assigning the contract (or the purchasing entity) is the most classic method of wholesaling. To execute this method, you put a property under contract and either make sure that the contract is assignable (usually there is a field to mark this in standard real estate contracts) or mark the buyer as 123 Maple Street LLC and/or assigns. By using and/or assigns it makes the contract assignable. (Also, be sure to restate that the offer is assignable in the Additional Provisions section of the contract with something like, As stated elsewhere in this contract, this contract is assignable to other parties. 16 Real Estate Genius Network, Income 4 Independence

17 We put this property at 1173 Joliet under contract and transferred the contract to an investor group, and took a $5000 fee for about 5 hours of work. Not bad right? Once you have a property under contract and a buyer to transfer the contract to, you assign the contract to end-buyer with a Assignment of Contract to Buy and Sell Real Estate contract. (We have included a sample with this course, but always, have a real estate attorney and/or licensed real estate agent review your contract before executing it to make sure that it s current and is in line with your state s real estate laws.) You collect your fee along with executing this assignment contract. Quick Tip: It s wise to first clarify if a seller will accept an assignable contract. Simply ask for estate planning purposes if the seller will accept a transferable contract. If they will, fantastic; if not, then you ll need to use one of the two tricks below. With all of this said, however, in today s world many sellers will now not accept assignable contracts this is especially the case with banks that are selling property they have foreclosed on, or on short-sales that they control. Luckily, 17 Real Estate Genius Network, Income 4 Independence

18 there are a couple of tricks to getting around the no assignment clause that banks often have in their paperwork. Trick #1: Create a Company When putting a property under contract, put the buying entity s name as a soonto-be-created LLC. Often times wholesalers will name the LLC after the property 123 Maple Street, LLC, for example. Then, when you get the property under contract, you can assign your interest in the LLC to the new buyer. (We have included a sample form to transfer interest in an LLC to a new buyer as part of this course.) This trick can also be done with Land Trusts and other entities, but some times certain title/escrow companies will not work with land trusts. Some banks will not accept offers from land trusts either. So, we obviously choose LLC s over land trusts. As always, work with your real estate attorney to get this right the first time, then you ll have reusable templates that you can use on all future deals that you use this trick with. A Real Deal 18 Real Estate Genius Network, Income 4 Independence

19 I put a contract on this house at 573 Empire and then transferred it to an investor for a $5000 fee. The hardest part on many of these deals is working with the bank, but once you get a feel for it, it s really easy. Trick #2: Partner and Quitclaim In this trick, you put the property under contract. Once you have it under contract and you have a willing buyer, you add the buyer to the contract using an Amendextend Contract or like form. You close the property with both you and the buyer on title, using the buyer s money. Then immediately after closing, you file a quitclaim deed taking you off of title in exchange for your marketing fee. Method #3: Buying and Selling One of the main goals of wholesaling is to complete deals without using your credit or cash. Most of the time, you can do deals this way (by using Methods #1 and #2). However, sometimes there are instances where you may need to buy the property and keep it for a very short amount of time. Usually, you can do this with O.P.M. other people s money. You ve got to be very careful doing these types of transactions. So, be sure to work closely with your local closing company (title company, escrow company, and/or real estate attorney.) Here are a couple of different techniques you can use to wholesale with buying and selling without using your money: 19 Real Estate Genius Network, Income 4 Independence

20 A Real Deal Close Twice We bought this duplex home on West 46 th Ave for $146,000 and sold it 38 days later for $180,000, with no remodeling done whatsoever. Easy right? Here, you buy the property in you or your entity s name, and then you sell it to the end buyer a few days later. To buy the property, you can use hard money which private lenders will let you use for a few days. It s usually expensive money usually to the tune of 2-4% of the loan due immediately and a higher-than-normal interest rate (11-15%). Even though it s expensive, if you have a solid deal, it may be worth it. You can also use transactional funding which is hard money that is specifically for this type of wholesaling situation. Simply Google hard money or transactional funding in your city (for example Denver hard money ) and you ll find plenty of lenders. In some states, you cannot immediately sell the property if the original purchase was a short sale. For example, in Colorado, you have to wait 14 days to resell a short sale property or any property that the owner is 30 days late in their mortgage payments! (Even lining up someone to buy the 20 Real Estate Genius Network, Income 4 Independence

21 property before it s purchased is illegal.) Though rare, some banks have stipulations that you must wait 30, 60, or 90 days to resell one of their short sales. Make sure you know what a seller s rules are before you buy. If a property is a short sale, be sure to review any short sale demand letters, short sale agreements, and any deed restrictions (which your title/escrow company should notify you of) before closing. Simultaneous Closing Doing a simultaneous closing, is often called a double close. (In reality, a double-close is what we just explained above.) In a simultaneous close, the property is actually sold before it s bought. To do this, the entire transaction must be arranged in advance and all parties must be notified that a simultaneous close will be taking place, and that you as the middle person wholesaler will be immediately making a fee. (The amount that you re making does not need to be disclosed, however.) There are two parts of the transaction: the A-B side and the B-C side, where party A is the original seller of the property, party B is you the wholesaler, and party C is the end-buyer. As the wholesaler, you arrange the closing(s) with a title company, escrow company, or attorney (closing company) in advance. Quick Tip: A good Title company can help make closings infinitely easier and can help you decide which closing method is best for your situation. See Chapter 11 for more on this. 21 Real Estate Genius Network, Income 4 Independence

