Epic Real Estate Investing - How to determine a property's true value? | 662

Episode Date: May 24, 2019

Learn the main factors you should take into consideration when determining the price of real estate and why the market sets the ultimate value of a property. Learn more about your ad choices. Visit megaphone.fm/adchoices

I decided to come to the intensive was because we really needed a jump start. And we really need to put systems in place. And we really want to work with like-mind people to do that. I would recommend pretty much anyone in the real estate industry or thinking about being in the real estate industry, whether they're newbies and they're just kind of getting their feet wet or they're even experience. Because you can always gain something else and pick up something from, someone else to better further you in your, in your venture. I decided to come to the epic program because my sister told me so.

Hey, rock star Matt here. Thank you for listening to the show. I've got a great one for you today. And before we get started, though, I just had a really quick question for you. Are you tired of spending more and more on marketing, but not seeing enough success with your real estate investing? I mean, the market is showing that spending more on marketing just might not be enough. And setting up a really good automated lead machine is almost impossible for the average person to do on their own, especially in the beginning.

The real estate investing solution of the future takes things to the next level because now you're contacting leads, now you're setting appointments, and now you're making offers because of a solid automated lead machine. That's what it'll do for you. It'll put that type of opportunity in front of you so you can take those actions. And before I forget, if you like the sound of this and you want to go deeper with it, you might like to attend the live three-day epic intensive lead machine workshop. It's July 18th through the 20th in Manhattan Beach, California. And if that sounds interesting, then head on over to epicintensive.com and get the details. Epicintensive.com. All righty, let's get on with the show.

What we're going to talk about is how to determine a property's value. And the main thing that we're going to focus on is the true value. I mean, how do you know? This is Terrio Media. So before we get started, though, if you're serious about wholesaling and specifically if you're serious about doing it virtually, then you might like a new course that two of my rock star students just put together. And if you like to learn from a couple seven-figure wholesalers, people that do it virtually, then head on over to wholesalingvirtually.com. Neither one of them have any aspirations to be a

guru. They just want to get the truth out there. That's their mission. And that's their motivation for this. So check out wholesalingvirtly.com. If it looks like something that you want to be a part of, then you'll know what to do when you get there. All righty. So let's do. Let's get into this. When it comes to getting contracts signed by sellers, right? We all know that we need to know the property's value before we can even present the offer, before we have any comfort level of doing that. But a huge thing that holds people back is the uncertainty of what the value really is. And this comes to me all the time.

And it did just this morning. So that's why it's on top of mind right now. You know, people are just, they're worried about offering too much for the property. and they're worried about overpaying for it or maybe not offering enough and they're worried about offending the seller or not offering enough getting rejected and missing out on a deal where they probably could afford to offer a little bit more and had a really good deal. And that all makes sense. I get it. But here's the thing. If you took 10 licensed appraisers and you lined them up against the wall and you gave them a specific property to evaluate, those 10 appraisers are going to come up with 10 completely

different opinions of value. And that should make sense because when you're talking to a seller, they always think that their property is worth up here, right? Their value is up here. Their opinion is up here. The buyer is always down here. And then you got those appraisers in the middle. You got realtors in the middle. You got property managers. You got the fix and flippers have one opinion of value while wholesalers have a totally different opinion. Landlords, everybody's got a different opinion of value. So the true value of a property is what the market is willing to pay for it. the market sets the value of a property. And you have to be able to look at the market, look at the conditions, look at the data,

and be able to deform your own opinion of value because this is your money, right? This is your money you're putting at risk. It's your time that you're spending. And you don't want to base that effort and put your money up on somebody else's opinion of value because no one knows your situation better than you do. So if this uncertainty is holding you back and preventing you from presenting offers, then you're going to have a really tough time making any money in real estate. You've got to be able to look at the market and come up with your own opinion of value.

It's your money. Don't trust anybody else with doing it, okay? So I'll share with you what happened this morning and then how to actually do that for yourself. So you've got a certain level of confidence around a property's value so you can go in and make an offer with a certain level of confidence as well. But first, if you want to go deeper into wholesaling properties and you want to do it specifically virtually, two of my rock star students, they put a great. course on this subject together.

And it's opening up, it's actually just opened up. So go to wholesalingvirtually.com and check that out. All righty. So now this morning, I got a Facebook message, woke up with it the first thing this morning. It was a really long one. And the question was about what tools out there will determine the most accurate opinion of value. And there was a giant list of tools.

And the question came to me specifically. They were asking about REI solutions, the CRM that we use here at Epic. and you know, it does all kinds of other things. Project management and it does the comps and it does the marketing. There's all kinds of stuff. But they're asking about that specifically and they listed a bunch of other stuff. Which system out there provides the most accurate value? These are just, these are other systems.

There are other softwares and they're all just other opinions. And I mean, the Zillow's estimate. I mean, that's been beaten up and down for a very long time since it came out. I think it's getting a little more accurate, but still it's just Zillow's opinion. It's another opinion. So here's how you do it. So let's say you've got this. triangle, and this is going to represent the property's value, right?

We've got three sections. So the biggest section here at the bottom that determines a property's value is going to be the location, right? Location, location, location. We've heard that before. So that is the biggest factor in determining a property's value. The next is going to be the property's size, the size of the property. And then the third will be condition.

