Epic Real Estate Investing - Where to Find the Deals | HTH027 | 593

Episode Date: February 20, 2019

It is essential to find the deal before looking for the cash. That’s what we told you last time and today we are going to help you understand why and how you can close a deal for less money than someone else is willing to offer for it. In today’s episode learn what the deal is, why you need to established certain criteria before looking for it, and how to find and close good deals. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Hey, flipping houses can make you rich. Holding them will make you wealthy.

This is the Hold That House show, and I am Matt Terrio. And over there is Matt Andrews. Honey, I'm home. Before we begin, we've got a free gift just for you. Go to hold that house.com and download the four-hour work month. The 10 commandments to managing property managers. The key ingredient to financial independence through real estate that they are not telling you about. And you can get that for free at hold that house.com.

Hold that house.com. That was almost like a jingle or something. That's right. Hold that house. com. Yep. the humidity is getting to me. That's right.

Seven straight weeks of a humid hotness in Tampa Bay. It's got us right in jingles. Oh no. It does. Skippe-a-b-boop. Yeah, we should go back to our previous career. We definitely should. We're not good at this one.

Exactly. Anyway, last week we talked about where do you find the cash to get started? And it really came down to find the deal first. Yep. Right? So that's the most important part. Also, you know, don't act like you need it. Don't act like you need the money.

specifically. Don't be desperate. Don't be desperate. Don't be that bad date. Exactly. Keep the drool in your mouth. That's right. Be transparent and just be straightforward. Pay people back when you said you're going to pay them back and definitely pay them back how much you said you were going to pay them back. What a novel concept. I know, right? Yes. It's amazing that in our, in today's world, that that is actually what gets you more business. That it's even something we need to talk about as a tip. Right. Here's a tip. Be honest. Hey, here's a tip. Have integrity. like that. Yeah. That's worth its weight in gold right there. Exactly, right? So if finding the deal is so important, because that's how the money's going to find you, find the deal and the

money will find you, it's my favorite saying, because it's absolutely true. Totally. Absolutely true. And every real estate investor I've ever had on any of my podcast or I've ever talked to, not one of them, not one of them disagree with that notion. Absolutely. All right? So finding the deal, that's your most valuable skill that you can create as an investor. So where do you find the deals? We're going to talk about that today. But let's talk about what a deal is and then why a deal is a deal, meaning why can you buy it for less than what someone else is willing to pay for it. Okay? So let's talk about a deal.

That's very subjective. And each and every person, it's a very personal question, actually. Sure. And it could be a different answer for every single person that we would ask that to. Yeah. And, yeah, many answers to that question for sure. Yeah. Right?

Yep. So a deal is, first you'd probably have to look at it. at what are your goals or what is your intention with real estate and a deal is something that's going to get you there. It's going to, it's something that's by acquiring or investing or whatever that transaction may be, whatever's going to get you closer to your end mark. And then obviously, the better deals get you there faster. Yep. And you can't know what a deal is if you don't have that measure to put it against, right? So I always talk about something called your minimum deal standards. So those are really important for you to establish first because it makes a

the decision process so much easier. And also in this game in real estate, it can be competitive in the sense that typically if you can act fast, you win more often, the guys that can act fast. And acting fast doesn't mean, don't confuse that with acting irresponsibly. Acting fast is just acting fast. Yeah, being decisive. Being decisive, absolutely. Not acting rashly. And you can act fast, be responsible, and be smart and be very good at this if you know what a deal looks like before you ever go shopping for one. Right. Right? Sure. So a couple of different ways that parameters are, I guess, characteristics of how you can measure a deal is, you know, if you're an income investor,

maybe it's your return on investment, your cash on cash return. Or maybe it's, if you are a capital gains investor, maybe it's the amount of equity that you're able to acquire up front or the amount of equity that you project in the future. It's another way. Like, For example, you have a $100,000 house and I'm not going to buy anything unless I get $20,000 of equity with the purchase. Right. So that means at $100,000 a house, you are not going to spend a dime over $80,000 for it. So now you know when a deal comes across, this is a beautiful $100,000 house, but it's $84,000 to me. You know you need to negotiate $4,000 less.

