Epic Real Estate Investing - EPREI 040 : The 3 Don'ts of Property Analysis

Episode Date: September 6, 2012

Property analysis done correctly is the real estate investor's first line of defense against the risky real estate investment. Most risks can be virtually eliminated with proper property analysis. On this episode, Matt walks you through the 3 "don'ts" of property analysis that even seasoned and experienced investors violate on a daily basis. Steer clear of these "no no's" and your real estate investing will take a quantum leap forward as it pertains to your consistent bottom line. Learn how to invest in real estate with Matt's free real estate investing course. Download it at FreeRealEstateInvestingCourse.com Learn more about your ad choices. Visit megaphone.fm/adchoices

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. This is episode number 40. And this is the podcast that will show you how to build wealth through creative real estate investing.

So you'll 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 this show, welcome. I'm so glad that you're here. And now you're going to want to do two things. First, go back and listen to episode one for the ground rules of the show, so you know what this podcast is all about.

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 realestateinvestingcourse.com. It's a step-by-step course of where I unveiled a mystery around doing deals with no money or credit. You know, to this point in my investing career, I've implemented 12 different strategies of investing in real estate using none to very little of my own money. And I've yet to use one point of my own credit score. I've never, haven't yet to deal with a bank yet as far as them giving me money. And inside the free course, I give you the first two strategies, these first two strategies of which I believe are the easiest two.

And they are the two that can generate the quickest success for you as well. and you can get those for free at free real estate investing course.com. Okay, so it's been a minute. My apologies. I know a few episodes ago I said I was going to pick up the pace on my podcast production, so please forgive me. It's just that my actual real estate investing is booming, and it's consuming a great deal of my time.

And I'm certainly not sharing that to brag or boast, but to merely offer you some sort of explanation as to just, you know, where I've been. And, you know, I'm actually recording this episode right now just hours before I'm hopping on a plane to Memphis for our second investment property tour. And this one is going to be awesome, just like the last one, but I think this is going to be even bigger. I'm very excited about it. You know, as the attendance has grown for this one, 300% from our last tour. So I'm excited about that. Yep, 300%. I mean, we had four people on our last tour. And this one we have 12. So not a huge tour, but 300% growth. That sounds huge, doesn't it?

It does to me. I'm looking forward to meeting you that are attending. I've got a lot of, I think, of the 12 people that are attending. I think 10 of them are podcast listeners. So I'm looking forward to meeting you. And hopefully in November, even more of you can attend. I mean, that tour is just, actually, we just scheduled that tour for November 8th and 9th. And if you want more information on that, you can go get that at cashflow savvy.com.

Cashflow savvy.com. The tour is free. You just got to pay for the airfare. And you got to pay for your, your, your, housing and get there and the tours for free. And we can hang out. We could look at property together before and after. We can talk about property. We can talk about real estate investing. I'll introduce you to my management team, my acquisition team. You'll see my whole operation. And it's, it was a lot of fun last time. I don't think it's going to be any less fun this time.

Because the more, the merry, in my opinion. So, you know, so much time it's passed and so much has happened since the last episode. And, you know, every time something significant does happen. I make a mental note that, okay, I must mention this on the next podcast. But my problem there is it's been a mental note. I haven't really written them down. So I'm probably going to forget a few things, but I do want to acknowledge some people publicly for their awesomeness, their awesome accomplishments recently. As my coaching program in the Epic Pro Academy has been growing rapidly, you know, I coach one day a week. I have 10 people lined up just so every hour on the hour for 10 hours on Tuesdays is when I do my coaching. And I've just added. I've just added. I've just

added an additional day of the week for that because the demand is growing so much and I want to make sure that I can help everybody that really wants it. And the Epic Pro Academy, growing, members and are joining every single day. It's awesome. And I've been very fortunate to be personally involved in these people's success, the people that I want to mention right now. So coaching client and academy member, Fernando Ornales, for, I want to congratulate him for closing escrow on a cash flowing duplex and he has two more in escrow, which will probably be closed by the time this reaches your ear. So awesome.

Congratulations to Fernando. And a big congratulations to Randall Van Fawson. He's another coaching client and academy member. He's been putting in the work like no one I've ever seen. He's just very coachable. He follows instructions and he does the work. And each week when we have our coaching call, he's progressed a little bit further. You know, we've been doing this together for about 45 days.

or so, and he just opened escrow on a HUD home. And it's a property he's going to fix up, but he's going to rent it out and create some more passive income for he and his family. And right now, he's currently conducting his due diligence on this property. So, congrats, Randall. Awesome. And Mr. Kevin Cook, Mr. Kevin Cook, who we had on the show a few episodes ago, sharing his coaching and Memphis property tour experience, he's just opened escrow on his first

fix and flip right here in Los Angeles, California. So congrats to you, Kevin. Keep it going. Oh, and if you listen to that episode with Kevin, he mentioned he was thinking about getting his, excuse me, he about quitting his job to invest full time. And the update is, Kevin did leave his job and he is pursuing his investing full time. He's finding it's very hard work, just like I told him it was, just like I'm telling you it is. But, you know, if you do the work, if he does the work, it pays off.

