Epic Real Estate Investing - How to Quickly Estimate Repairs | 3rd Degree Thursday

Episode Date: January 22, 2015

So a motivated seller responded to your marketing and wants to sell you their house.  Now what?  How do you estimate fair market value?  The cost of repairs?  Your all-cash offer price? Today Matt tackles these questions and gives the formula that will allow you to craft your offer quickly so that you can secure the property under contract.  Enjoy! ------- If you have a question, comment or concern that you’d like Matt to address live on the show, send it to him at [e-mail] and type "3rd Degree" in the subject line… or leave him a voicemail on the Epic Hotline at 1-888-891-7203.   See you tomorrow for a very special episode of Financial Freedom Friday with the man that started it all for so many of us, Mr. Robert Kiyosaki! What interests you most? E ducation P roperties I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Boom. Hello. And welcome. Welcome to another episode of Third Degree Thursday, the show where I subject myself to you, where I allow you to give me the third degree. So today's question comes from Larry T. out of Columbus, Ohio. And the question is, how do you estimate repairs when considering putting a property under contract? Well, that's a great question, Larry. And there's more to the answer that I have for you than just what you asked. And I'm going to get to that in 30 seconds. So wait, wait, wait, before you go anywhere, By the way, this past weekend at San Francisco's Grub and Grow Rich event, great turnout, by the way. It's awesome to meet you all. I had a blast, like always. But there was one particular person who sat in the front row, particularly because he was late, and that was the only seat available, was that one table right there.

Mr. Doug Tay, I remember you, buddy. You raised your hand during the Q&A session, and you asked me, why do you have so many commercials in your podcast now? And I was like, I was taken back a little bit. I was a little bit defensive. I mean, I was thinking, I don't have so many commercials. It's only one or two, and I made them really short, and I tried to make them funny and entertaining,

but that's not what he asked. So why do I now have commercials in my podcast? Well, since these, I mean, these podcasts are free to you, and somebody's got to pay for them. So I'm passing on that expense to someone else rather than you. Cool? So there you go, Doug, and I'll be right back to answer today's question in 30 seconds. Alert, alert! Real estate investors,

Listen carefully. A closely guarded secret reveals that closely guarded secrets aren't really that closely guarded. Seriously, go to find motivated sellers ASAP.com to get the inside scoop on how the nation's most successful real estate investors really find their deeply discounted properties. Go to find motivated sellers ASAP.com. Deeper discounts, less secrets. Find motivated sellers ASAP.com. The question is, how do you estimate repairs when considering putting a property under contract? All righty. So the first thing that jumps out at me here is not the repair part of the question,

although we will get to that answer. That's not what jumps out of me here. What jumps out at me is the considering to put the property under contract part of that question. And my answer to that is don't consider it. At least not for too long, just do it. Just get it under contract. Put everything under contract. Then figure out the exact rehab cost later. You know, your initial intent with every motivated seller lead that rings your phone is to get that property under contract at a price that's in the ballpark of what you'd be willing to pay for it. Now, in the ballpark, that's the key phrase here. So determining a property's value, I want you to know it's not an exact science.

So don't kill yourself trying to find the exact dime or dollar amount. Line up 10 appraisers to provide you with an appraisal. You're going to get 10 different answers. That's what I mean. It's not an exact science. So how do you come up with a ballpark price while taking into consideration the cost of repairs? All right. So first, figure out the fair market value.

And to do that, you take the three, to five of the highest price comparable sales in the last 90 days or so, I typically take the five and I try to, and I eliminate the top one. So I just, I do the top, the next three to four properties. I take an average of that. But that's just me being extra conservative. That's my method. It's not the exact way. It doesn't matter. You don't have to do that if you don't want to. That's just how I do it. But you do that. You take an average of the top three to five of those highest price comparable sales in the last 90 days and then you multiply that by 70%. Now, subtract the repair cost. So now you're like, well, that's what was my initial question.

How do I know what the repair costs are, right? Well, to quickly figure this number out, right here, you're going to figure this number out twice, but you want to do it quickly right here up front before you're in contract. And here in the office, we use $10 per square foot for a moderate rehab. We use $15 for a heavy rehab. We use $5 for light rehab. And that's $10 times the square footage, $15 times the square footage, $5 times the square footage. And that would $5 for a light rehab.

But if in doubt, just kind of roll with the $10 per square foot. all right, that's going to get you in the ballpark. Now, next, subtract your desired profit. Don't forget to pay yourself. Don't forget to pay yourself in the equation. So if you want to clear $10,000 out of this deal, put in $12,500 or put in $15,000 into that equation to give you some room for negotiating.

And then what you have left over is your all-cash-offer price. So it's fair market value times 70% minus repairs, minus your profit, equals your all-cash-offer price. Got it? Go through it one more time. Your fair market value times 70% minus repairs, minus your profit. That equals your all cash offer price. Now, present the offer to the seller.

And if necessary, keep presenting. I mean, you're going to give it to them. They're going to say yes, no, or they're going to counter back. And then you just keep on countering back until you get a signed contract. Now, once you have a contract signed, now you can hire a contractor or two or three to visit the property, to give it a walkthrough, to get a signed. give you an official bid on the cost of repairs. So the question, or the answer to your question, there is you don't figure out the repairs, okay? You just come up with this little quick formula,

this $5, $10, $15 per square foot. And then after you got the property under contract, let the contractor go and give you a more accurate number. Now, if it comes out to more than what you figured in for your initial offer calculation, then what you do is you take the bid to the seller and show them what your contractor's found. Got that? Take the bid to the seller. and show them what your contractors found. Remember? You didn't find it. You're on the same side as a seller.

It's you and the seller versus the market. It's you and the seller versus the contractor. It's you and the seller versus the inspector. You're there to help the seller. So look at Mr. Seller. This is what the contractor found. You don't want to be the bad guy here. Got it?

So take the bid to the seller and ask them to share with you in the newly found liability. And you will get the price reduction you need fairly, fairly often. Okay? do it in that manner and you're going to get that price reduction. Now, having said that, the bid is typically not too far from your initial calculation unless there's something seriously wrong with the property. And in that case, you absolutely want to go and ask for a price reduction.

Okay. So there you go. Don't overthink it. Your intent is to get the property under contract. That's your objective. So to quickly calculate your repair costs, it's $5 per square foot for light rehab, $10 per square foot for medium rehab, and $15 per square foot for your heavy rehab. have. Don't go any further than that until you are actually in contract. And then once you're in

contract, confirm your estimate by sending over a contractor to write you a more formal and thorough bid. All right. Hope that helps Larry. Hope that create some clarity around the whole situation there, because it is a whole situation. It's not just a single question. It's all wrapped and intertwined in this objective of getting control of the property first because you can't wholesale that property. You can't buy that property. You can't get that deal until you get it in contract. first. All righty? So should you have a question, comment or concern that you like me to address here live on the show, send it to me at podcast at epic real estate.com and type third degree in the subject line or leave me a voicemail on the epic hotline at 1-88 898-91-7203, and I'll

make you famous. See you tomorrow for a very special episode of Financial Freedom Friday. Tomorrow, my guest, the one and only author of Rich Dad, Poor Dad, Mr. Robert Kiyosaki. See you tomorrow. Radio Network. For more top business podcasts, visit c-sweetradio.com.