Yep. But if it comes across, it's $80,000, you know you can act fast and you're right on mark. Yep. But if you don't have that criteria, then you don't know how to act fast. You can act fast. You won't have the confidence. stack fast. And especially for us buying hold investors, I mean, you and I, we look at a ton of properties to find the ones we would want to have in our portfolio, right? So if we don't have

an objective criteria to disqualify the ones, even more so than qualifying the right ones, you know, we see 100 come across our desk. We're not buying all 100 of them, right? We're buying like one or two. Right. So how do we quickly take it from 100 possible deals to, nope, these 98 don't work. These two fit the criteria. I'm going to look at it more. Well, you've got to have that criteria. So for me, it's having a simple, you know, when I'm looking at rental properties or properties I want to put in my portfolio, it's having a simple pro forma that I can plug some numbers into very quickly, you know, and just plug a few numbers in and just know, hey, if this is not a possibility at all. What's a pro forma mat? A pro forma is, you know, something that just gives you,

we don't get that sophisticated around. That's, I know, that sounds like, what am I from Wall Street or something? So, so basically a spreadsheet that you're plugging numbers into that lets you project the numbers. So if you're trying to figure out, hey, I'm buying this property, I'm going to rent this out. You know what it rents for. You know what your purchase price would be. You quickly put together some estimates of insurance, taxes, the other expensive property manager managing it. What's their fee? Put that in there.

And then it gives you an idea, okay, you know, on a yearly basis, here's my return or on a monthly basis, here's what I'm looking at, here's what kind of cash flow I'm looking at. Here's my return on investment. And if you can look at that and know, hey, anything under, and I'm just going to pull a number out of my habit, But anything under 10% return on investment is not even a possibility, not even interested in looking at it. Well, a lot of those deals are going to be 7 and 8% deals. So you just get those off your table. Now you're just looking at 10% and up.

And then, like you said, you're getting 20% cash on cash on a lot of your stuff, right? So now you take that next step, you know, and say, okay, I'm looking at the highest and best use. What are these really going to produce? But have a cutoff there. You know, so for me, in certain markets, it is a 12% ROI. we won't even look at anything unless it's at least that. Right. Now, it may not, it still may not be the deal we want, but at least that lets us get rid of 95% of the ones we know we don't want.

And then as you scale up a business like you and I have and have people working for us and staff kind of looking at some of these things, then it becomes even more important because now it's not just your time. It's the time you're paying people to look at that and qualify or disqualify those. Right. And if you don't have an objective criteria, you don't want their best guess. Right. That doesn't work, right? You don't want their opinion of a deal.

You don't want their opinion. You want that pro forma. out or whatever it is. So it's just having, you know, and it's different for everybody, like you said, but it's having something definitive to say, look, here's what I do and here's what I want, and here's what's not even in the realm of possibility. I wouldn't even look at this. Right. And knowing that, and then that brings you the luxury of being decisive. And people that can move fast and move fast quickly and intelligently, those are the ones that win and get the best deals, right? So there you go.

Please stand by. We've got overhead to pay. We'll be right back. Your portfolio has seen better days. But this two shall pass. And the best for you is yet to come. Together, we'll get you there faster. We're at turnkeyallies.com.

And we'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival. Go to turnkeyallies.com. More building, less well. So let's talk about how we find these deals, right? Right. Well, let's, yeah, let's talk about why someone would give us a deal.

Why would someone sell us $100,000 house for $80,000? It's a great question. And it happens all the time. It does. That question comes up all the time. And there's a phrase that's thrown around our industry called motivated sellers. And it's a little bit, I guess, counterintuitive when you hear the word motivated. because motivated has a connotation of something positive in our society, in our nomenclature.

Our lexicon. Right. I'm pulling them all out today. Yes. Our lexicon. Yes. You got it to me about performer and you just said lexicon. Yes, that's right. This is a high-brop show. We've gone Ivy League in this one, I think. Yes. Other people are like, what are you talking about?

Let's get back down to the way we normally talk. Okay, go ahead now. You know, right. That's how to do down here in Tampa. That's right, right. Come on. So, gosh, I try. Lexicon, nomenclature.

So, what we're talking about? Oh, motivated. Motivated. Okay? So Motivate has a positive connotation in our language. Right. Right. But when you're in real estate, what causes a seller to be motivated is typically not

something positive that's going on in their life. It's a negative motivation. Yes. There's something negative going on in their life, whether it's death. disease, divorce, bankruptcy, job relocation, there can be financial distress of the person, there can be personal or emotional distress of the person, the property itself could be in distress. So all these different types of distress are what caused somebody to be motivated to sell their

property fast and at a discount. And the logical question, well, I guess it's somewhat logical from the outside looking in, but it's not from the inside of it. looking out from where we are, is, well, why would they sell it to you for $80,000? I think they could just list it with a realtor and sell it for $100,000. Right. It's, what you're doing there is you're placing your value system on that seller's value system.