22 To do this type of deal, first, the end-buyer (party C) buys the property from you (party B) in the B-C transaction. Then, you use the funds from this transaction to buy the property from the original seller (party A) in the A-B side of the transaction. As you can guess, these types of transactions must be conducted by a competent, trusted closing company, but many wholesalers conduct these types of transactions all of the time. If the original seller of the property is a bank and many banks don t like or won t accept others making money when they are taking a loss, this trick most likely will not work with short sales. (Be sure to check with your local real estate experts if you are trying to do this with a short sale.) Special Warning Although this has been stated earlier, it s worth repeating: In some states, you cannot immediately sell the property if the original purchase was a short sale. For example, in Colorado, you have to wait 14 days to resell a short sale property or any property that the owner is 30 days late in their mortgage payments! (Even lining up someone else to buy the property before it s purchased is illegal.) Though rare, some banks have stipulations that you must wait 30, 60, or 90 days to resell one of their short sales. Make sure you know what a seller s rules are before you buy or go under contract to wholesale. If a property is a short sale, it s very difficult to wholesale. Be sure to review any short sale demand letters, 22 Real Estate Genius Network, Income 4 Independence

23 short sale agreements, title seasoning issues, and any deed restrictions (which your title/escrow company should notify you of) before closing. It s much easier to wholesale bank-owned properties (REO), properties owned outright, and other deals that are not shortsales. 23 Real Estate Genius Network, Income 4 Independence

24 3.0 Finding and Building your List of Buyers Beginning Networking To wholesale, you will need a list of real estate investors to sell your wholesale properties to. You will also need to find distressed sellers of properties, but you will need less networking for this. You ll also need to find good contractors (to help you evaluate the deals) and good people to work with. Networking takes time, but if you follow the steps in this course, you will begin building your network very quickly. Networking Tools Here is our quick list of networking tools that you will need: It s wise to have business cards to hand out when you meet people in person. Get biz cards for cheap or free ( Hand out cards everywhere a game of odds. 24 Real Estate Genius Network, Income 4 Independence

25 When you collect biz cards, write a note on the back to remember the person then get them in your system and follow up w/ an (or a phone call is even better)! While not necessary, and we suggest waiting until you ve done a few deals to pay for it, you can certainly build a website. You can get a free website at blogger.com or wordpress.com. Go to elance, odesk, or fiverr to find people who can help you build your own site for cheaply. (If you go this route, you will also need website hosting, and basic content.) Join the main social media networks: Join LinkedIn, Facebook, Twitter. (Go to and and follow the directions to sign up for free accounts at all three.) When you come across wholesalers, ask to be added to their list. You ll start getting s for properties that they are wholesaling. Call people: 1. Jot down phone numbers on bandit signs that people stick on poles or in the ground that say things like We Buy Houses. Give them a call. 2. Look around in the real estate sections of and call investors, hard money lenders, and wholesalers and strike up a conversation. 25 Real Estate Genius Network, Income 4 Independence

26 3. Keep track of active real estate agents by the signs that you see in yards and dial them up. Go meet people in person: 1. Attend local public trustee auctions and after they are done introduce yourself to the investors that are bidding. Offer to buy them a cup of coffee or lunch, and pick their brains. Are they buying for themselves or others? What types of properties do Quick Tip: There may be no better way to connect with other real estate investors than an investing club. Find local clubs by talking to real estate agents and attending local seminars. If you live in a remote area check out biggerpockets.com or REIclub.com. they like and why? Where are they buying? Would they buy properties from you if you had some great deals? 2. Go to Then, search for real estate investing or similar terms in your local area. Then, go hit the meetings and strike up as many conversations as you can. Keeping Your Contacts Organized Now that you ve been making huge progress on networking and starting, building, and growing your list of investors (as well as contractors, sellers, etc.), you must find a way to keep them all organized. 26 Real Estate Genius Network, Income 4 Independence

27 At the very least, keep a notebook of each person s name, phone number, address, website (if they have one), and what they do and are looking for. A much better approach is to build a spreadsheet with this data and/or to keep track of contacts in formal contact management system like Microsoft Outlook. Keep notes on each person there, and create categories so that you can separate out real estate agents, from insurance salesmen, to buy-and-hold investors, to fix-and-flip investors. Once you set a hundred or so real estate investors, then it s time to start looking at online contact management systems like Aweber ( Constant Contact ( or icontact ( which we use). Make sure that all of your contact opt-in to be included on your list. Research each of these three websites (or search for others) to compare pricing and to see what the best system is for you. 27 Real Estate Genius Network, Income 4 Independence

28 4.0 Finding Properties & Deals Getting Started Finding Deals Now that you ve been networking and meeting real estate investors, you ve got a list of people that want to buy a number of types of properties. One investor is, say, looking for 3 bedroom, 2 bath, brick homes that rent for $1000-$1200/month on the east side of town. Another investor is looking for fix-and-flip opportunities anywhere, as long as the numbers work. and on and on. Now, it s time to find some opportunities to take to them. What Kinds of Deals Should I Be Looking For? Generally, investors are looking for some sort of distress. Either a buyer is in a distressed situation and must sell at a lower-than-normal price, or the property is distressed and needs some repairs and TLC and is therefore, priced lower than normal. You are looking to find a discount to normal prices, put on your fee, and still deliver a property at a discounted price to an investor. 28 Real Estate Genius Network, Income 4 Independence

