The Science of Flipping - How Do You Know When A Deal Is A Deal

Episode Date: December 2, 2020

Depending on your exit strategy, your deals will look different when they come in, but how can you tell if a deal is actually a deal. And when we say deal, we mean something you can actually make money on.

What is up, everybody? Welcome back to the Science of Flipping podcast. I am your host, Justin Colby. We are talking all things real estate, all systems, tools, strategies, techniques, tips and tricks for your real estate business. And today we are going to talk about don't underestimate your buyers. If you are a wholesaler, it will shock you what people are buying today. I also want to recommend you go over to the science of flipping.com, the science of flipping.com for many free resources, including an opportunity to talk with me and have a business assessment for 15 or 20 minutes. Just go to the science flipping.com and you can go ahead and fill out that form. So anyways, let's get into it as this is a hot topic as people are asking me about when

deals come through that they don't know if it's a good deal and whether that may be because it is not in their target area. Maybe it's more of a unique deal. For some of you, you might get a mobile home per se, even though you've been marketing to single family homes. And so what is the answer? And what I will tell you, it is do not underestimate your current buyers on top of continuing to build your buyers list. Now, let's dive into that and unpack that a little bit more is that sounds too simple, right? One of the key successes I've had as a wholesaler is never underestimating my buyers. And what does that actually mean? I can't tell you how many times I have sent a deal out that in a traditional

wholesaling business may not look like a quote unquote deal, right? It is not exactly a perfect fix and flip, maybe not even exactly a perfect buy and hold property. But who's to say that is my judgment of that property. And I would say hundreds of deals that I've done, I have sent out because I have kept an objective point of view. I've not been subject about what I think is good or bad and the property gets sold. I've also done this with other investors and co-holds sailed some of their properties that they could not move to their own list, even though they are a, you know, active, you know, experienced wholesaler. And the reality is I have buyers buying for themselves. I have buyers buying for their family. And they obviously understand they have to buy cash or hard money,

but they are still buying a property for different reasons than simply the fix or flip and buy a hold model. Now, let's even talk about that for a second. I tend to underwrite my fix and flips to have at least 10% of profit in there at the end of the day. So if I sell the fix and flip for $300,000, I want to make a minimum of 30 grand. Well, that's my own subjective opinion on what I want my business to run at. It is not everyone's. Also, I hire my own contractors, so I have to pay them for it. So I am not doing the work. Do you know how many contractor type buyers I have on my buyers list?

Well, I couldn't give you the exact number, but I would say a good amount because I am currently still selling to these individuals. And they may only buy, you know, one every other month from me, but they are doing the work themselves. They do not have to get a manager involved. They do not have to hire a bunch of crews. They themselves are either the contractor or have a contracting company or a construction company that the labor is incredibly cheap or at least much cheaper than I can get it. And how would I know that if I don't send the property out? So why have people that their numbers, they might also be able to buy it, you know, and

get a 10% return, but they might be able to pay more than I could because I'm paying for the construction team, the manager, retail, labor, et cetera. And that's really important because if I don't have those buyers, then yes, my numbers make sense. And again, kind of moving further down that road with your buy and hold. The ideal buy and hold is 1% ratio, right? You get 1% rent for what you paid for the property or what you have into the property. Well, that's been gone for quite some time. And really what we want to talk about is people who are looking for an eight cap, a seven cap.

Even that here in Phoenix is very, very difficult to find. But who's to say someone doesn't need to just park money and get better than they're getting in their in their savings account or in their checking account or better than one or two or three percent. And they're willing to do a five cap that's secured by the real estate. It's a good investment, right? And so even though I personally wouldn't necessarily want to buy and hold a property for anything less than 7%, I have plenty of buyers and realtors have been a big needle mover for me who come in and find value in a property that might be closer to a 5% rental when it's all said and done, or a five cap, I should say. And the point that I'm making here is who are you to judge? The key here is you make sure to contract properties as low as you

possibly can. Obviously, the lower, the bigger the wholesale fee. But if you're close, don't just say this isn't a deal because it doesn't fit your numbers. That is too subjective. Remove yourself, be more objective, and obviously continue to build your buyers list. But obviously, not knowing intimately all the tens of thousands of buyers I have on my list. I continue to be shocked with the buyers that pop up. I sold one recently to a woman who is a licensed realtor who loved the area so much and believed in the area so much. She herself is going to buy the home, live in the home, remodel the home herself, live there for two years and resell it because it's an up and coming area. And she knows she's going to create

a massive amount of value by remodeling. And in two years, that specific area is going to have a higher value because of it's an up and coming area. Awesome. I personally looked at the home and said, oh, maybe this works as a rental on the outside shot. And by the way, this woman is not buying it as a rental. Kind of just a long term flip where she's going to buy and hold it, live in it. And after two years, all the income she makes actually is tax free, which is incredible. And so or I'm sorry, not tax-free, but it is not taxed by capital gains. And how would I know she'd be on my list? I don't know. How would I know she would want to buy in that area? I don't know. It is a very outlier deal. I myself would not have

flipped it. It was very thin stretch for a rental, but we sold the deal because of the buyers that we had. Never underestimate your buyers. Never try to judge your buyers and what they want and what they're willing to buy. Keep an open mind, be objective. You will move more property. If you have not yet gone and checked out my YouTube channel, please get over there. I'm dropping a video a day, everybody, a video a day, all things real estate, business, and entrepreneurship. Check out my YouTube channel, youtube.com forward slash Justin Colby, or you could do the real simple thing and just put Justin Colby in the search bar of YouTube. Check that out. Go subscribe. I'd greatly

appreciate it. It helps the whole YouTube gods make my videos rank. Otherwise, I will see you guys on the next podcast. Obviously, it helps me out greatly if you review the podcast. Be genuine. Be truthful. I would love five-star ratings and a great review, but let me know how you guys feel. Talk to you guys soon. Peace.