Right. What has them motivated and going through life is nothing that you're experiencing yourself. So you're analyzing, you're almost negotiating for the seller on their behalf when you ask that question. Sure. Right. And you're placing your value system on that seller as well. To real estate investors like, you're going to, you're going to, you're going to

You and I, a house holds great value. To someone that just got divorced and is filing bankruptcy, that house represents, okay, I'm going to get to live a few more months. It's not a house. It doesn't have the value or the investment value that we have. It's a quick fix. There's a whole backstory there that we don't know anything about and we don't understand it, right? Right. Yeah. I had a property we bought just the other day a couple weeks ago in Michigan.

And the seller came to us, was highly motivated, was a motivated seller. you said, because she was in Michigan for a week. Her mother had just died. She was there for the funeral and to pack up some things at the house and to get rid of that house. And she was doing all of that in seven days. Now, she was not thinking, what can I get for this house if I have three months to wait and can parade a bunch of people through this with a realtor? And none of that stuff was in her mind. Could she have gotten more for the house than I eventually paid her for absolutely. She could have listed it. She could have waited. If she had time, she could have done that. She wasn't even interested in talking about that. What she needed and what she wanted was to move on in her life.

And she needed to get back home. She lived a state or two away. I think she was in Indiana or Ohio and the house was in Michigan where her mom had died. It wasn't about a financial motive even, really. It was about my mother died. I need to move on. and my company, I was the buyer of that property and gave her the ability to do that. That's what she wanted. And once I found that out, then I was like, well, we can help you move on and here's what we can do for this. And this can be done in three days. And we met her needs, gave her what she wanted, and she moved on. So you don't know that many times.

And so like you said, you put your own thoughts into that whatever I made seller's head. Well, you know, people have all different motivations. So she wanted to sell me that house for probably 50 cents on the dollar and I bought it. Of course you did. how it works. You know, one of my early mentors in the business when I was just really learning had said, motivated sellers will trade equity for peace of mind all day long. Absolutely. The peace of mind holds a higher value than the sale of the household's for them. Yep. And once you understand that, it's like, now all you have to do is go around and, okay, I'm going to

go talk with this person and I'm going to provide them peace of mind in exchange for some equity. Sure. And if you approach it like that, all of a sudden you can start getting very creative. You start seeing the light. You started seeing the opportunities and possibilities where they did not exist before. Right. So, distress. That's what we're looking for. Yep. The three different types of distress, we're looking for financial distress, emotional distress, and property distress. Now, how do we find that? Now, what we're talking about, keep this in mind also, we're talking about only probably one to five percent of all real estate transactions that happen. Right. 95% of all real estate transactions will happen on the multiple listing service above board with realtors involved. 95%.

So we're looking for the small 5%. So where do we find those 5%? Lots of places, right? Lots of places. But just if you stay focused that you're looking for distress, so where do you find property owners that could be experiencing some sort of distress? We dropped some hints already a little bit. But for example, divorce.

Okay? That's someone that's going through some emotional distress, maybe some also some financial distress. And so if they own a property, that property could, could be reasonably gathered that that would be sold at a discount at some point. All right? That's a logical place. Not 100%,

but that's a place where your possibilities is far greater right there than it is just going, knocking on random doors. Right. Okay, because that's 95% of the transactions. We're looking for that 5%. Increasing the likelihood is greatly. Right. So we're just narrowing our scope. So it's still not a guarantee, but that's where our likelihood is.

Right. So a divorce record. People that haven't paid their property taxes. You find tax liens. So there's some financial distress going on right there, right? Increases the likelihood that they're who you're looking for and would be motivated. Right. No guarantees, but it increases the likelihood. The percentages go way up. Much more than just asking random people and bumping into one that has the house. Right. One of the favorites of real estate investors, as far back as we can remember, is driving up and down streets looking for distressed property, property that looks unkept.