29 Distressed Properties Properties can be distressed for a number of reasons, namely the owners were not reinvesting money back into the home. Of course, some forms of distress can be leaking roofs, water damage, broken windows, paint peeling off, etc.; but, we consider properties that are well taken care of, but have out-of-style décor to be distressed. If there is a way to improve the value of the home, there is some degree of distress. While not technically distress, often times there is an error when brokers list properties. Sometimes, a seller (often a bank) will not have even seen the property they are selling and will list its features incorrectly. We have seen houses listed as having two bedrooms and one bath, but in reality the house has three bedrooms and two baths. Similarly, we have seen many houses that are listed without counting the basement and sometimes even a finished basement. There is instant value in getting these properties under contract, marking them up, and selling them for what they re really worth! Always keep your eyes out for this type of distress. Foreclosures and Other Types of Properties Everyone has read and heard of the enormous numbers of foreclosures across the U.S., but we have found the word foreclosure has become to mean many 29 Real Estate Genius Network, Income 4 Independence

30 different things to many different people. So, we would like to explain some common terms and strategies used for investing in and buying foreclosures. A foreclosure is a home that is in the foreclosure process. This means that the homeowners that agreed to pay a mortgage have missed some payments and whoever they owe money (usually a bank or financial institution, but can also be individuals and other entities) have decided to start the foreclosure process. Each state, and often each county has a different process for foreclosing. A short sale is when a lender (usually a bank, but, again, not always) agrees to take less money than they are owed. Investors often find homeowners that are in the foreclosure process and work with them to complete a short sale. The investor buys the house, the homeowner can move forward with their life, and the bank can sell a Quick Tip: While we will evaluate properties with structural issues, mold issues, and other scary types of deals, we always avoid houses that were meth labs. Currently in Colorado, if you rehab a meth lab properly, have it tested and certified to be clean, you don t have to disclose that it was at one-time a meth lab to prospective buyers. However, FHA won t lend money to buyers of previous meth labs. We feel that laws could change at any point in time and that we or one of our investors could be stuck with an enormous investment that could become worthless. We suggest everyone avoid buying meth labs. house and not have it end up on their books if they foreclose. Short sales are often lumped into foreclosures. But, people do not have to be in the foreclosure process to complete a short sale. 30 Real Estate Genius Network, Income 4 Independence

31 A pre-foreclosure is a home that is in the foreclosure process and is usually sold (but not always) as a short-sale. A bank-owned property, or an REO (real estate owned [by a financial institution], is a property that WAS foreclosed on. Even though this type of property is not in the foreclosure process any more, it is still often called a foreclosure. Distressed Sellers Likewise, owners of property can be distressed as well. Whether losing a job, getting a divorce, having enormous medical bills, a death in the family, foreclosure, or needing to move, there are all sorts of reasons that seller will give a discount. Remember that banks are distressed seller too. When a bank forecloses on a home, they become the owner. Banks are not in the business of owning and managing real estate, and they will very often give huge discounts to sell property that they own (called REO for real estate owned ) and to get it off their books. By buying these properties you are helping the distressed sellers get out of a tough situation. Remember that when you are talking to distressed sellers, to be fair, honest and to protect yourself, to always disclose that you are a real estate investor and that you 31 Real Estate Genius Network, Income 4 Independence

32 make money by buying homes that are below market value and that you intend to resell the home for a profit What Types of Neighborhoods? Each real estate investor that you re eventually selling your wholesale to will have a preference for different types of neighborhoods. When wholesaling, first and foremost, listen to what buyers want, then go there. With that said, we usually target blue collar neighborhoods. We describe these neighborhoods as less affluent that middle-class suburbs, yet nicer than poor or rough neighborhoods. Blue-collar neighborhoods are usually occupied by teachers, policemen, firefighters, etc. They seems to have several homes and sellers that are distressed, but also have solid neighborhoods where rents are strong and first-time homebuyer are buying renovated properties. We also try to target neighborhoods with brick homes, but this may not apply in many parts of the country. Some wholesalers focus on higher-end neighborhoods, but we ve found this to be riskier; and we generally avoid these neighborhoods. You can make more on your wholesales, but with a higher-price point, you have a smaller pool of investors that can afford to buy from you. Rental numbers seem to work less, and it s more difficult for end-buyers to qualify for higher-priced homes. 32 Real Estate Genius Network, Income 4 Independence

33 We have seen some wholesalers be very successful in rough or poor neighborhoods. They make less per deal than they would in blue-collar neighborhoods, but they make it up in volume. Many buy-and-hold investors love rougher neighborhoods because they usually have a higher rate of return on rentals, but flipping homes there is tougher. Which Houses Should I Target? Each city has its own types of properties that do or don t rent or sell well. We have developed some rules of the road for homes to avoid: Houses on streets with yellow lines (too much traffic), Homes with flat roofs (in the Denver metro region, heavy snows can cause problems), Homes that are within a block of a major highway (too much traffic/street noise) Homes built before 1940 (we will look at these if they are great deals, but usually the fix-up costs are prohibitive to turn it into a great deal.) Also, when you start wholesaling, avoid the bad parts of town. If you re scared to be there, don t invest there. 33 Real Estate Genius Network, Income 4 Independence

