Epic Real Estate Investing - EPREI 026 : How to Sort Deals from Real Deals

Episode Date: February 8, 2012

Are you a buyer of deals, or a shopper of deals? Well... if you don't know what a real deal is, how do you know which one you are? The most successful investors are shoppers of deals. They know the difference between deals and real deals, and they only pick up the "real ones!" On this episode, Matt shares a two-step process in sorting the deals from real deals taking the guess work out of real estate investing. Learn more about your ad choices. Visit megaphone.fm/adchoices

Epic Real Estate Investing Podcast, episode 26. Without further delay. Your guru. Sorry. Your guide to a better life through real estate investing. Matt Terrio. Hello, and greetings from the Epic Real Estate Investing podcast, the podcast that will show you how to build wealth through creative real estate investing.

So you will have the option to realistically retire in the next. 10 years or less, and enjoy the good life while you're still young enough to do so. My name is Matt Terrio, author, full-time real estate investor, and family man. If this is your first time listening to the show, you're going to want to do two things. First of all, welcome. I'm glad that you're here. Glad you found us. But first, you're going to go back and listen to episode one and listen to the ground rules

of the show. And two, I want you to download the free real estate investing course. How to do deals, no money required. And you can get that at free real estate investing course.com. I made the domain name really complicated, right? Free real estate investing course.com. It's a step-by-step course of where I unveil the mystery around doing deals with no money or credit. It's going to get you started right.

Okay, so I've got a lot of questions regarding our last episode, particularly with regard to one of my last comments. One of my rules of thumb is for me is, if I'm buying more than one out of seven deals, I'm probably paying too much for real estate. Chris from St. Louis had a question about it. Lawrence from North Carolina, Stephen from Dayton, Melissa from Chattanooga and Sherry from Seattle, they all asked me in their own way to expound on this. And based on the amount of people that subscribe to this show, I mean, I've come to learn that if five people emailed this question to me,

I'm pretty sure at least 500 more thought about it. So I'm going to expound on their question, but before I do, I should back up just a little bit. I mean, I use the word deal pretty loosely in my conversation, and I should probably practice using the word opportunity a little bit more often as opposed to deal, but, you know, that's just a real estate word, and that's kind of what I'm just used to saying or what I'm used to using. But, you know, anyway, let's define what an actual deal is first. A deal is really any opportunity that you can afford that will move you toward your goals,

and your goals being either cash or cash flow. Now, there will be different measurements of deals that will cross your path. I mean, there are different variations. and different sizes, meaning some deals will move you towards your goals faster than others. I mean, for example, I mean, I can put $50,000 into this fix-and-flip, and I'm going to receive $20,000 of profit, or I can put $50,000 in and receive $30,000 of profit. I mean, both deals are deals indeed, right? But if you can only do one, which one will you do?

Of course, the one that pays more. But what if they aren't presented to you at the same time? what if you can't compare them side by side? What if the smaller deal comes across your desk a couple of weeks, say, before the bigger deal? How will you know whether to pass on that first deal or not? Well, the answer is you won't know whether to pass or not unless you know exactly what you're looking for, unless you know what a deal looks like. Successful investors, they have specific criteria as to what a deal is to them or not.

and before you speak with one more motivated seller or submit one more REO offer or bid on one more auction property, it would be very wise to sit down and define the parameters of what a deal is to you and what is not a deal to you. I mean, once you do that, you can then move from the novice mindset of being a buyer of deals to that of an expert mindset, being a shopper of deals. You don't want to be a buyer of deals. You want to be a shopper of deals. You know, investors, successful investors, they live for the hunt, the thrill of closing great deals. They love that sensation.

That's what they're really after. And in the act of searching for great deals is just as important to them as acquiring those great deals. That's the excitement. They're shoppers. They're not buyers. They understand that it is far better to miss out on a good deal than to buy a bad one.

And I'll repeat that. It's far better, far better, to miss out on a good deal than to buy a bad one. I mean, the shopper mindset, it provides two significant advantages. I mean, first, you get to enjoy the part of investing that you'll be doing the most, searching for deals. The constant pursuit of finding the great deal. You know, the market is cyclical. I mean, you all know that.

I'm not telling you anything new there. It goes in cycles. And what I specifically mean is that there will be times of great abundance where opportunity seems to be everywhere. And there'll be times of great scarcity when you can't seem to find a deal to save your life. And this is going to happen. It's just the way it is.