And what's great about it is there's just no ceiling to his earning potential now. And that's what's great for Kevin. So, awesome, Kevin. I'm very proud of your courage, your drive, and your efforts. And we've become really good friends, and I'm grateful for your friendship as well. And one of my clients who's actually just blowing it out the water, I'm really impressed with this guy, Mr. David Perez. He's another coaching client and academy member who's wholesale nine properties in the last 45 days, earning himself $27,000.

That's pretty close to his entire year's salary at his job. And, you know, I've coached David through a strategy, very specific. strategy. It's actually how I've acquired all of my properties in Illinois. So the strategy of which you wholesale the properties, but you also get to maintain ownership in the cash flow as you wholesale them. It's kind of complicated. It's another episode. I'll probably get to it eventually. But I've walked him through that and it's pretty awesome to watch it work for him too. And, you know, it just really goes to show that, or show what's possible if you just move at the speed of instruction. You know, David has really no experience in real estate prior to our meeting each other,

but he's been very coachable. He's pushed his fears and his anxieties aside. He's just taking the steps. He just follows the steps and goes and does it. And here he is within another month or two, totally replacing his job income. So awesome. I'm really excited for David. Super job.

And, you know, while I'm coaching him through his real estate investing, this is kind of cool, I'm leading him through the steps of documenting and publishing his experience. so he can share with others how he has done what he's done, ultimately creating an additional passive income stream for himself. So again, congrats to you, David. Awesome. And in August, Mr. Steve Roof, a podcast listener, and he and I connected, he took me up on my offer of being a sucker for hot wings and beer.

And he called me up and how about some hot wings and beer? And I was like, cool. So we met and together, he and his girlfriend, Karen, and we had an awesome time. It wasn't quite hot wings and beer, but more like steak and fish and chips and dip and wine and martinis and these little chili peppers that were amazing. And, you know, it was a long night, needless to say, but I had a blast and I greatly enjoyed their company. And I can't wait until they come to town again. So that invitation, it's open to all of you. I am a sucker for food.

Oh, and the emails, they are pouring into my inbox by the truckloads. And I will answer every single one of them. It's taken like a week now for me to get back to email. So please be patient. Some of your emails are very long emails as well. So it takes me time to get through through those specifically. And sometimes those get pushed back to the down to the bottom of the pile because I can answer the short ones really quickly. So if you've sent me long emails, it's probably going to take longer to get a response.

Okay. Your patience is greatly appreciated. And your feedback is awesome too. I love the interaction and helping you out with your challenges. And it's just been awesome. So keep them coming. All right. I've got so much more I could probably share about the past few weeks.

but I did promise last episode to discuss property analysis of which I think is one of the bigger misunderstandings of real estate. And what I mean by that is I receive a lot of email correspondence and a lot of phone calls, a lot of questions whenever I'm speaking, around the question, how do you find deals? Or how do you find a good deal or how do you know a good deal from a bad deal? And the answer here is it depends. I mean, there's so many moving parts and so many variables inside. of real estate, the answer is always it depends. There's never really a quick and short answer for anything. I mean, it just depends on what your goals are around what a good deal is. And what your goals are is going to greatly affect the definition of what a deal is to you. So there is no one answer.

But perhaps the best place to look for an answer is inside of your property analysis. So like I said, I mean, this is an aspect of real estate investing commonly misunderstood and tragically neglected or even just flat out ignored sometimes. And it doesn't make a whole lot of sense to me. I mean, this is the investing part of real estate investing. It seems this is where investors should pay the most attention. But unfortunately, most of them do not. I mean, if they paid more attention to property analysis, real estate investing wouldn't

have the risk stigma it has in some circles. I mean, the risk of real estate investing can be. virtually eliminated through proper property analysis, making real estate really the lowest risk, highest return investment ever. Keep that in mind. I mean, through good property analysis, you've got more control over your investment

than any other investment option out there. All right, so keep that in mind. Proper property analysis can virtually eliminate the risk of your investing, which means you should never lose money. Okay? You should never lose money. and I've never lost money. And I'm going to knock on wood real quick.