34 When you re looking for deals, drive, drive, drive a neighborhood to get a good feel of it. Pull comps (or have a broker). Research a lot before you buy. As you learn more and more what investors in your city or town are looking for, be sure to develop your own rules for works best for you. How to Find Deals There are a number of ways to find potential wholesale deals: 1. Brokers: Find brokers that will scour the MLS and find great deals and bring them to you. It takes some time to find truly investor-focused realtors. Most are in the business of buying and selling homes for owner occupants, and do not have a clue what a good deal is. Interview them and ask what kinds of returns they can get for investors. If they can t answer this without specific numbers and rates of return (see later in this course where we teach all of the types of returns that you ll need to know), then they are not the right realtor for you. Also know that realtors get frustrated when they bring several deals and you don t go after any of them. They will quickly move on to other clients. Working with brokers is much of an art, but finding a great one can set you up for a wonderful year of wholesaling. 2. Search Online: Look at the following sites 34 Real Estate Genius Network, Income 4 Independence

35 a. Craiglist.org: Go to craigslist and look in your local area (and nearby metro areas) in the Housing >> Real Estate for Sale and the Housing >> Apts / Housing sections for property for sale. Often times home owners trying to save some money by not listing with a realtor will list here, and they may take a lower cash offer to just be done with it. b. Local realtor websites often have homes for sale. c. d. e. f. Know that the values these companies give are not always accurate. 3. Driving: Once you target a few neighborhoods, drive all over them. Look for houses that may be an opportunity (weeds growing in the yard, notices taped to the front door, etc.) Then, go and do some research online to see what the status of the house is (check out the public trustee website and see if a property is in foreclosure, see if there are tax liens on the property on the county assessor s site) Also look for homes that are For Sale By Owner or FSBO s. Go back and knock on the door and ask if the property is for sale. If tenants are living there, ask for the landlord s 35 Real Estate Genius Network, Income 4 Independence

36 phone number and give them a call. Often times, landlords are thrilled to sell their rentals. 4. Eviction notices: Find who does evictions in your county and see if they have records of evictions. Then contact the owner of the property to see if they would like to sell their troubled property. As mentioned earlier, landlords that have troubled tenants often mismanage their properties and would like to sell them at the point of most distress kicking out tenants. 5. Probate attorneys: Call probate attorneys and see if they have any homes that they know of. Most county governments do not recommend any particular attorney, but will list out probate attorneys that they work with frequently. Reach out to these attorneys, take 6. Other real estate investors: Talk to as many real estate investors as you can, many will have homes they want to sell. 7. Other wholesalers: Get on other local wholesaler s lists. They will you opportunities. You may be able to tack on a fee for bringing them a buyer. 8. Foreclosures: See if there are local companies that sell foreclosure data (In Colorado, the most well-known one is 9. NED lists: Notice of default lists (or Notice of Election and Demand (NED)) is lists of people that are starting the foreclosure process. You can knock on these doors and see if they are interested in selling. If they are, you will need to go through a short-sale process. Contact a short sale broker to help you out. Know that people in foreclosure are getting 36 Real Estate Genius Network, Income 4 Independence

37 bombarded with mail. Knock on their door and help them. (More on this in another course.) 10. Knock on doors; talk to everyone everywhere; in the grocery store, buying gas, etc. 11. Talk to your real estate network. 37 Real Estate Genius Network, Income 4 Independence

38 5.0 Evaluating Deals and Calculating Returns Evaluating Deals When you re wholesaling and you come across a potential deal, you need to evaluate, or underwrite, it to make sure there is enough profit for you and an end buyer. Often, when you find a distressed property, you would expect that since the property needs work, that the seller would realize this and be ready to give a great price for it. This is not usually the case. Most sellers will greatly overprice their properties at first, and if you continue to stay in touch with them, will drop their price over time. Others will start out at a great value. The key is to thoroughly evaluate each and every deal to make sure there is enough meat on the bone for everyone. What You Are Evaluating For rentals this is usually how much rent profit you will make per month, what your net operating income is, and/or your cash-on-cash return. For flips, you are trying to see how much profit will be realized and what the annual return on capital is. For wholesales, you will be calculating either of both of these profit numbers for who you are wholesaling to after you have your fee calculated into the equation. 38 Real Estate Genius Network, Income 4 Independence

39 We will explain all of these terms and calculations in this section of the course. Put all of your numbers into a formula usually in a spreadsheet or a calculator to see how much profit is in a deal. What Data You Need There are a number of data points that you will need to begin evaluating a property: Expenses: The anticipated purchase price of the property (use our Maximum Allowable Offer calculation) Fix-up/rehab costs (described later in this course) Closing costs to buy the property (closing company fees, title insurance, broker fees, etc.) Holding costs (finance costs, taxes, insurance, property management, rental reserves) Income: Rental rates 39 Real Estate Genius Network, Income 4 Independence

40 After repaired value (ARV) of the property (described later in this course). Other costs o Rent o Monthly insurance o Monthly taxes o Management fees o Monthly maintenance o Finance costs o Vacancy Closing Costs Be sure to research your closing costs. Once you do a deal or two, you will have these numbers pretty tight and will be able to predict them accurately in your area. Title insurance: Get quotes from title companies, but we roughly figure $1000 per property. This price is dependent on the property value. Closing costs: These can include recording fees, water escrows, closing fees, and taxes. Have your closing company figure this information for you. You can call your local water company and county treasurer for tax info. 40 Real Estate Genius Network, Income 4 Independence

