Epic Real Estate Investing - How to Customize Your Offer for the Greatest Results | 3rd Degree Thursday

Episode Date: September 11, 2014

There are three major considerations every wise investor should evaluate when structuring their deals.  First, what are your buyers looking for?  Can this deal meet the needs of other investors in your network?  Second, what is hot in your market right now?  Will this deal be easy to sell based on current market conditions?  The third, and perhaps most important consideration is often overlooked by real estate gurus.  But the savvy investor will always use it as a litmus test for determining how to structure their deals.  If your deals consistently meet this third standard, you can eliminate a significant amount of risk from your investing business!    As a relatively new wholesaler, I have a question regarding how to structure my offers.  How will my offer to the seller differ when I intend on selling to a buy and hold investor versus a fix and flip investor? - Mike Samaniego of San Diego, California ------- The free course is getting a facelift and the new version will be released soon!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most?   E ducation P roperties  I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to third degree Thursdays, the show where I subject myself to you, giving me the third degree. All right, so I got a question via email from Mike Salman Diego. Hopefully I pronounced that correctly, Mike. And Mike writes, I've listened to a few of your podcasts and have a question for you that I'm not quite clear on. As a relatively new wholesaler, I've assigned a few deals here in San Diego to fix and flippers, so I have a decent idea on how to structure. my offer to purchase and price to assign to the end buyer. During the course of my marketing, I've acquired a few leads that are rentals, whereas the current tenants prefer to stay.

They lived in their respective houses for four plus years. My question is twofold. How do I structure my offer to the seller, discounted, but not as much as a rehab flip due to the potential cash flow? Secondly, what do cash flow investors look for when buying a rental property in terms of price? Are they willing to pay close to market value due to the potential? cash flow or do I just price it out similar to a fix and flip? In other words, as a wholesaler, how do I structure a buy and hold rental versus a fix and flip? Kindest regards, Michael.

Okay, so there are a bunch of questions in there and I think what you're getting at, Mike, is really how does your offer to the seller differ when your intent is to sell to a buy and hold investor versus a fix and flip investor? I think I've summed it up there correctly. I've got now and I'll address everything in my answer. but that's the basis. How does your offer to the seller going to be different when your intent is to sell to a buy and hold investor or a fix and flip investor? All right, so good question.

And there are different schools of thought on this, and those different schools of thought will typically depend on either your end investor and or the market of where the property is. Now, there is a third school of thought that I think you should consider more than any other. It's my recommendation. You don't have to is just that what I think you should. do. However, I know everyone is not in the position to operate from this third school of thought. So I'm just going to go ahead. I'll start with the two most popular, the two most common, okay?

So first, it depends on your investor. You have to know your buyers. You have to know your investors. So basically just like any business, you have to know the needs and wants of your customers. And in our business, we call them buyers. Now, you get to know what your buyers need and want by networking and by surveying, asking questions. And you can do that in person or you can do that online. There's many ways to do that. And, you know, when you know what your end buyer is looking for, it's easier to go shopping for them.

It's easier to market for them. You know, specifically, if you know that your buyers need to make a minimum of 15% return on a flip or 20% cash on cash return on a hold, then you know what to offer the seller, right? but is every single investor that you work with, every buyer, one of 15% return on a flip? No, someone's going to want to 10, someone's going to 15, when someone's going to eat 25 or 30.

And then the same with the cash on cash return. Is every investor or buyer that you sell to, if that's willing to hold the property, are they all open to a 20% cash on cash return? No, probably not. Some are very welcome or very easy with the 10% depending on the area, maybe it's up and coming area. They're willing to go down to 5%

if they think it's going to be a really good long-term play or maybe someone needs a no, I don't do anything under 33%. Okay, so it's going to be different. You got to know what your buyers want. And so that's key. And if you know that your buyers need to make a, say, maybe it's not a percentage, maybe it's a minimum of $20,000 on a flip or a minimum of $300 a month in cash flow. So if you have those numbers, you know what your buyers want.