But the reason I haven't to date lost any money in a deal is that I adhere to a few do's and don'ts before moving forward with any deal. And I want to share those with you, all right? I mean, there are many different approaches, many schools of thought on how to analyze property and formulate its value. But there are two approaches you flat out don't ever want to use. ever and so many people do use them. But don't do this.

This is a recipe for disaster. The first don't. The first don't is don't take someone else's word for the value. Don't take someone else's word. Don't take their opinion for it, okay? I mean, you don't want to use someone else's opinion of value to base your decisions. And the operative word here is opinion. And I know that sounds pretty, yeah.

Well, no duh, Matt, right? Well, you know, just regardless of what approach you do use to evaluate property, keep in mind at the end of the day, they are all just that. Opinions. It's just an opinion. We don't know what a property is worth until somebody actually comes out and writes a check and buys it. I mean, this is your money, your time, and your financial. future at stake. You don't want to make such important decisions based off someone else's opinion.

And so many people do. You just don't make your important decisions based off of someone else's opinion, especially given that this is the aspect of real estate where most investors fail. But even more importantly, they've got their own goals of which they're trying to accomplish, right? And it's not uncommon that their goals being accomplished comes at the expense of your goals not being accomplished. Big reason why you don't want to take other people's opinions.

Because their opinion of value is going to help them accomplish their goals. And you know what? Their goal might not be your goal. Rarely is it ever do you have the same goal. And their opinion of value is going to serve their goal. And most of the time, it doesn't serve yours. So ignore others' opinions of value. Just ignore them.

Okay? From this point forward, you will always formulate your own education. opinion of value before, ever committing to a decision around whether to invest or not. Okay? And I'm going to show you how to come up with your own educated opinion of value in the next podcast. The second don't. Second don't is don't formulate your opinion of value based on emotion.

Don't base your opinion of value on emotion. Now, that sounds very basic and obvious. I know. But with your money, your time, and your financial future at stake, real estate investing can be very emotional. It can be almost impossible to separate your emotions when you have all of that at stake. When you have your money and you have your time and you have your future at stake, it's hard not to get emotional. I mean, it can be challenging in the beginning to separate emotions from facts. But this is investing.

And there is no room for emotions. No room for emotions. Successful investing is based off of facts and numbers and then educated decisions based off of those facts and numbers. I'm working with a couple people right now and they're evaluating property, these cash flow properties that we're selling and they're just looking at the pictures.

Oh, that one doesn't have curb appeal or I don't like the door on that one or this street's kind of weird or this house looks. I don't like the way this house looks. They're making those types of decisions and they're passing on properties based on the appearance, based on the emotions that the photograph gives them. But guess what? You don't have to live there. This is an investment. And an investment is all about the performance of that investment.

It's not about how it looks. You don't have to live there. You don't have to show it to your friends. Ugly houses make great investments lots of times. Okay? So remove your emotions from your. your decision making around your investments, when you're formulating your opinion of value.

It's if the facts and numbers don't add up, there's no investment. That's it, simple. The facts and numbers don't add up, there's no investment. I mean, if you ever find yourself thinking, well, you know, if we can cut some corners here, this deal will probably make a profit.

Or if we can just find the right buyer, this deal should be okay. don't do it. Don't do it. There's no room for what if or if only type thinking in real estate investing. I mean, if your emotions that it's your emotions that will lead you to what if or if only type thinking. No emotions allowed and formulating your value. Okay.

So those are my, those are two don'ts, right? Don't take other people's opinions and don't let emotions creep into formulating your own opinion. I have a third don't, actually. But it goes actually, you know, I might get some booze and hisses out there because it goes against the grain a bit of popular real estate investing thinking. My third don't. Don't is don't use random arbitrary numbers for your calculations. Okay?

What do that mean? I mean, seems like common sense, doesn't it? It seems logical and obvious. I know. Don't use random arbitrary numbers for your calculations. I mean, who would do that, right? Who would just use a random number for a calculation? Well, investors, even successful investors, they do it all the time.

They do it all the time. And here's what I mean. I mean, have you ever heard someone say they purchased a property at 70 cents on the dollar? People say that all the time. I got it at 70 cents on the dollar. Or have you ever had someone to approach you and offer you a property? Or they let you know that they could get you properties at, say, 65 cents. on the dollar. That's even a better deal.

In 70 cents, right? 65 cents on the dollar. Or have you ever heard of someone's formulating or evaluating property being 75% of fair market value and then just subtract the rehab cost? That's what you should purchase it for, right? 75% of fair market value,

subtract the rehab cost and there's your purchase price. You hear that all the time. It's in numerous books. By investors more accomplished than I. I mean, all of those statements, though, to me, are based off of random arbitrary numbers. And the first part of this actually corresponds to our first don't, right?