41 As a good working figure, we plug $500 in for the rest. Broker fees: This is often 3.2% for listing a property and 2.8% for buying a property. We usually get discounts on listings, and we now list properties for $500 with a listing service and do our own marketing and showings (saving ~$4K per house on average!) Most importantly, have the buyer pay for all fees and closing costs, then you don t have to worry about them coming out of your fee. I have heard of wholesalers having to come to closing with cash because they did not do this! Other Costs Insurance: Get quotes from your local insurance agent. For rentals: Management fees are usually 10% of monthly gross income, plus additional leasing fees. We usually figure $50-$100/month in monthly maintenance costs. We set aside one month/year for vacancy, or 8%. Finance costs: This number can be enormous, non-existent, or well worth it. It completely depends on the type of financing involved for a property. Ask the investor you are selling a property to what their finance costs will be and simply plug that number into the equation. 41 Real Estate Genius Network, Income 4 Independence

42 Rental Rates When you are researching rental rates first, do some initial research on these two websites: Rentometer.com (put in the estimated value, and then look at examples of what other homes in the neighborhood are renting for.) Finestexpert.com Then, when you ve got a ballpark rental number, go to and search for rents in that neighborhood. (We ve found that searching in Craigslist works well if you search by the name of the neighborhood or by a close by major street.) Call some of the people that are renting to see how their Quick Tip: For all the fancy tools that are out there and available for real estate investors, a little legwork on Craigslist is really the best way to go. See what is for rent in the area in question, how many bedrooms are generally available, and what other amenities seem to be important. You can even call some of the listings and talk to landlords and most importantly meet people that may want to buy your properties. property compares to the subject property. Also, drive the neighborhood and call any numbers listed with For Rent signs to see what they are renting for. Be sure to research how long it is taking to rent, and the quality of the property compared to the subject property. Returns for Investors 42 Real Estate Genius Network, Income 4 Independence

43 Even though you won t be fix-and-flipping or renting out the house you are evaluating, the people you are selling to will. Therefore, the end returns do matter, and you will need to calculate them to be able to sell the house. Types of Returns Pure cash return: This is the amount of monthly profit for rentals or the total amount of profit for a flip. Rentals (and wholesales to be rentals) o Monthly cash flows o Cap Rate Used by investors to determine a rental property s value. Mainly for multi-family properties, but useful to see what type of return an investor will make on your property. The cap rate is net operating income (income after all expenses except loan payments) divided by the purchase price. Multi-families 6%-8%. Want a bigger return for single-family homes (SFH s) 10%+. I like 15%. Cash-on-cash most real number. What are you making on your investment? This is 43 Real Estate Genius Network, Income 4 Independence

44 similar to cap rate, but takes into account financing. How much money is the cash you have (or an investor has) in the deal making? Before taxes. For example, if you Fix-and-Flip Net Profit Net Profit for a fix-and-flip is simply how much profit an investor will make, or net, on a deal. It is total income minus all expenses (including broker s fees, closing costs, etc.) Net profit does not take taxes or depreciation into consideration. Taxes will need to be paid on any profit made. Fix-and-Flip Cash-on-cash Return A cash-on-cash return is simply what the name states the return you make on the cash invested in a deal. Sometimes this is called return on capital or gross retail margin, and it shows you what you are making on your money. To calculate a cash-on-cash return, you take the profit in the deal and divide by the amount of cash you ve put in the deal (and multiply by 100 to make the number a percentage.) For example, if you made $20,000 on a deal, and invested $120,000 cash in the deal that would be a 16% cash-on-cash return. ($20,000/$120,000)*100=16%. 44 Real Estate Genius Network, Income 4 Independence

45 Fix-and-Flip Cash-on-cash Annualized Return A regular cash-on-cash return does not take time into account. Using the previous example, making $20,000 on a $120,000 investment sounds pretty good, especially if that was accomplished in, say, 4 months. However, if that investment took 5 years, it would be a different story. To calculate an annualized cash-on-cash return, take your regular cash-on-cash return, multiply it by 12, then divide that number by the number of months the investment took. So, with that previous 16% cash-on-cash return, let s look at two scenarios: 1) a 4-month timeframe and 2) a 5-year timeframe: Example 1: 16% x 12 4 = 48% annualized cash-on-cash return Example 2: 16% x = 3.2% annualized cash-on-cash return So, in many instances using an annualized return puts an investment in context and helps compare different opportunities against one another. At the same time, it also looks at an investment in a vacuum. For fix-and-flip investors, it only makes sense to use if you know that you can keep your capital circulating. For example, if you were able to complete example 1 and make a 48% annualized cash-on-cash return, that would be fantastic; however, if you couldn t find another deal for a year your true return on capital would be much less (10.6%, actually). 45 Real Estate Genius Network, Income 4 Independence

46 We try to look at both cash-on-cash return as well as annualized cash-on-cash returns and think through what makes the most sense to make decisions with given our current situation. Rental Cash Flow Rental cash flow is how much money you are actually making each month, without taking taxes and depreciation into consideration. You take your monthly income, which is likely just rent and subtract all expenses for the month. Your expenses may or may not include finance payments. Rental Cash-on-Cash Now that we know what we re making each month with our cash flow, we can see what we re making on our money. To calculate the cash-on-cash return, you take your monthly cash flow times 12 to see how much money you re making per year. Then, you divide that number by the amount of cash in the deal and multiply by 100 to turn that number into a percentage. For example, if you were cashflowing $300/month, you d multiply by 12 to get $3600 in cash flow for the year. If $30,000 was invested, you d divide $3600 by this $30,000 and get Multiply by 100 and you get 12%. 46 Real Estate Genius Network, Income 4 Independence

