Epic Real Estate Investing - Breaking Down a Deal | Episode 102

Episode Date: May 5, 2014

Let's go over a deal as Matt breaks it down step-by-step. ------------------------- Download Matt's free real estate investing course "How to Do Deals | No Money Required" at FreeRealEstateInvestingCourse.com or text FreeCourse to 55678 "Click" what interests you most:  Education Properties Income   Coaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Mmm. Mmm. Yeah. What's up? Hello. And welcome. Welcome to another episode of Epic Real Estate Investing.

If this is your first time listening to the Shizel, Wazelkum. Glad you are here. This is the place where I teach people how to escape the rat race by investing in real estate. estate. And if I were to do this all over again, you all know the story. If I had to do this all over again, I'd do it exactly the same way. And I'd do it exactly the same way, whether I had money and credit to work with or not. I have not changed my mind on that one bit. You see, while I was finding my way, I stumbled upon these 12 different unique, exciting, and creative strategies of investing in real estate using no money and no credit, never needed a bank, not even to this day. And in hindsight,

by being forced to invest that way, by being forced to getting started that way with no money, no credit, I believe that made me a much better investor. And I think I've just got insight today that I wouldn't have had otherwise. And I want to share that with you. That's why we're here. You know, and so what I did is I put together those first two strategies. I'm going to give you those free and clear. They are yours, whole, and complete.

They're all yours. No strings attached. And these are the two strategies of which I believe are the easiest and fastest strategies to a paycheck in real estate. And I've put them into a free course just for you. And you can access that course at free real estate investing course.com. Very simple, right? Or if you're listening via your smartphone, just text free course to 55678 and you get the

course right there on your phone. Free course. No spaces in between. It's all one word. Free course to 55678. Okay. So, in case you didn't notice, we had a little snapshot. A-Foo last week with some technology.

So version 2.0 of the Academy did not open. My apologies. Kind of blew the whole celebration. The real, what they call that? Not party foul, party crasher, no. It has put a little black cloud over the whole party in the celebration. I mean, that was a ton of work, a ton of preparation that just kind of went down the tube. Oh, well, shit happens, right?

Yeah. I mean, every party can't be. So I apologize to you, those that were waiting. I'm sorry for any inconvenience that was caused to current members, but I'm happy to say that we did resolve all. And everything should be ready to go sometime later today. And tomorrow morning, our epic interviews will resume and the celebration will continue. So we'll just pick up from where we left off. And if you're just finding us here for the first time and you have no idea what I'm talking about,

Please understand. I mean, this is a real estate investing show, and we've got a great show for you today. But please understand this is not our normal programming. It's just that last week we were celebrating our 100th episode, our one millionth download, and the grand opening of the Epic Pro Academy, version 2.0. But we hit a snack. The Academy did not open. But that should change today, God willing.

Now, I'm sharing all of this with you today because I had recorded tomorrow's episode, the day before we experienced all of our technical difficulties. So I can't remember exactly what I said in there. I mean, specifically how it refers to, you know, what day of the week it was or what day in the celebration it was or if there's any, you know, date-specific information in there. If there is, just ignore it. Pay attention to the interview.

Just pay attention to the interview because it's a really, really good one, and I don't want you to miss it. So now it's Monday. This is our normal release day. So I didn't want to leave you empty-handed here. So here I am. I didn't want to leave you without an explanation. Let's just get back to normal programming for now.

And as soon as our technical difficulties are resolved and behind us, we'll put it behind us forever. And we'll get back to our epic celebration. You know, as I was sitting here pondering what to actually discuss today, because I didn't have any plans for today. Because I was going to, the celebration would have flowed over to today. So I had to think of what can we talk about. And, you know, almost right on cue, I received. an email. And I'm not going to mention this person's name as the name. It's not important. It's not important because, I mean, this person is certainly important, but the name is not important

because I receive this type of email frequently. I mean, so essentially, I'm speaking to a lot of people, not just this one person. I mean, I've spoken to, gosh, or exchanged correspondence in some shape, form or fashion over the years many times about this one specific aspect. And there's a great lesson here or lessons in here. And there's a lot of lessons here. So here's the email message that I received says, you said in your video that if I can't find a buyer for a great deal to contact you with four exclamation points. Well, I'm contacting you. Another exclamation point. Not sure what to do. I have a house that is assessed at $239,000. He's a motivated seller and will sell for cash $65,000. He won't put under contract until he gets the best offer.

