Inside the MLS. Outside the MLS. Finding Deals. Really, How I Find Deals 4/2/2012. Wholesaling Process For Wholesalers

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1 Finding Deals James Orr Daily Marketing Checklist For Real Estate Entrepreneurs Wholesaling Process For Wholesalers Find Deals Collect Fees Analyze Deals Sell Deals Negotiate Deals Control Deals Really, How I Find Deals Two Primary Groups For Finding Deals Do it yourself or hire someone else to do it for you Will cover as much as possible for both: Outside the MLS Inside the MLS Will focus on how you can do it yourself Inside the MLS Outside the MLS 1

2 Why Outside The MLS? Why Outside the MLS? No and low money down transactions Creative financing without banks Improved cash flow Negotiate in a vacuum Lease-Purchases Inside MLS My Favorite Way Of Finding Deals Outside The MLS Mail Stats Mail Log (With More Stats) 2

3 Cost To Mail Morning Discipline System Import/update properties into my website s system each morning That s where I keep track of properties You may do this manually using the full MLS if you have access or lists of properties from your agent As of making these slides I am only doing this for all properties in Fort Collins and Loveland May be expanding it Sort Into Subdivisions Through a combination of automated and manual matching, I sort each property into its official subdivision Use subdivision data so this is important Can t rely on agents doing it correctly Old Town Fort Collins is a mess! Actually a very complicated problem with lots of other quirky issues About 850 subdivisions in Fort Collins and Loveland alone Properties To Analyze Universal Property Search Key 3

4 Start At Top Analyze Each Property Primarily For Two Different Types of Buyer: Buy, Fix and Resell Focused on value Profit A, B and C» A = Price/Total Sq Ft» B = List Price to Accessed Market Value» C = Price/Finished Sq Ft Buy, Rent and Hold Focused on income Net Operating Income Profit A Calculation 1. Take 20 most recent sales in subdivision 2. Calculate sold price/total sq ft 3. Sort the list by sold price/total sq ft 4. Pick the middle most one (median) 5. Compare median sold price/total sq ft in that subdivision to list price/total sq ft of the property you are analyzing to determine the difference 6. Multiply the difference by the total sq ft of the property you re analyzing to get a gross estimate of possible profit Profit A Calculation Example Best Properties Using Profit A Profit C Best Properties Using Profit C Similar to Profit A, except use sold price/finished square foot instead of total square foot 4

5 Profit B Compare list price to the market value that the county has for tax purposes Best Properties Using Profit B Interesting Lists Profit A, B and C are all positive Other signs of motivation and lists from the MLS you can find: REO, HUD and other owner Lease-Purchase and owner financing Free and clear Short sale Vacant Described as fixer upper, handyman special, TLC, etc in notes Pull Up MLS Sheet Read the MLS sheet and look at photos Determine if it is: Fixer Upper We get paid for adding value fixer uppers represent an opportunity Just Paint and Carpet (Light Fixer Upper) Typically these REOs will be bought by owner occupants for very close to retail Short sales can still be good candidates for these especially with listing agent cooperation Not A Fixer Upper Unless there is another way to add value (and there are other ways), these tend not to be high probability deals Determine Likely Debt If properly motivated, could they even accept our offer? Free and Clear or Mortgaged Usually do this on the public records tab in the MLS Review Property History Are they selling it for what they bought it for? Less than what they bought it for? Did someone recently buy it and then relist it for sale for a much higher price? 5

6 Subdivision Map Homes For Sale In Subdivision By Price 6

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9 Looks Interesting? Determine ARV Comparable Sales Table 9

10 Comparable Sales Table Comparable Sales Table Comparable Sales Table Comparable Sales Tools Comparable Sales Plus a bunch more, but you get the idea There is both a science and art to determining value Enter Your ARV, FMR and Repairs 10

11 Improvement Estimator Cash Offer Calculation Example How Does This Home Compare? To other homes for sale in the same subdivision? Price Price/Sq Ft Price/Above Grade Finished Sq Ft To other homes that sold in the same subdivision recently? Price Price/Sq Ft Price/Above Grade Finished Sq Ft Report on this in both gauge and list format just scroll through drill down to see details as desired. 11

12 Calculate Net Operating Income Relatively unusual to do this calculation on single family homes Automatic on each property Then calculate: Capitalization Rate First Year Cash on Cash Return 5 Year Internal Rate of Return Allows you to then sort the entire MLS by most profitable cash flow properties Capitalization Rate Divide Net Operating Income (for the year) by purchase price to calculate Capitalization Rate Can sort the entire MLS by highest Capitalization Rate since I do this for every property 12

13 Best Properties By Capitalization Rate Cash on Cash Return - Year 1 Next, determine what your cash return on investment would be in year 1 for 3 different down payment amounts 20%, 25% and 30% down 2 different closing costs scenarios Seller paying all closing costs and you (as buyer) paying all closing costs 2 different property management scenarios Self managed versus professionally managed That s a total of 12 different Cash on Cash return on investment calculations for year 1. Best Properties By Cash on Cash 5 Year Internal Rate of Return Next, determine what your internal rate of return would be buying the property with 20% down selling it in 5 years later collecting cash flow for the 5 year period Based on the following economic model and assumptions 13

14 This is most like how I personally analyze properties for my own portfolio. Best Properties By 5 Year IRR Popular Fort Collins Subdivisions The 5 sided offer scale: PV FV N I/year PMT Got to start thinking in multiple dimensions to maximize deal flow 14

15 100:10:3:1 Rule Real Estate Riches by Dr. Dolf De Roos 50:1 No Down Payment by Carleton Sheets 30:10:3:1 Millionaire Real Estate Investor by Gary Keller et al 30:1 Weekend Millionaire's Frequently Asked Real Estate Questions by Mike Summey and Roger Dawson Outside the MLS different than inside the MLS Subject To Installment Land Contract Rent To Own Loan Assumption Wrap Financing Owner Financing Do you get the deed at the beginning? Y Y Y N N Y Down payment required? U S S U U S Paying down on loan? U U U N U U Requires traditional bank credit approval? N N U N N N Triggers "Due On Sale" clause? N U N S S U Allows you to refinance with new Y Y Y S U Y loan? Must seller foreclose to get you out? Y Y Y S S Y Does all of your monthly payment apply N N N N N N toward purchase? Does part of your monthly payment apply toward purchase? U U U S U U Does all of your down payment apply toward purchase? Y Y Y U U Y Do you need an attorney to buy with this strategy? Y Y Y Y Y Y Is the down payment non-refundable? Y Y Y U Y Y Are the entire monthly payments non-refundable? Y Y Y Y Y Y Good in a market where home values are going up? Y Y Y Y Y Y Good in a market where home values are going down? S S S U S S Good in a market where interest rates are going up? U U U S S U Good in a market where interest rates are going down? U U U Y U U Requires seller credit approval? Y Y U U U S Do you get tax benefits of ownership? Y Y Y N S U Does buyer default harm seller? Y Y S Y Y Y Saves expense of moving twice? Y Y Y Y Y Y Can be a long term solution in one step? Y S Y S S N Does real estate agent typically get commission Y Y Y N N Y up front? 15