The grass is four feet high. Exactly. Windows are broken. there's notices sitting in the window, you know. Yep, absolutely. You go write down the address, you go look up the title records to see who's the owner, and you mail them a letter. Sure. Or you give them a call, whatever that may be. So those are the different ways of, you know, as long as you maintain, okay, I'm looking for someone that's in distress and that person owns property. Sure. Right. So now that we've kind of put that all together, let's kind of run down a list of

places where we find deals. Sure, sure. Well, and those sellers, those distress sellers, can be individuals and they can also be banks or funds too. You know, we saw, we've seen a lot of that over over the last, you know, few years, especially with foreclosures. You know, sometimes it's, you know, Bank of America that's distressed because they've got 5,000 toxic assets in one market. So they can be a motivated seller too. And so it's not just with the individuals, although that is kind of a sweet spot for a lot of people to get started in real estate investing. Definitely a sweet spot to, to start looking. So let's break down some of the different sources that we have. Obviously, MLS, like you said, one source. That's where most of them are most properties are listed. Most transactions happen.

It's probably your least likely place to find a deal. It's probably the least likely place, but it's people's most likely place to start looking, right? Right. It's where most people start. Yeah, exactly. So not what we recommend necessarily for the best deals, but that's definitely one place. Another one in this might seem, you know, super, like a super crazy concept, other real estate investors. That's one of the first places I always look. You know, if nothing else, even if I don't buy properties from another wholesaler in the same city I'm in or another investor in the same city I'm in, it gives me a great idea of what they're buying and what investors are looking for and what they're looking at. That's real-time market research right there.

So I always look to, when I first go into a market, look at the other wholesalers and try to do some deals out of their deals, you know, if they're real deals. And if they're not marking them up too high for it to make sense for you, right? So that's another place. The auction is another place. You know, you've probably seen some TV shows. I think TLC and some of these other, you know, channels have had some auction real estate shows and it's probably not as glorious as it looks on those shows and storage wars and stuff like that. But I've many times bought properties at the courthouse, you know, right here in Tampa. And it's highly competitive. It's at a different point, you know, and many times they are bank-owned or about to be, I should say, about to be bank-owned at that point because it's a foreclosure.

It's about to change from the ownership of the individual to the bank. And if you get in at the right price and you can make that work, that's another place to pick them up. Highly competitive and you've got to have cash pretty quick if you're buying at the auction. But that's, you know, I know you bought them at the auction. I bought them at the auction too. So that's another place. Boy, there's just so many on this list. I'm just going to run down rapid fire.

HUD properties. You know, there's a, what is it, hud.gov? Is that, I think that's, yeah. Yep. So you can go to HUD. And you can see government-owned foreclosures, right? You can see what's for sale there. You can bid on those right there.

Now, that's a whole business in and of itself. Again, highly competitive. You've got to know what you're doing. But that's another place that I've bought multiple properties, you know, from government-owned sources that sell through HUD. So that's been a good source for us as well. Asset managers going directly to, and again, it's something you've got to learn how to do, but going directly to asset managers who work for the banks. So let's say a property goes into foreclosure.

It goes to the auction. Maybe there's some offers on it or no offers on it, but whatever it is, the bank didn't accept whatever came in. The bank then takes that back at the auction, right? So it's gone from individual owner to the auction. Now the bank has said, okay, we didn't get what we wanted for this or no one bid on it. We're taking it back. And that happened a lot here in Tampa. They didn't get as much as they wanted.

You know, I'd be down there giving lowball offers. It wasn't enough. The bank would take it back. At that point, that property lands on an asset. manager's desk, probably with 100 other files. And those asset managers are tasked with the job to get rid of those properties. Now, what usually happens is, and many times what happens, especially with some of the bigger banks, is they commission a local REO broker, a real estate agent that specializes in getting rid of bank-owned foreclosures, and they give that,

they give 100 properties or 50 properties or whatever to that REO broker, and the REO broker puts them on the MLS and sells them. But if you can create relationships with those assets, managers, I have been successful of being able to buy them directly from them before they go onto an MLS market. So asset managers and reaching out to local banks that have taken back homes, that's another way to do it. Again, is it easy? No, it's a whole business in and of itself. It's a whole strategy that you can form an entire business around, but that's certainly a place that you can buy those. So asset managers is another way. And then, man, I just think about all the different ways that you and I have used to find direct sellers.

you know, distress sellers, motivated seller, individuals. And that's direct mail campaigns and yellow letter campaigns. And you can go to a site like Yellow Letters Complete or something like that. And they will actually send targeted letters to these people that look like they're handwritten. You can send postcards, bandit signs. You know, talk about low-tech ways, you know. I will buy your house today. Surely almost all of you have seen that, right?