I mean, when someone says 70 cents off the dollar or 75 cents of fair market value, whose dollar are they talking about? And when they say fair market value, fair to whom? Fair to you or fair to the end buyer, fair to the contractor, fair to the appraiser, fair to the bank, fair to the seller, fair to the buyer, fair to whom? I mean, in both scenarios, those numbers are based off of someone else's opinion of the dollar, or someone else's opinion of what's fair, someone else's opinion of fair market value. I mean, these are examples of, I point out these examples made in our first don't,

but with regard to this don't, don't use random arbitrary numbers for your calculations. I mean, who says 70 cents on the dollar is a deal. Why 70 cents? And who says 75% of fair market value is a good deal? Why 75%? Who came up with that number? Those numbers are random and arbitrary. They are guesses.

They are gambles. And I'm not a gambler. I'm an investor. And I want you to be an investor as well. I don't want you to go out there and gamble. I don't want you to gamble with your money and I really don't want you to gamble with other people's money either. Further, they aren't even universal statements.

I mean, those rules or ideologies will not apply to every market. It's not a blanket statement, 75% of fair market value is a good deal in every single market. I mean, what if you're in the South or the Midwest and fair market value is $15,000? 75% of that is $11,250, leaving only $3,750 a profit. Only, I'm not even $4,000. But then you take away closing costs and incidentals, and now you just drop it down even less, maybe in half. That's what the random and arbitrary number would get you in that market. Is that type of profit even worth the time and effort it would take to put all of that together?

Now, I don't know your exact situation, but regardless of what it is, I got to tell you. No, it's not worth your time and effort. $4,000, $3,750 after, and then you've got to take all your costs and incidentals, your closing costs and stuff, it's not worth it. It's too much work. I mean, maybe it would be worth it for your very first deal, for accomplishment's sake, or for experience sake. Or maybe if you're really desperate for a few bucks, but it's not the type of deal you're going to build any sort of business, career, or stable livelihood off of. it's way, way, way too much effort for such a small profit. Now, what if you are investing in, say, California or in New York,

where the property values are significantly higher? I mean, the median home price where I live is about $700,000. That's the median. I mean, 75% of that is $525,000, leaving $175,000 of profit. Now, that's a good profit, right? Certainly that would be worth it. but wouldn't it also be worth it for 100,000, 50,000? I mean, 25,000, half a half, a quarter of that, that would be a good deal.

I mean, if so, I could purchase that property, that $700,000 property for 90% of fair market value and still put 30 grand approximately of profit in my pocket. So I don't deal in random arbitrary numbers. I deal in real numbers because I am perfectly okay. with a $30,000 or $20,000 profit in any deal. And that doesn't matter to me whether fair market value of that deal is $50,000 or $500,000. 20 grand is $20,000. And it spends the same in every market.

20 grand is a good chunk of money. Well, so that's my philosophy. Love it or hate it, agree or disagree. That's my philosophy. And it's that philosophy that's gotten me into profitability. It's that philosophy that's enabled me to close deals where other people couldn't. It's that philosophy that has enabled me to make real estate investing a full-time endeavor. And it's that philosophy that's gotten me out of the rat race in less than three years.

So those are my three don'ts. First, don't use someone else's opinion of value to make an investment decision. Don't do that. Second, don't make investment decisions based on any sort of emotion. You've got to remove the emotion from your process. And my third is, don't use random arbitrary numbers to formulate your opinion of value. Just do the math. Do the math, okay?

And whether it's 75%, 90%, or maybe it's got to be 40% for it to be a deal for you. You don't know until you actually do the math. Now, my two dues, my two dues are, one, always formulate your own educated opinion of value before committing to any investment decision. always formulate your own educated opinion. There's nothing worse than losing money and having to be someone else's fault. You know, if you make the mistake, you can own up on that

and you get it and you understand why it didn't work out. But if you base your decision on somebody else's opinion or someone else's numbers and you lose, that sucks. It wasn't even your fault. Okay? So always formulate your own educated opinion of value before committing to any investment decision.

and two, deal in real numbers, in real numbers. And that's what I'm going to walk you through in the next episode. I'm going to walk you through what the real numbers are and how that works. And I'm not going to make you wait another month for it, I promise. All right, that's my word to you. Give me a chance to reestablish my word, okay? So, and until next time, as a very wise person once said, the four most dangerous words in investing are,

this time it's different. 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. No money required.

Until next time. To your success. To your success. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.