Okay. So when you're looking for a property's value, you want to look for properties in the relative same location in the vicinity of the subject property of the same size and of comparable condition in that order. Then what's next is the big factor is, are you going to be looking for what has sold, what's for sale, what's pending, what's for rent, what's been withdrawn, what has expired, those are all different categories of properties that are available for you to look at, the type of data you're available to review. But what you're concerned with, if the market is what determines the ultimate value of a property,

what you want to look for is what has actually sold. That is the most important number. You want to look at what property went up for sale. Someone came along with their little checkbook and wrote a check to that seller and followed that all the way through escrow and validated that. price. So that's what you should want to look for. So you want to look for the solds. The next factor is when you're looking at those solds, now you want to look at time. The more recent, the better. The more recently sold, the better. You want to find three to five properties that match a relative location or comparable in location, comparable in size,

comparable in condition that have sold recently, typically 90 days or less. Okay? That would be like, how do we do this? Yeah, 90 days or less. And if you can find them inside of 60 days, do that. If you can find them inside of 30 days, use those. The more recent, the better. But typically 90 days will get you in the ballpark.

All right. And what that's going to do, you're going to take those three to five properties. then you're going to average them out. Okay? So you know how to do that. If you found five properties, add up the sold prices of all five of them, and then divide by five. And that's going to give you your average.

That's going to give you essentially your fair market value. So now you're in the ballpark. You've looked at the data. You've formed your own opinion of value. Now you're ready to make an offer. So how do you know what offer to make? How do you know what price to put? Okay.

So this is a. another one was a big fat depends, but I'll give you a general rule of thumb and this should be able to help you out. Okay? So you're going to start. Now that you figured out your fair market value, you want to subtract the repairs. You should have planned the spacing out on that better. But you want to subtract your repairs. So you're starting with fair market value, subtract your repair estimate. And then you want to subtract the profit. The profit, that's your profit. You get to determine what that is. And I'm going to talk about that in a second. But that's going to equal basically your offer.

That's going to put you in the ballpark. But let's talk about this word profit here. That profit, that's going to be very subjective. Based on the comps and what you've been able to find via the market data, that's a variable. Those are different variables in play. But then also, how much do you want to make off of it? That's another variable.

So each and every one of you are different. Each and every one of you have a certain price in your mind that I'm not going to get out of bed unless I can make blank dollars. So each one of you have a different level of profit that you're willing to accept. So you need to put that number in there for yourself. So a couple other things. If you're going to fix and flip the property yourself, then whatever you put in there, that might be enough.

Whatever is for you, that's you. That's up to you. You can work whatever you want to work for. But if you're wholesaling property, you have to put your profit in here plus the profit you would be passing on to the next person. Because most likely, as wholesalers, we know our typical buyer is going to be another investor. And another investor is not going to buy that property from you unless they're going to make some profit too. So you'd have to add your profit plus the person, the profit that you're going to be passing this on to.

And then you can bump it up a little bit, make some room for negotiations. But that's going to get you in the ballpark. Chris, what's up? What's up to you? Tom, good to see you, buddy. And Justin, I thought it was 85% of fair market value repairs and profit. Yes, okay. So you might have seen this before.

I had no intention of talking about this, but since you brought it up, Justin, thank you. One of the formulas that you'll see frequently is fair market value times, say, anywhere from 70 to 85%. Justin's asking about 85%. So I don't mind that formula, but it's not universal. It's going to be a different percentage. This is going to be a sliding scale. That's going to be a different percentage. in a lower priced market, then it would be in, say, a middle class market or even a luxury market.

So that's going to slide. So I have no problem with you using that formula, but you're going to have to come up with your own number based on your market. And if you can kind of come here, you can get your quick and dirty math once you decide how much you need to make and how much the buyers in your market want to make, then you can kind of come up with that formula yourself. But I like that formula. I'm not against it, but it's not a universal answer. It's not a one-size-fits-all. All right. So good question, Justin, thanks for asking.

All righty. So good questions. I want to go ahead and wrap it up, but here's what we know. A property's value is 100% the opinion of the market. And the market shows its opinion by validating the value with a purchase. So you want to make sure that you're looking at the sold. Further, all that's really important prior to being in contract is that you just get close, just get in the ballpark.

If you discover after you're in contract that you, were wrong and that you made a mistake, you're protected by the contingencies in the contract. You can go and take your newly found discoveries back to the seller and say, Mr. Seller, I thought it was going to be this. You thought it was going to be this. We were in agreement, but you know what? I went out to the market, and the market said differently. So this is what we're dealing with now.

And so you can renegotiate that, those new findings, or you can cancel the contract. Right? No one likes to do that. It sucks. But it's not against the law. There's no real estate jail for canceling a contract. And there's nothing to be afraid of either. So don't let the fear of not knowing the value or being uncertain about the value

prevent you from submitting offers because your income is going to be directly in proportion to the offers that you submit, the number of offers you submit. And if you mess it up, you're fine. You're totally protected by your contingencies. So don't forget if you want to dive deeper into this. into wholesaling and doing it virtually and check out what two of my rock star students have done. They're seven figure earners. They've done really, really well for themselves.

They've taught me a few things, and they brought it back home. They asked me to support it. They asked me to host it, and they asked me to share it with you, and that's exactly what we're going to do. So you can go to wholesalingvirtually.com, and they'll show you exactly what they are doing. Like I said initially, they've got no aspirations to even be gurus. They don't want to be speakers. They want to be authors.

They're busy making enough money with their business. They just want to make sure that they kind of have it in them to share the truth, and they want the truth to get out there. So I'm happy to be a part of something like that. All righty. So that's it for today. I will see you guys next time. Thanks for being here and talk soon.

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