Epic Real Estate Investing - How to Recognize a Good Deal | Financial Freedom Friday

Episode Date: March 7, 2014

"Is this a good deal?" is a common question I receive. Unfortunately, with question never comes enough information to answer it. So, the answer is always, "It depends." However, there is a simple "rule o' thumb" test you can put any deal through of which will give you a relatively C.L.E.A.R. indication whether a deal is good, or not. ------------------------- Download Matt's free real estate investing course "How to Do Deals | No Money Required" atFreeRealEstateInvestingCourse.com or text FreeCourse to 55678 "Click" what interests you most:  Education Properties Income Coaching Learn more about your ad choices. Visit megaphone.fm/adchoices

It's time for Financial Freedom Friday with Matt Terrio. The answer to just about any real estate investing question that you can think of is, it depends. And the question, is this a good deal? No exception. I hear this specific question ask all the time, and I see the question asked in online forums all the time. I mean, all the time. And the answer is completely dependent on the person asking the question's investing goal. you can't answer that question without having all the information without knowing what their goal is.

You know, is the goal to flip or hold? If the goal is to flip, what's the minimum profit they'd be willing to take? If the goal is to hold, what's the minimum ROI they'd accept? Is the goal quick money or is it maximum money? These are very important questions. You need the answers to these questions that they have to be asked and answered before the original question, is this a good deal, can be accurately answered. However, a quick analysis to determine a clear initial opinion of a good deal or a bad deal

that can be had by using a simple acronym that was taught to me years ago. Clear. C-L-E-A-R. And I still use it today. So, C, for cash flow. Cash flow, that's the monthly income that's left over after all property expenses have been paid. In my opinion, an investor should never purchase a property unless they are prepared to hold on to it. I mean, if you find yourself having to hold onto a property, particularly one that you

had intended to flip, the property should pay you while you do hold on to it. In other words, it should cash flow. So question number one is, will this property cash flow? If it won't, that would typically be my first indicator that this might not be a good deal. L. L is for leverage. Now, leverage sometimes gets a bad rat, but mostly from inexperienced investors. You know, leverage It's important, it's very important, as it enables you to use less of your own cash and purchase more property than you otherwise could without the leverage. And additionally, using leverage, your rate of return, your ROI, is positively and exponentially impacted through cash flow and appreciation.

No money down? That's the ultimate leverage position and is very attractive for most investors. But it's not without its risk and should be approached with caution. Nonetheless, leverage will typically work in favor of the experienced and educated investor. So question number two is, how much can I leverage? And I'd say as long as the property cash flows, the more the better. But you know your situation better than I do. E is for equity.

Now, equity is the difference between what a person owes on a property and what the property is worth, the fair market value. And when analyzing a property, equity can be perceived from multiple angles, such as you can look at the rezoning potential. There might be some equity there that you can create or access. Discounted price, fix up potential, improved management potential. Equity can be created in multiple ways. But buying a property with the equity already built in, I think that's the best way. Distressed property owners and investors that need out of their property, those are my favorite sources for equity purchases. You see, one man's problem, that's another

person's opportunity. Both win in this scenario. Now A, A is for appreciation. And anticipating appreciation, that's a gamble. And many gamblers, I mean investors, they do just that. They gamble. See, I'm very conservative and I hate to lose money. And there's probably no faster way in real estate to lose money than by ignoring the cash flow and equity rule and pushing in all your chips and betting on appreciation. I mean, if your property passes the cash flow and equity tests, just consider appreciation.

a bonus or icing on the cake. Be a smart investor and don't make appreciation your primary buying criteria. Now R, ours for risk and what most people don't realize is that risk can be virtually eliminated from real estate investing by following these three rules. Rule number one, don't buy any property unless it cash flows, even if fix and flip is your strategy. Rule number two, know your state's real estate laws and write good purchase agreements with plenty of room for you to change your mind during escrow if something doesn't look right. Three, rule number three, build a strong team of experienced professionals to work with, specifically your CPA, rehab contractors, and property managers.

Now keep in mind, no investment is risk-free. But by giving these three rules, these three areas of your real estate investing business a great deal of your attention, real estate is one of the, ah, it's the safest investment that I know. get clear. Get clear on your investing opportunities and quickly distinguishing the good deals from the bad deals. That's going to be a snap. Okay. I'm Matt Terrio of Epic Real Estate, and this has been another episode of Financial Freedom Friday. See you next week. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.