47 6.0 Deal Decision Making Is There Enough Profit? Now that you have calculated the returns for a deal you are evaluating, you ll want to decide if there is enough profit in the deal for both you and the end buyer. For the time, capital, and risk going into a deal, the profit needs to be worth it. You must take time into account on all deals. Making $20,000 on a deal that you spend a couple of weeks on, start to finish, is very different than one you spend a whole year on. For Rentals: Some investors want to make a certain amount of profit per month. Some want to make a 10% return on their money (without any leverage, or a bank loan), some want to make 30% on their money when it s leveraged. For some rentals, investors aren t as worried about making monthly cash flow as they are in having some equity in the property. They want to know that if they had to sell the property tomorrow, they would make $10K, $30K, whatever their number is. Some want both, or a fair blend of both. 47 Real Estate Genius Network, Income 4 Independence

48 Sometimes the return people want, depends on how they can structure their capital. If they can get a loan, then they want to make $X. For Flips: Some investors (like us, for example) want to make a 20% return on the capital if we are not borrowing any money. Hopefully, the property is flipped in 3-6 months. If it s flipped in 3 months, that s an 80% annualized return on capital. If in 6 months, that s a 40% return on capital. You must consider that if an investor is doing none, some, or all of the construction work on a house that factors into their profit requirements. If they will be doing all of the rehabbing themselves, then they will need to make more money than someone who is hiring it done. Some fix-and-flip investors have a dollar threshold that they need to make on each deal. For example, many fix-and-flippers I know need to make $25,000 on a flip or it s not worth their time. Once you figure the hours it will take an investor, from start to finish on a home, you can better gauge the profit they will want/need to make, to make a deal worth your time. For Wholesales: 48 Real Estate Genius Network, Income 4 Independence

49 You need to make sure there is enough profit in the deal, after you mark it up with your fee that an investor will buy it. You will need to become familiar with what buyers in your neck of the woods want. We try to leave a little more profit for investors than others do in deals that we are wholesaling so that they move quickly. 49 Real Estate Genius Network, Income 4 Independence

50 7.0 Accurately Determining After Repaired Value (ARV) What is After Repaired Value? After repaired value, or ARV, is the value a home will be worth once it is fixed up or rehabbed. Determining ARV is part art, part science. How to Determine ARV To determine ARV, you will need to see what properties, that are as identical to the subject property as possible, are selling for, under contract for, and are listed for. To do this, either you or your real estate agent will research and make a list of comparable properties. This is commonly known as pulling comps. Real estate agents can do this work for you, but we have found many real estate agents are not always as accurate as we d like. Hopefully you have a great, work-horse, smart realtor. While most realtors are not supposed to, some give their clients access to the MLS so they can conduct their own research. If you have a realtor pull comps, double-check their work. (Are the comps really like properties? Do the comps have comparable square feet, finished feet, parking, style, and level of finish once the subject property will be rehabbed? What are days on market?) Otherwise, pull comps yourself. 50 Real Estate Genius Network, Income 4 Independence

51 How to Pull Comps If you don t have access to the MLS, conduct your own research on: Your local assessor s website (this is the most accurate) Note that prices and values can change -- as we ve all seen them rise from and then come back down in Also, assessors can be wrong on tax valuations, but actual sales data should be accurate. Many of these other websites pull their own data from assessors and are often inaccurate. When pulling comps: Only look at past sales that go back 3 months or less. Most people look back 6 months, but this is often not accurate. As a baseline, conduct a ½ mile radius around the subject property, but, you must think of this critically and potentially alter your search. Are there dividing lines in the neighborhood? Often times a particular street divides a good neighborhood from a bad one. Make sure that the neighborhoods that you re comparing are similar. 51 Real Estate Genius Network, Income 4 Independence

52 Divide the comps into three categories: Distressed properties: Those in serious need of repair and/or updating. Usually short sales and HUD foreclosures fit into this category. Also Fannie Mae, Freddie Mac, Homesteps, and bank or corporate owned properties fit into this category. However, you need to look at interior and exterior photos of the properties and read the broker comments to be sure. Average properties: These are ones that people are currently living in, are fairly well maintained, and Quick Tip: Why is ARV so important to you as a wholesaler? Because it gives you another tool to market your properties. Investors will always want to know what their upside is for a deal, and if you have done the work to figure that out, they re more likely to buy your property. The more accurate you are, the more likely they are to buy from you again. may need a little TLC to be in tip-top selling or renting shape. Rehabbed properties: These are usually fix-and-flipped homes, or homes that the homeowner took very good care of. Then, look at each category and try to find a pattern for value. Look at all of the rehabbed properties and think, When the subject property is fixed up to the same level of finish, considering all of the other factors, it would be worth X. Compare size, number of bedrooms and bathrooms, parking, level of finish, location (to major streets), noise, surrounding properties/neighbors, and other features and amenities of all properties. We always try to be slightly conservative, but this is the art part of pulling comps. 52 Real Estate Genius Network, Income 4 Independence