It's part of the game. And by being a shopper, the times of abundance will never lead you to recklessness. And by being a shopper, the times of scarcity will never lead to impatience and impulsive decisions based on lack. And that leads us to the second advantage of the shopper mindset. This mindset, it protects you.

It protects you. you and it protects your assets. Shoppers. True shoppers never feel the urge to compromise their standards. They stick to their standards. And so that brings us back to knowing what a deal is to you. You have to define that for yourself. What are your deal standards?

What are you going to shop for? What are you looking for? As soon as this podcast is over, I want you to sit down and write down your definition of a deal. I want you to get specific. I want you to write down your deal. standards. So you'll ask yourself the following questions. Am I looking for cash or cash flow? What's my intention of my investing? Am I looking to create cash or am I looking to create cash flow?

I mean, ultimately, I hope all of you have your eyes on creating cash flow, passive income. And that's how the wealth is truly created. And I want you all to be wealthy. But depending on where you are in your real estate investing journey, you may need to create some cash before you can create some cash flow. Or maybe you've got a good chunk of cash to work with, and now you want to turn it into a residual income. You have to answer that question for yourself. Are you looking for cash or cash flow?

Because it's really important as it can dramatically impact what you're going to pay for a property. So don't underestimate this question. Cash or cash flow. Second question, what type of property will you be looking for that will create your cash or cash flow? Single family residences, duplexes, condos, multifamily buildings, commercial buildings.

Establish what type of property it's going to be that's going to help you get to your cash or your cash flow. Third question, in what area am I willing to search for these properties? Is it your immediate neighborhood? Is it your subdivision? Is it your zip code? Is it your city, your county, your state, or is it in another state? What area are you willing to look within to find the types of properties

that will create your cash or cash flow. And then fourth question, in what price range are you going to look in these areas? I mean, is it defined as anything, say, between 50 and 100K or anything priced below the median? Or anything priced below

replacement costs? Or maybe you're looking at luxury homes, whatever. Establish your price point. So after you've answered those four questions, cash or cash flow, the type of property, the area that you're going to cover, and the price that you're going to work within, you now have your investing standards.

You have your deal standards. Now you can be a shopper of deals. Now you know when a deal comes across your desk, whether to take it or not. It really is black or white. And you're going to run each deal through your standards, or in other words, you're going to qualify each deal. Just the way you qualify the sellers. You're going to qualify the deal as well. And if the deal meets your criteria, you're halfway there.

Okay? So what's the second half? Well, if the deal meets your criteria, how will you be able to sort the deals from the real deals? Because remember from our last episode, most deals you come across will not be deals, or specifically won't be deals for you. And the second part of that was,

the center of every real deal is the seller's motivation to sell. So the first half of being a shopper is qualifying the property. Does it meet your standards? doesn't meet your criteria. And the second half, being a shopper, is, will the seller meet your terms? And this is an additional criteria you'll have to insert into your deal standards.

What are your standards with regard to an acceptable return on your investment? For example, if you're looking to create cash from a deal, what is the minimum amount of cash you're willing to accept? What's the minimum amount you're willing to work for? I mean, maybe your terms can be expressed in a 20% return on my investment in 90 days or less. and if those were your terms,

it would be a very simple calculation as to whether a deal was a deal or not, whether a deal was a deal or a real deal. You'd be able to tell that if those were your standards, your minimum standards. I mean, can I purchase this property low enough to return 20% of the money that I put into the deal?

That's a yes or no question. And can, will I be able to get my money out and do it in 90 days or less? So if a deal requires you to put in, say, $100,000, First, you need to at least purchase it low enough that after all costs and expenses are taken care of, there's at least $20,000 of profit left over for you. And second, can you get that $20,000 of profit out within 90 days? Is there enough market activity in the area to do that?

Are there enough people buying houses to lead you to believe you could sell the property in 90 days or less? All of a sudden, if those are your standards, sorting deals from real deals is very easy. The black or white question, it's yes or no. There's no gray. Or do you have people on your buyers list that will gladly take this property within the next 90 days? If that's the case, then it could be a deal. If the seller won't give you the terms you need to make this happen, then it's simple.

