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Your First Deal!

Difficult
Aaaaaaaah! What am I doing? How am I going to do it? How did I get here? Where am I going? Why am I doing this again? Whose idea was this, anyway? Am I making the right offer? Is it too high? Is it too low? Is now ok, or should I wait? What am I going to do with this property, again? What if I can’t find a wholesale buyer? What if I find skeletons in the closet? What if they reject my offer? Worse yet, what if they accept it? AAAAAAAAAAAH! Help, is anyone there?

Don’t worry, you are in good company. Keep asking the questions; insert your escape clause, and MAKE THE OFFER! Or to put it “Nikely”: JUST DO IT. Then work your strategy as you learned in class. If things are not going as planned, (e.g., you can’t find a wholesale buyer, or the seller’s tax returns do not jibe with what he said in the listing), then use your escape clause and get out.

But really, you say, how do I get past all of my fears and make my first offer? Read on for a Bit and hopefully this article will help quell your fears a bit so you can get that offer out…..and Yes, to your next question, it does get easier with every offer you make and especially every deal that you do. As a USA RE Mentor with the academy, I have heard all of these fears more than once, and Yes again, I have even uttered many of them myself at one time or another.

As for getting over your fears……in a word: preparation. Run the numbers as you were taught. If you are unsure about anything, call the 800#, or if you have a mentor, by all means get them scheduled to come out. Once you have scheduled your mentor, you will have direct access to our help and support.

Let’s take a second to look at the process for a wholesale or a rehab property, as the numbers gathered are the same for either strategy. Work through the MAO (Maximum Allowable Offer).

First, for a wholesale or a rehab property, you must determine within a fairly close margin the ARV (after repair value). This number need not be as hard to find as it seems. I do not have enough room to teach you in this article how to do a full appraisal, but I can get you off on the right foot. In your classes, or with your mentor, you will learn much more.

The first step in determining the ARV is to pull comps of the property. In other words, what has recently sold nearby that is similar to the home you are looking at? To pull up recently sold properties, you can call your Realtor and ask them to send you a list of sold homes (this list will not include FSBO homes though). Next your county’s website may offer a list of recently sold homes near your subject property. http://www.Trulia.com can also give you a list. Go to their website and learn how to use it. Or if you have the RESS software offered by the academy, you can pull up recently sold homes yourself. Ideally you can find comps which meet the following criteria:

-The house sold in the past 6 months
-The house is within ¼ mile
-The size of the comparable home is within 10% of the square footage of the subject home.
-The number of bedrooms is the same.
-The number of bathrooms is the same.

Seldom, however are we so lucky to match everything, so we have to find out (from our realtor or a local appraiser) how much we can add or subtract for each item that is different from our subject. For example, if the subject home is a 3 bedroom and the comparable home is a 4 bedroom, you would subtract some cost from the sold price of the comparable home for the value of that extra bedroom in your area. Now that you have pulled up a list of homes, you need to drive by those homes to verify that they match your subject home to some degree and finish analyzing the property. If the profit potential that you are looking for is there or if you think the price is low enough to attract a wholesale buyer, then make the offer!

If you want the property for a rental property, then you need to analyze the income minus the expenses then minus the debt service. We recommend that you have at least a $100 per unit per month positive cash flow. In a few of the classes you should have learned this process in more detail, but if you need help you can, again, ask your mentor or call the 800#. Now if the numbers are in the profit range that you are looking for &/or have the ROI (return on investment) that you want….make the offer!

Of course you will always have your attorney review your contract to make sure it is appropriate for your strategy. Then trust your calculations & what it says in black and white, not your emotions, and make the offer! After the offer is made you have a due-diligence period or your inspection period to verify all of your work and the seller’s representations. Again, please review with your attorney as to the amount of time you have and qualifications for backing out if necessary to make sure you know your escape clauses.

If you do not plan on wholesaling the property, then you have to consider how to finance it. For starters, set up a meeting with a good mortgage broker that works with investors. At this meeting they will help you to see where you are at and what it would take for you to get approved for financing through them. If you cannot get financed through one of their sources, then you will consider one of the following:

• Seller financing
• Private money
• Hard money

More on these 3 choices in the next article.

If a property seems to be a great deal, trust your instincts and make the offer! You can always use your escape clause if you find something you did not count on or a mistake that you or the seller made. So make the offer and then verify the numbers again.

You can’t steal in slow motion! If you are too slow…..someone else will get it first.

Mark Gilliland
USA RE Mentor

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