He's taking offers until next week. Then he's going to list it. It's five-bedroom, two-bath multifamily. He gets $1,600 in rent each month, both tenants live there, and pay rent each month religiously. It has 2.2 acres of land, a huge barn attached that is used as workshop office space. Can you help me with this? I'm new. It would be my first deal.

Exclamation point. And I'm new was in all capitals. So that's the email that I received. And I've received many of those very similar emails just like that. And that's why I stopped actually accepting deals. And that's why I set up epic wholesalers. So you could go and submit your deals there just to make sure I get all the information that I need. And then I can go ahead and help you in the best way that I can.

Let's look at this. Let's break this down real quick because there's a great lesson here. The investor writes, in fact, they call me to the mat. No pun intended. And they remind me with many, exclamation points that I said in one of my videos that if you can't find a buyer for a great deal to contact me. Indeed, I did say that and that invitation is still valid. And I've actually said that in many places. But what I always clarify in that statement is, if you have followed

my instructions up to this point, then call me and I'll be glad to help you. Okay? That's always there. You see, it's mentioned that this house is assessed at $239,000. And this seems to be a point where a great deal of this investor's decision that this is a great deal, that this is what it's based on, is this assessed value. So right there, right off the top, I read that first sentence. I was like, huh? I mean, I have never, ever instructed any of my students or clients to use the assessed value as any sort of factor in determining a great deal from a bad deal.

Okay, so what does it mean really when a property is assessed? Why is that not a good place? Why is that? Why haven't I said that before? Why haven't I said, just go look at the assessed value and there's your value. Why haven't I done that? Well, you just got to kind of really know what an assessed value is. That's the tax assessment.

That's what the tax assessor values the property at. That's it. It's not some sort of certified value. It's not an official value, not even close. This is nothing more than. someone's opinion of value. That's all it is. It's just another opinion of value.

And the state's opinion, not necessarily real estate experts. They're experts at collecting real estate tax, but that's about it. That's it. Nothing more, nothing less. Just because it's the state's opinion doesn't make it right. And again, though, it doesn't make it wrong either. You just have no idea. It's just an opinion.

Now, most of the time, properties are assessed when they exchange hands, when they are bought and sold, and they are typically assessed at the sales price. So, depending on when the last time that property had been sold, that's when the assessment was probably the most accurate, not necessarily was totally accurate, but that's when it was most accurate, but still not even necessarily. A lot of variables in real estate, right? It's always depends. The condition of the property at the time of assessment will impact that number significantly.

The buyer's reason for buying the property will impact that number significantly. the seller's reason for selling the property will impact that number, and the assessor that assessed at that value, that's going to vary and impact that number as well. I mean, there are just, there's so many variables that can contribute to this assessment that would make your headspin, really. And that is to say, if you see a property assessed for a certain value, any value, ignore it.

Totally ignore it. It means absolutely not. nothing to you as an investor. The only person to which this number is relevant is the tax collector. That's it. This number, it's used by the tax collector so they know what or they know how much property tax to collect from the owner. That's it.

So ignore this number entirely, okay? Ignored entirely because most likely it's not even going to be the same number after you buy the property anyway. So the investor then writes that the seller is much. motivated. And this has been determined by, you know, the fact that the seller is willing to sell the property to a cash buyer for 65,000 to 75,000 bucks. Well, I'm guessing that this is where the opinion that the seller is motivated comes from. You know, the difference between the assessed value of $239,000 and $65,000 is indeed a big spread. That's a very wide margin. But since we now