No deal. Next, moving on. Who cares if it could still be a good deal? It's not a deal for you. You are a shopper of deals, not a buyer of deals. Shoppers are the most successful investors. Buyers, they get jammed up all the time. the time. I mean, it's the buyers that give the practice of real estate investing that

risky stigma. They're not investors. They're gamblers. Don't be a gambler. Don't be a speculator. Don't be a guesser. Don't be a buyer. Be a shopper. Better to let a good one get away than to buy a bad one. Case and point. I don't know about your area, but I have a strong feeling this is probably the case in many markets. Just a hunch. I'm not totally sure, but I'm pretty sure. I think it's a good hunch just because by knowing the nature of people, I mean, they get emotionally involved in their investing, and they compromise their standards.

They do it all the time. You know, if you have access to the multiple listing service, look at the active listings right now, and count the number of rehabbed homes that are on the market, the ones that are on the market that have not sold. I mean, for example, right now in Los Angeles, Actually, I think all across Southern California, you can log onto the Multiple Listing Service and view many.

And I mean many. Turnkey rehabbed homes. The market is flooded with investors. Or I should say, buyers of real estate that fixed up properties and put them back on the market. And because they were buyers, buyers who didn't buy their deal low enough,

they're unable to sell their deal and get their return on their investment. And the longer the deal sits on the market, the lower their return is getting. But the market activity is great in Los Angeles. People are buying and selling all day long every day of the month. People are transacting real estate. They're just not transacting the buyer's real estate. So don't get jammed up like a buyer.

Get your return on investment. And you get your return by being a shopper. You make your money when you buy. You've heard that before. But you don't get paid until you sell. So you've got to buy low enough so you can sell. Define your standards. Define what's a deal.

Define your deal standards. And when you see it, you'll know it. When you come across a real deal for you, you'll know it. And you can act quickly. You won't have to hesitate. You can seize it. When you'll be able to pull the trigger with confidence, without hesitation. Now, to answer the questions and comments on what I mentioned last episode,

if you're buying more than one out of seven deals, you're probably paying too much for real estate. and what I mean is for every deal that meets my standards of which I write an offer, one out of seven of those sellers will give you my terms. There's a big clue in there, though. For every deal that meets my standards of which I write an offer, the operative phrase there, write an offer. If you're not writing offers, you're not doing deals. There's a direct correlation between the amount of offers you write

and the amount of deals you're going to do. The more offers you write, the more deals you'll do. I mean, every day I want you to wake up with the intent of writing one offer. Do that. I mean, wake up with the intent and follow through. Write at least one offer. If you do that, you will do deals. You'll do real deals if you have your real deal criteria.

You have your deal standards defined. So, one out of seven, if I'm doing more than one deal out of seven offers, I'm likely paying too much for real estate. Those are the numbers for me. They might be different from you, but those are my numbers. Your numbers, they'll become more and more clear to you as you go. But the only way you can get to any specific number for you is to define what a deal is to you first, and then write offers. Create your deal standards, and then you'll know specifically how to sort deals from real deals.

Then write offers that meet your real deal standards. And if you do that, the only deals you'll do, the only deals you're going to get are the real deals. deals. And a real deal defined is, you'll probably write this down and stick it to your computer or your phone or somewhere where you'll see it while you're doing business. A real deal defined is a property that meets your criteria and a seller that meets your terms. That's a real deal. A property that meets your criteria and a seller that meets your terms. Nothing else will do. I mean, it's a great day when you get to say no to a deal. I mean, it's just as great of a day as when you say yes.

You see, while a buyer never leaves a store empty-handed, a shopper will do so happily. It's far better to lose a good deal than it is to buy a bad one. You know, contrary to popular belief, buying real estate is not investing. I mean, buying doesn't make anyone an investor more than buying groceries makes them a chef. be a shopper of great deals and write offers. And when you find a good deal, write a great deal offer. And do that every day. When you find any deal, write a great deal offer.

A great deal as defined per your criteria, your property criteria, and your terms, your standards, your minimum standards for your terms. Don't leave the site of a potential deal without writing an offer. And write an offer that meets your great deal standards. Do that and you'll do great deals. One offer a day. Simple, right? Indeed, it is very simple.

That's all I've got for you today. So until next time, as a very wise person once said, there is no problem unless we choose to make it one. So think carefully before you act. To your success, I'm Matt Terrio. Living the Dream. Thank you for spending this time with Matt Terrio and the epic real estate investing podcast.

When you have a moment, stop by iTunes to leave your comments and let us know what you think of the show. And if you haven't done so already, get started investing today by visiting free real estate investing course.com. To access Matt's free course, how to do deals, no money required. Until next time, to your success. is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.