53 Then, go through and do the same with the distressed properties to see if you are getting a good buy with the property or if end investors could easily get a better deal somewhere else. Finally, drive and look at all of the comps and the subject property to make sure you feel confident with the ARV you determined. Other ARV Tips If you can find the data, see what properties are selling for at foreclosure auctions. This will help you determine if you re getting a great buy or not. Take into consideration the days on market (DOM) of each property. If a comp sold very quickly (30 days or less), it might have been priced below market. If a comp has been active for more than three months, it might be overpriced. If you focus in on a neighborhood (or a few), over time, you ll start to have a good estimate of ARV, rental rates, etc. before you validate with more research. You can also reuse some of your past research. 53 Real Estate Genius Network, Income 4 Independence

54 8.0 Preparing a Rehab Budget Preparing a Rehab Budget If you are wholesaling, you need an accurate rehab budget to report to people you are selling to. Sometimes this will be a rehab budget to get a property to a rental grade of finish, other times it will be a fix-and-flip budget. You will get better assessing this over time, and your investors will most likely go through the property and create their own rehab budget. But to build credibility and deliver value, having a fairly accurate rehab budget is critical. Quick Tip: MAKE IT EASY! When you re getting started, make it easy on yourself, and rely on the professionals for your first number of deals. Have a home inspector go through the home to tell you what all needs to be repaired for the home to be safe and functional. Then, have a general contractor give you a free estimate to get everything fixed. Once you become more experienced, you ll be able to come up with your own budgets. Level of Finish To know what level of finish and amenities the property should have, research the competition and go through lots of houses to see what is selling (for flips) and to see what renters are expecting. When you or your broker is determining ARV, take note of what the comps that you are comparing this to have for finishes. Also: 54 Real Estate Genius Network, Income 4 Independence

55 Look at the color schemes what kind of doors? What kind of tile on the floors, shower surrounds, what types of cabinets and counters in the kitchens, what kind of curb appeal, what is selling? Jot down notes on what level you are going for save pictures of what is selling. Talk to other investors (review module on networking) are they putting in all new plumbing and electric? New furnaces? (Do keep in mind that some investors over-build and some skimp too much you want to be right in the middle.) Adding Value For many properties, there are several big projects that can be done to a property over and above rehabbing it that will increase the value of the property. When you are wholesaling, you don t have to get this right, but it does help to think through options though and give those options to potential buyers. For example, take a look at: Parking would it increase the value of the property and/or increase rents if the end buyer were to add a garage? A carport? Could the basement be finished? Add a bedroom or a bath? Add space anyway? Make the floor plan more practical and modern? Open up the floor plan? (modern kitchen opens to living room?) 55 Real Estate Genius Network, Income 4 Independence

56 Make a List Once you know what you re going to do with the house, go through the house with our checklist (included in the course). Make a list of what needs to be done and be very specific. Look for everything and put it on the list. It s easy to cut; it s painful to add things you didn t budget for. Print out our checklist and take it with you. Make sure to think through if there is anything in your local area that we may not have included. Walk through the entire house, inside and out, and make a detailed list of everything you want to have done to match your specified level of finish. Get multiple bids from contractors Quick Tip: Staying organized might the single greatest asset of a wholesaler. Keeping track of critical items with checklists and staying ahead of deadlines will mean you make fewer mistakes and make more money. (review modules on working with contractors) o At first this will take a long time, but you will get faster. o Have them give an estimate of how long it will take too. o Over time, you may be able to estimate yourself, and just make a few phone calls to get it nailed down. Always call the experts if you don t know, especially for the big things (structural, environmental, roofing, and systems) 56 Real Estate Genius Network, Income 4 Independence

57 Educate yourself on the non-sexy stuff structural, HVAC, electric, plumbing, roofing o E.g. of Carol who understands interior design, colors, cabinets, etc. While important, you can get killed in inspections. Finding good deals on materials (buy and build, wholesales, storage for big ticket items if you re going to do a lot, appliances) o Go out and research the costs each city and region has different pricing. My home town two hours outside of Denver has completely different costs than the big city. o Different stores have different products and costs. While I usually go to Home Depot for a lot of supplies, I only get my lighting from Lowe s. Lowes has a better selection and better prices. Most important part of budgeting make a contingency. If you re experienced, 10%...if you re not, 20%. Until you get this down, this is a place where a lot of people screw up. (Though not buying right or accurately assessing ARV/rents are much bigger deals.) o Have others review your budgets. Summary: o You will get better and better with more experience. 57 Real Estate Genius Network, Income 4 Independence

58 9.0 Specific Rehab Items to Evaluate When you walk through a home to determine a budget and to see if there are any problems which would kill the deal, take a look at all of the following items and answer the questions we pose: Demo and Clean Out Never underestimate the cost of cleaning out a property and demolition. Dumpsters add up. They cost us $350/dumpster. This house (below) took us seven dumpsters to clean out: Roofing Most US homes have asphalt shingles. There are other kinds such as wood shake shingles, clay and concrete shingles (often in Florida and the southwest), and even slate shingles. 58 Real Estate Genius Network, Income 4 Independence

59 We usually have a roofing contractor take a look at a roof for us and give us his opinion before we budget and buy. Do the shingles look like they are coming off? Falling apart? Is the ridge line of the house (the top line ) sagging? Can you get on the roof and feel if there are any soft spots? (Be careful!) If the home has asphalt shingles, look at the edge of a roof and count how many layers of shingles it has. Note that the bottom of a roof will have a couple of double layers. That doesn t count. Look at the side of the house if you can to determine how many layers are on the house. In many cities and municipalities, you can only have three layers of roofing. Each layer costs more to take off when the roof needs to be replaced. Are their gutters and how do they look? Any signs of water damage in the house or under the eaves? Electrical It s always wise to have a licensed electrician or home inspector evaluate the electrical system. Do the outlets have two (non-grounded) or three-prong receptacles (grounded)? If it s the former, you ll probably need to upgrade at some point for a rental or when you do a flip. 59 Real Estate Genius Network, Income 4 Independence