Then you know what to offer the seller. The challenge there is, not all buyers want the same thing, even if they want all want to hold, they all probably want something a little bit different out of the properties that they hold. Okay, but that's the first way. You got to know what your buyers want. Second, it depends on your market. You know, what's hot in your market?

Is it low-income buy and hold properties or is it, you know, middle class area fix and flips? Or is it, you know, high-end rehab makeovers or is it, you know, that median price range and add square footage, you know, what's hot in your market? And if you network at your RIA meetings, that's really an easy way to find out what's hot is by doing that. If you search sales history on the multiple listing service, or even Zillow, you can see where all of the recent market activity is.

You'll see clusters, and you'll know what areas are flipping or where there's a lot of transactions taking place. That could be a good indicator on, you know, maybe you don't need to know what the buyers because you have confidence that there's going to be a lot of buyers looking for that type of property

because there's so much activity going on there. Or if you pull, you know, local property managers inquiring what types of properties could they use more of in their rental inventory. You know, what type or property or what neighborhood do they have the most demand in? So if you know what's hot in your market, then you know that there's probably a good demand for those properties from buy and hold investors. And it probably wouldn't take more than two or three phone calls from your property manager to find a buyer for you. Okay, so if you have that information, then, hey, you know what to offer your seller. If you know what's hot in your market, you know what to offer your seller.

So that's the second way. Now, the third way you can go about this is via your own minimum deal standards. And this is why I teach this fairly frequently, because if you know your own minimum deal standards, then it doesn't matter what your buyer wants. It doesn't matter what your buyer needs. You see, your ultimate goal should be to build your own portfolio. So if you get a property under contract and no one wants, to buy it and you've passed a point where you're unable to cancel the contract, you know,

it should still make you money if you have to do the flipping or the holding yourself. Okay? So if it's going to, what's your own minimum deal standards are is like if you hold onto the property, what's your minimum cash flow you want? If you're going to flip it, what's your minimum return that you want? Or what's the minimum dollar amount you want to make? Okay, those are your minimum deal standards. So if you hit that point in your due diligence and, you know, you took a chance and you went

past the contingency phase, the inspection contingency, and you sign that off and you're unable to cancel the contract, you shouldn't really be sweating it all that much because it should still make you money if you have to do the fixing and flipping yourself or if you have to do the holding yourself. Make sense? So when I analyze a deal, I run flip numbers and I run hold numbers, and I offer the lowest number. So the lowest number of those two calculations. So if that, if strategy number one doesn't work, I have a safety net and I can execute strategy number two, or vice versa. And this is why now I almost exclusively use the three-option letter intent calculator for my offers these days, because it presents three options, three options

to the seller, of which it doesn't matter to me which one the seller accepts, because I meet my minimum deal standards with all three options. Okay, so it's inherently built in there. So I am always protected. Now, if you don't know what the three option letter of intent is, and Mike, if you just listen to a few episodes, maybe you don't. You can go back to episode 80, and I talk about the three option letter of intent, and I tell you where you can get it.

So check that one out too. So that might be what cures all of your woes right there, because that safety net and that question about what should I offer the seller is kind of, you know, kind of indirectly takes care of itself by using a three-option letter of intent. And in that episode, I'll give you the actual three-option letter of intent calculator that I use. Now, those are the three approaches. And neither of those approaches that I've described are wrong, by the way.

Neither of them are right. They're just simply three different approaches to determining what you're going to offer the seller. And it kind of just comes down to whether you're working for other investors or are you working for yourself. And so I prefer the third approach, basing all of my offers off my. my own minimum deal standards because I feel like I'm working for myself. I'm not working to please other investors and hoping that I'm going to please them and I got the right property that they're going to want. That's just my philosophy.

Again, not right or wrong, just my preference. Okay, so there's three different ways to go about it. Mike, I hope that helps. And thanks for the question is a great one. And should you have a question, comment or concern that you'd like me to address here live on the show, send it to me at mat at epic real estate.com and type third degree in the subject line. Or you can leave me a voicemail on the epic hotline at 1-88-891-7203, and I'll actually play your voice here on the air and I'll make you famous, all right? So I will see you tomorrow for a new episode of

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