know that the assessed value means nothing, we don't know if there's a spread here or not. We don't know if this is a good deal or not. We have no idea. I mean, it's good that we know what the seller wants out of the deal, but we still have absolutely no idea as to what the property is worth, do we? No, nope, we don't. So how do we formulate an opinion of value? Because really, the only opinion of value that matters in this situation or in any investment, it's your opinion of value. You're the one writing the check. You're the one paying for it. Your opinion counts, not anybody else's. Okay. So how do we formulate our own opinion of value? Well, generally speaking, and I say generally because, you know, real estate, it's a local business and there's lots of

variables. As I always say, there may be some variances depending on where the property is, depending on what market it's in. But generally speaking, you want to look for similar properties to the one that you're evaluating, of which have recently sold. Right? So if this house, you know, a couple blocks over just like the one we're looking at. If that sold for $100,000 and did that two months ago, it's probably a fair guess, and that's exactly what it is, it's a good guess that this one's probably worth $100,000 too. But then again, we know not to just base our value on one sale.

We have to take a few sales that have recently happened that are of similar properties and then average those numbers. And that's going to give you an idea of what the property is worth. And that's what it is. Even that, even your own opinion of value, it's just an idea. It's a guess. It's an educated guess, but it still is a guess.

So you look for comparables, comparable properties. Comparable properties in the comparable areas that have sold in a recent amount of time. Typically less than three months, that's what you really want to look for. But like again, depending on where you live, that could be six months, could be a normal practice. Maybe a year could be a normal practice. Okay. So you look for comparables. That's your starting point for determining what the property is really worth.

So in just the first two sentences that, that I've read through this email, there's a lot of information there, but we've got nothing. We have absolutely nothing here. So the investor then writes that the seller won't put the property under contract until he gets best offer. Okay, so not out of the ordinary for a seller to try for the best offer, but a little out of the ordinary for a truly motivated seller to do so. And even more so, it says that the next week the seller is going to list the property. Now, this is not a hard and fast rule for determining motivation, but my intuition is telling me that there's not nearly as much motivation here as the investor thinks that there may be.

I mean, the investor then goes on to tell me that the bed and bath count and the rent that the property gets, tells me a little bit about the tenants that they pay rent each month religiously. Now, that's good, of course. But that's what the tenants are supposed to do. That shouldn't be a selling feature or have any impact on value. Now we need to know the bedroom and bathroom count. We need to know that.

We need to know what the rent's going to be. We need all that information. But we still just, we don't have any information here. We don't, we can't make a decision. And then it's shared with me that there are 2.2 acres of land that accompany the property, which is good information again to have when looking at the comps, the comparables. And there's also a huge barn attached to it that's used as a workshop office. And, okay, so whatever that may be.

I have no idea. Don't even know what to make of that. and then they ask me for help. The quick answer is no. I'm not going to help. I can't help. I don't have enough information. Not even nearly enough.

So I replied back to this email with, yes, I did say I would help anyone that follow the instructions up to the point where I mentioned that I would help. Please send me a completed seller information questionnaire, and I'll take a look and do whatever I can for you. That's how I responded. So, you see, a vital part of the instructions in the free course. This is in the free course, and this is in the Academy as well, is the seller information questionnaire. That's got to be filled out. It's there for a reason. You need that

information. It's not just a handy little form that can or can't be used whenever you feel like it. No, if you want to enter the world of creative real estate investing, there's vital information that you need prior to making your offer. I mean, I believe I did an entire episode on this and I've discussed many times in multiple contexts, but in a nutshell, this is why it's important. You need the seller questionnaire for seller information questionnaire for three specific reasons. One, it lets you know what the seller knows about the property. You get to find out what's in their head. Very important for your negotiating.

Two, it lets you know what the seller wants out of the property. Again, very important for your negotiating. You got to know what they know and what they want, or else you can't give it to them, right? So you got to know what they want. And three, which is the most important, it's why it's asked three different times and three different ways on the seller information questionnaire, is why the seller is selling. It reveals why the seller is selling. We all know that the foundation of a real deal lies in the seller's motivation to sell. Okay, that's where the real deal is going to be founded, whether there is a deal there or not. It all depends on why they are selling. Not the assessed value, not how much it rents for, not the condition of the property. Really, it comes down to why the seller is selling. You need this information to craft the very best offer possible. So I can't help unless that questionnaire is filled out in its entirety. And that's the other thing. All those questions have to be answered. Whether you're