60 Are there GFCI s (ground fault circuit interrupter) plugs in the bathrooms, kitchen, and exterior? If you not, you ll likely need to add them. Is the service panel recalled? Federal Pacific panels occasionally catch on fire and should be replaced. Is the service panel new? Or does it look old? It is usually about $1500 to put in a new service panel. Is there adequate clearance for the incoming electrical wires? (Some properties/cities have buried electrical cables. In this case, no need to look for this!) Plumbing First of all, is all of the plumbing there? Many houses are vandalized and the copper is stripped out of the house and sold as the price of copper has gone up in recent years. If it s there, determine if it is lead, galvanized piping, copper, pex (flexible plastic), or mixed? If lead or galvanized you may need to replace it. Are there any leaks or signs of water damage? If the home has been winterized you may not be able to test the home before buying. We once turned on the water on a home and had 17 leaks. Water was shooting out of ceilings, walls, everywhere 60 Real Estate Genius Network, Income 4 Independence

61 HVAC Heating, Ventilation, and Air Conditioning Does the heating system look new? Does it work? Can you test them? Is there an A/C unit, swamp cooler, whole house attic fan or other cooling system? Does it work? Sewer Line In Colorado, you can usually conduct a sewer scope for $99. Here, someone sends a camera down the sewer line and records it. You can watch the camera and see if there are any cracks. The company will tell you the status of the sewer line. You may have to repair or replace some or all of the sewer line. Taps can be expensive as can any problem under a city street or sidewalk. Give your DVD to a few sewer line companies to shop the bid. Prices to repair sewer lines can vary dramatically, so shop hard! 61 Real Estate Genius Network, Income 4 Independence

62 Structural & Environmental Always ask the experts to assess structural and environmental issues. Have a home inspector go through the house. They will then point you to the specialist you may need to assess further. At a high-level, though, when looking for structural issues, see if there is: Any sagging in the house? Cracks in the foundation or basement? Cracks in the walls around doorways and windows? Environmental issues. Asbestos looks like hard paper towel usually light-tan or white wrapping heating vents. Can look like tape around vent connections. Can be asbestos siding and tiles too. Must be remediated by a professional company. If asbestos gets in the air, you can t see it, but it gets lodged in your lungs and is very dangerous. Mold look for signs of mold on the walls, near the floor, in corners, basements, under/around sinks and tubs, doors, and windows. Meth labs weird chemicals, detergents, etc. Stove looks messy and not food. Just leave if you think it might be meth. In all cases, get experts. 62 Real Estate Genius Network, Income 4 Independence

63 Kitchens Kitchens and baths sell homes. We spend more time thinking through kitchen layouts than any other part of the home. Ask yourself: Do I need a new layout and cabinets? Or can I go with the existing layout and cabinets? (You can paint the cabinets but ask a pro how to get the paint to stick I ve had it peel right off when it s dry before.) What should be used for countertops Formica, granite, granite tile? Backsplashes? What types of appliances should be used stainless, white/black, new or used? Does the flooring need to be replaced? (We usually put in tile floors in our fix-and-flips.) 63 Real Estate Genius Network, Income 4 Independence

64 Bathrooms People always want clean bathrooms. The other aspects of the bathroom are a bonus. Does it need: A new tile floor? A nice tub/shower surround A practical vanity pedestals make a bath look bigger, but no place to put your towels and toiletries. Which is best? Flooring Evaluate if you can keep the existing flooring or if you need to: Refinish hard wood floors, or expose and finish hard wood floors that are under carpeting. Replace linoleum with tile or new linoleum. Replace carpet Replace pad under the carpet (sometimes you can keep the pad.) Finishes Finishes are the part of the home that people notice at first. Make sure to match finishes with what buyers are buying for rentals and for flips. Should your fixtures be brushed nickel or rubbed bronze? Doors Do the doors need to be replaced? If so, what style? For flips, a great front door really helps sell. Often worth an upgrade. 64 Real Estate Genius Network, Income 4 Independence

65 What type of drywall and texture work needs to be completed? There are different types of texture (orange peel, hand-troweled, smooth finished, etc.) Usually all houses need new interior paint. Though boring, we usually play it safe and go with neutral colors when we paint: whites, tans, light yellows, browns and beiges (same with carpets). Trim Does the house need new base and case? (Base trim is the trim that separates the floor from the wall. Casement trim is the trim that goes around doors and windows.) This cost can creep up on you! Fixtures: What trim scheme should be used? (Brass looks cheap and dated, go with brushed-nickel throughout or rubbed-bronze. Have everything match!) This includes door knobs and hinges, faucets, light fixtures. Exterior Lots of flippers focus on interior of the house but neglect the curb appeal. Put in some flowers and grass (in Denver metro) to make it look more attractive. The wrapper new windows? Siding? On exterior, we try to make them pretty or cute have the front door pop 65 Real Estate Genius Network, Income 4 Independence

66 You can see what a little TLC does to give a house some exterior pop. 66 Real Estate Genius Network, Income 4 Independence