You know, I've seen those in your town or in your neighborhood. I'll buy your house cash in three days or whatever it is. So bandit signs. You saw something today on the way to the beach. I'm sure you did. Yeah. You're not going to drive around Florida too much and not see some of those, you know, because there's still, you know, there's still foreclosures here.

So you're going to see advertising like that. And then there's just a number of different internet-based options to reach out to people who might be in distress and say, hey, I'll buy your house. And so you guys have seen the signs we buy ugly houses and seen home investors-type operations. It's all the strategy. that they use. So anything from billboards to TV ads to radio ads appealing to people who have a real estate problem and saying we can solve the problem by buying this house and doing it quickly and doing it with cash right now. And I mean, the list could go on and on when you go down

the internet marketing rabbit hole, right? I know when people drive down the street and they see signs like that or they see a billboard and they scratch their head and like, do those things really work? Yeah. Well, yes, they do. If you do them right. Yeah, absolutely. And you can't just put out one bandit sign and think it's going to work, but just like anything else, it's a full strategy. And if you employ it with, you know, there's track records for those kind of things. And there's numbers, you know, you know, and Matt and I can tell you in different markets that we've done direct mail in, you know, in this market, when I send out this many postcards or this many letters to the right targeted list, I'm going to get this many phone calls.

And out of that many phone calls, I'm going to probably get this many deals. You know, now without a system, it's just wasting your time and money, you know, but that's one way to do it. So all of these, and there's probably a dozen more, but those are all ways that we have recently purchased properties and sources that have brought us deals that were, that we bought for far less than what they were actually worth. And most of the time we're ones that we've wanted to hold onto as well, because we're always looking for buy and hold properties, right? So we're using our criteria for what's the minimum we want to make on a buy and hold property? What's the minimum we want to make for this multifamily property?

What's the return that we would say, hey, nothing lower than this? And then you run it through the same process like we talked about. And you have a definitive criteria and you weed out 98 out of the 100 you brought in. And you got two that have a real possibility of being real deals. Right. And that's how it works. But it's always a numbers game. The question, I guess, you know, that's not the question.

It's always a numbers game. But the question is what acquisition source works for you or what do you want to use? That's a good thing to point out that there are a lot of different. ways. When we ran down, some of them, I think we only cover about 60, 70% of what we know. Let's see, the real estate and other real estate investors, auctions, banks, HUD, asset managers, REO brokers, direct mail, probate inheritance lists, tax liens. Tax liens, yeah. Tax liens another biggie. Between all of those, like, which one do I use, which one's the best? Like, they all work. Sure. Each and every one of them work. What I would recommend if you're just

getting started and finding your own deals is pick one. Right. Stick with it. Yeah. And go deep. Become an expert at it. Don't go wide and shallow trying to do everything. That is the fastest path to frustration. It's the plight of the real estate entrepreneur when they're getting started is that it's 20 different business, or I'm sorry, 100 different businesses in one, really. There's all these different directions you can go. But if you don't pick one and get good at it, then it's not going to work.

And the key to getting good at something, guys, is find somebody who already did it good and write this down. I want everybody to sharpen their pencils and write this down. find somebody who already figured out how to do it well and ready here it is here's the big secret copy them all right that's the big secret guys all right no need to reinvent the wheel guess what people before you were born bought and sold properties for a profit bought and hold you know and held properties for for good returns and they're going to be doing it after you die too find somebody is doing it really well now and copy them emulate them you know or work with them that's the quickest way to learn anything so absolutely and there's so

many different directions, but like Matt said, choose one. And, you know, a Jack of All Trades, Master of None is not the way to approach real estate. It's become a master of one strategy. Do it well. Automate it. And then move on to the next one. Boom. Boom. So that's where you find the deals. That's it. So you're looking, there's just sum that up. You're looking for motivated sellers. What causes sellers to be motivated? They're financially distressed. They are emotionally distressed or their property itself is distressed. Keep that in mind and now your creativity let that go and become a master at that one path that you choose. Sounds like a plan, man. Love it. All right. That's it. Sounds familiar. It does sound familiar. Yeah. So that's it for today.

Flipping houses can make you rich. Holding them will make you wealthy. We'll be back next week. Until then, remember, don't wait to buy real estate. Buy real estate and wait. Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business. It's excuses. But don't let a lack of funding be your excuse. We are Epic Fast Funding, and we'd like to fund your business with up to $150,000 in revolving credit lines. If you've got 60 seconds on a solid credit score, you could have access to your funds in as little as seven days. Go to Epicfastfunding.com to fill out our 60-second application.

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