asking me for help or not, whether you're going to put together the deal all by yourself or you're going to find someone else to help you. At some point, you're going to need an answer to each one of those questions. So if you can't find it in the actual interview, well, you better go find it somewhere else. If you want to create a solid offer, the best offer possible, the type of offer that's going to make you a profit, you need an answer to all of those questions. And if you don't have it filled out in its entirety, you know, it's just going to be a long and drawn out back and forth dialogue of which I just, I don't have the time for. I don't have the time for the one, the back and forth, and I really don't have the time to re-teach what needs to be done when it was

already there. I mean, you couldn't have heard me say that I'll help you without going through the course. So you already have, you just didn't go through the course. You did not move at the speed of instruction. And that's what the free course is there for, to show you how to do it. I can't do my part, and I won't do my part, unless and until you do your part. You got to meet me halfway. That's the deal.

That's the condition for receiving my help. But even if you're not asking me for help, you still have to do this for yourself. So you're able to help yourself. Make sense? So the investor responded back with, I'll do my best to send you what I can. Again, it hasn't sunk in. And I know she shared that she was a new investor, and that's okay. I understand, and I'm not beating you up by any means because you are not the only person out

there that has sent me an email like this. So I'm talking to everybody. And even if you haven't sent me an email, I'm still talking to you too. It's important that you need to understand that you have to have all the information to position yourself, your negotiating position, and to present an offer that's going to make you a profit and the biggest profit possible. So she says that she's going to send me what she can. sending me what you can.

It's not enough. You've got to send me everything that I need. So anyway, this is the most recent message that I received from this investor, actually just a couple hours ago. Hi, Matt. Thank you for getting back to me so quickly. And your willingness to help me after interviewing my seller this morning, I'm walking away from this deal because he's not motivated enough.

He's waiting on all of these offers. And my personal value of the property is questionable. It's the location. If this were in a better area, I would definitely put it. in an offer and move forward. I'm moving on to the next deal. There you go. And just as I initially expected, there's no motivation there. So if there's no motivation, there's probably no deal. I could tell because, you know, the seller was waiting for offers and they were waiting for multiple offers and they were going to list the property next week anyway. That's typically not

motivation. That might be someone who wants to sell, but we're looking for people that need to sell. motivation. That's where the deals are. That's where you as an investor are going to create your biggest profits with the people that need to sell. If you just follow the steps in the free course, you'll know whether there's a deal to be had or not. If you follow the steps, you get the answers much, much faster. You become independent much faster. Just follow the steps. Move at the speed of instruction. You see, this process, I'm here to help you, absolutely here to help you, but it saves me from wasting my time as well, and more importantly, it saves you from wasting your time. This would have been this person's first deal.

I love to help people get their first deal. That's the most exciting experience for me. And so this would have been our first deal. And because she went back to the seller information questionnaire, she went back to that step. This person was able to discern on their own that there's no seller motivation. Never done it before. first deal. Just by using the seller information questionnaire,

they knew that there wasn't any seller motivation. And then they found out that the property, because of its area, it wasn't such a great deal after all. See, that's what the steps are there for. So you can figure it out, regardless of your experience level, regardless of your intelligence,

regardless of your net worth, regardless of whatever. The steps help you figure all that stuff out and figure it all out on your own so that you become, a skilled real estate investor. And once you have that information, no one can ever, ever take it away from you.

No one can take your education away from you. And once you've done it once, you can do it again and again and again, and you will be an independent person of society. You will be an independent contributor to society. You will not be dependent on the society. That's what I want for. you. This is more than real estate. This is more than money. This is freedom that we're always

talking about. You know, your most valuable asset is your time. You're going to experience a lot of situations like the one I just shared with you. A lot of them. Just follow the steps. Don't get emotional about it. Just follow the steps. Work the numbers and save your time. Your time. Your most valuable asset. That's it for today. And if I don't see you again in the next 24, to 48 hours, something is really gone wrong. So I'll just have to see you next Monday then. Okay? I'm Matt Terrio, living the dream.

You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.